Latam Completa Inglés 1 Issue2 2013

REVISTA LATINOAMERICANA
DE
DERECHO COMERCIAL INTERNACIONAL
LATIN AMERICAN JOURNAL
V.
OF
INTERNATIONAL TRADE LAW
1, NMERO 2, DICIEMBRE 2013

V. 1, ISSUE 2, DICIEMBRE 2013
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S econd P art
E nglish
C ontents
V olume 1, I ssue 2, 2013
11
S ection
179
on
First Part. Spanish

Second Part. English
I nternational E conomic L aw
a . general articles
Graham Cook
181
Reasonableness in WTO Law
Jan Wouters, Bregt Natens &
211
EU-Brazil Relations at the World Trade

Organization: Dispute Settlement as Leverage
233
WTO Market and Non-Market Economies: the

hybrid case of China
267
Motions in the Procedures of a Bi-national Panels

review under Article 1904 of the North American
Free Trade Agreement
David DHollander
Vera Thorstensen, Daniel Ramos,
Carolina Muller & Fernanda Bertolaccini
Natividad Martnez Aguilar
b . case - law reviews
Ishita Das
287
Balancing Act: The Clove Cigarettes Dispute
295
Investment Law Within International Law Integrationist Perspectives
c . book reviews
Jos Caiado & Luis Montilla

S ection
on
I nternational A rbitration
a . general articles
Attila Tanzi
299
Reducing the Gap Between International

Investment Law and Human Rights Law in
International Investment Arbitration?
Manuel Conthe &Antonio Delgado
313
Could awards on remand tackle the inefficiencies

of ICSID annulments?
179
S ection
on
I nternational E conomic L aw
R easonableness
in
WTO L aw
Graham Cook*
Abstract. Reasonableness tests are pervasive in the law of the World Trade Organization (WTO). The
term reasonable (including its variants unreasonable, reasonably, unreasonably, reasonableness,
unreasonableness) appears more than 200 times in the legal texts that comprise the WTO Agreement, and more
than 8,000 times in WTO jurisprudence. WTO jurisprudence relating to the notion of reasonableness can be
usefully categorized according to the following distinctions. First, reasonableness can function as a legal test that
WTO adjudicators are expressly mandated to apply by virtue of the WTO treaty provision at issue. Second, as
reflected in the many other cases in which WTO adjudicators have assessed whether certain conduct was reasonable
even in the absence of any express reference to the term in the WTO provision at issue, reasonableness also functions
as an unwritten legal test that WTO adjudicators may apply to decide certain issues when the provisions of the
WTO Agreement are silent or lacking in detail. Third, as reflected in the many cases in which WTO adjudicators
have rejected a particular interpretation of a WTO provision on the grounds that it would lead to an unreasonable
result, reasonableness functions as a general legal test under the customary rules of treaty interpretation that WTO
adjudicators apply when interpreting provisions of the WTO Agreement.
Keywords. World Trade Organization; treaty interpretation; reasonableness test; reasonableness; reasonable
interpretation; reasonable administration of laws; reasonable period of time; reasonable rates; reasonable efforts;
reasonable expectations; reasonableness in fact finding; reasonable exercise of discretion; reasonable relationship
between ends and means.
* Legal Affairs Division, WTO Secretariat. The views expressed herein are the personal views of the author, and do
not represent a position, official or unofficial, of the WTO Secretariat or WTO Members.
I. I ntroduction
he precise definition of terms and their application to facts is at the core of international
adjudication. The meaning of words that international adjudicators work with can be
elusive. Such is the case with the word reasonable, and so it is not surprising that
some writers have sought to clarify its meaning and function in the context of public
international law.1
1
See generally O. Corten, The Notion of Reasonable in International Law: Legal Discourse, Reason and
Contradictions (1999) 48(3) International and Comparative Law Quarterly 613; Reasonableness in International Law in
181
Latin American Journal of International Trade Law

Vol. 1, Issue 2, Year 2013
The word reasonable appears in many treaties and other international legal
instruments. For example, Article 9.3 of the International Covenant on Civil and Political
Rights guarantees that anyone arrested shall be entitled to a trial within a reasonable
period of time; Article 41.1 of the UNCITRAL Arbitration Rules instructs that the
fees of an arbitral tribunal shall be reasonable in amount; Article 57.4 of the First
Additional Protocol to the Geneva Conventions requires that all reasonable precautions
be taken to avoid losses of civilian life or damage to civilian objects; Article 98.1(b) of the
United Nations Convention on the Law of the Sea requires that a ship master proceed
with all possible speed to the rescue of persons in distress, insofar as such action may
reasonably be expected of him.
The notion of reasonable also appears in the judgments and advisory opinions of
the International Court of Justice. For example, the International Court of Justice has
stated that in the field of diplomatic protection as in all other fields of international law,
it is necessary that the law be applied reasonably2; that it was appropriate to consider
whether the reaction of a State in the context of what it regarded as self-defence was
continued after the period in which any attack could reasonably be contemplated3;
that as part of its analysis of whether the requisition of a factory was arbitrary, within
the meaning of a bilateral investment treaty, it would consider with that conduct was
unreasonable4; and that insofar as possible, the line of maritime delimitation should
allow the coasts of the States concerned to produce their effects, in terms of maritime
entitlements, in a reasonable and mutually balanced way5.
The present article examines the concept of reasonableness in WTO law. Like most6
other fields of public international law, the notion of reasonable is used in WTO law.
In fact, the term reasonable (including its variants unreasonable, reasonably,
unreasonably, reasonableness, unreasonableness) appears more than 200 times in
the legal texts that comprise the WTO Agreement, and the same term appears more
the Max Planck Encyclopedia of Public International Law, available online at <http://opil.ouplaw.com/home/EPIL>; A.
Adinolfi, The Principle of Reasonableness in EU Law in G. Bongiovanni, Giorgio, G. Sartor, and V.C. Giovanni
(Eds.), Reasonableness and Law (Springer: 2009), pp. 383-403.
2
International Court of Justice, Case Concerning The Barcelona Traction, Light and Power Company, Limited, Judgment,
1970, para. 93. All ICJ decisions cited in this article are available online at <http://www.icj-cij.org/>
3
International Court of Justice, Case Concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua
v. United States of America), Judgment, 1986, para. 237.
4
International Court of Justice, Case Concerning Elettronica Sicula S.p.A. (ELSI) (United States v. Italy), 1989,
paras. 127, 129.
5
215.
International Court of Justice, Territorial and Maritime Dispute (Nicaragua v. Colombia), Judgment, 2012, para.
6
According to one writer, it is somewhat difficult to track down an explicit reference to reasonableness in
the caselaw of the European Court of Justice. A. Adinolfi, The Principle of Reasonableness in EU Law in G.
Bongiovanni, Giorgio, G. Sartor, and V.C. Giovanni (Eds.), Reasonableness and Law (Springer: 2009), pp. 383-403, at
383.
182

Graham Cook
than 8,000 times in over 300 WTO dispute settlement reports, awards, and decisions.7
Notwithstanding its pervasive nature in WTO law, there appear to be no book chapters
or journal articles on the concept of reasonableness in the context of WTO law.8 The
remainder of this article is divided into four main parts: (i) an exposition of the various
references to the term reasonable in the legal texts comprising the WTO Agreement; (ii)
an exposition of various issues in respect of which reasonableness functions as a legal test
that WTO adjudicators are expressly mandated to apply by virtue of the wording of the
provision at issue; (iii) an exposition of how reasonableness may function as an unwritten
legal test that WTO adjudicators may apply to decide certain issues when the provisions
of the WTO Agreement are silent or lacking in detail; and (iv) an exposition of how WTO
adjudicators have applied the general principle that treaties should be interpreted so as to
avoid unreasonable results.
II. R eferences
to the term
reasonable
agreement
in the
WTO
There are more than 200 references to the term reasonable (including its variants
unreasonable, reasonably, unreasonably, reasonableness, unreasonableness) in the
agreements, understandings, and ministerial decisions that comprise the WTO Agreement:

GATT 1994: Articles V:4 (reasonable charges and regulations),

VI:1(b)(ii) (reasonable addition), VII:5 (reasonable degree of certainty),
IX:4 (unreasonably increasing their cost), IX:5 (unreasonably
delayed), X:3(a) (administer in a reasonable manner), XI:2 (could
reasonably be expected), XII:2(a)(ii) (reasonable rate), XII:3(c)(ii)
(prevent unreasonably), XIII:2(d) (not reasonably practicable), XV:2
(reasonable rate), XVIII:7(b) (every reasonable effort), XVIII:9(b)
(reasonable rate), XVIII:10 (prevent unreasonably), XVIII:18(b)
7
These figures are the result on a July 2013 full-text search of relevant materials, using <www.worldtradelaw.
net>s full-text search engine. This article refers to WTO dispute settlement decisions by their official short titles. All
of these decisions are available online, at <http://www.wto.org/english/tratop_e/dispu_e/dispu_by_short_title_e.
htm>. The complete list of official short titles and corresponding full case title and citation is also available online,
at <http://www.wto.org/english/tratop_e/dispu_e/citations_e.doc>
8
Several book chapters and journal articles have focused on the application of particular reasonableness tests
in the context of certain WTO law issues, for example the reasonable period of time under Article 21.3(c) of the
DSU to comply with a dispute settlement ruling. See e.g. W. Zdouc, The Reasonable Period of Time for Compliance
with the Rulings and Recommendations Adopted by the WTO Dispute Settlement Body in Rufus Yerxa and Bruce
Wilson (eds), Key Issues in WTO Dispute Settlement: The First Ten Years (Cambridge: CUP, 2005) 8897; MA Qian,
Reasonable Period of Time in the WTO Dispute Settlement System (2012) 15(1) Journal of International Economic
Law 257-285. In contrast, this article focuses more broadly on the pervasive nature of reasonableness tests in WTO
law and jurisprudence, rather than any one particular reasonableness test.
183

184
(all reasonable efforts), XXIII:2 (reasonable time), XXIV:5(c)

(reasonable length of time), XXIV:7(b) (not a reasonable period of
time), XXIV:12 (reasonable measures), XXVIII:4(d) (unreasonably
failed), XXXVII:1(a) (differentiate unreasonably), Note Ad Article
III:2 (reasonable measures), Note Ad Article VI:2 and 3 (reasonable
security), Note Ad Article XVII:4(b) (reasonable margin), Note Ad
Article XVIII:13 and 14 (reasonable period), Note Ad Article XVIII:19
(reasonable period), Note Ad Article XXIV:1, para. 4 (reasonable
period), Note Ad Article XXIV:1, para. 4 (could reasonably be expected),
Note Ad Article XXVIII:4(d) (unreasonably failed), Understanding on
Article XXIV of the GATT, paragraphs 3 (reasonable length of time), 5
(reasonable period), 13 and 14 (reasonable measures).
Anti-Dumping Agreement: Articles 2.2 (reasonable amount), 2.2.1
(reasonable period, reasonably reflect the costs), 2.2.2(iii) (reasonable
method), 2.3 (reasonable basis), 2.4 (unreasonable burden of
proof ), 5.2 (reasonably available information), 6.5.1 (reasonable
understanding), 6.8 (reasonable period), 6.10 (reasonable number,
percentage which can reasonably be investigated), 8.4 (reasonable
period), 11.2 (reasonable period), 11.3 (reasonable period), Annex
II:1 (reasonable time), Annex II:2 (reasonable ability to respond,
unreasonable extra burden, unreasonable additional cost), Annex
II:6 (reasonable period), and footnote 6 (costs which can reasonably be
taken into account).
SCM Agreement: Articles 11.2 (reasonable available information),
12.4.1 (reasonable understanding), 12.7 (reasonable period), 13.2
(reasonable opportunity), 13.3 (reasonable opportunity), 18.4
(reasonable period), 19.1 (reasonable efforts), 21.2 (reasonable
period), 21.3 (reasonable period), Annex I(i) (reasonable time
period), Annex II, part II, paragraphs 1 and 2 (reasonable system or
procedure) and 5 (reasonably calculated), Annex III, part II, paragraphs
2 and 3 (reasonable verification procedures), Annex V, paragraphs
3 (reasonably available, unreasonable burden), 8 (reasonableness of
any requests for information), and 9 (unreasonable non-cooperation),
and footnote 44 (reasonable opportunity).
TRIPS Agreement: Articles 8 (unreasonable restrain), 13
(unreasonably prejudice), 15.5 (reasonable opportunity), 25.2
(unreasonably impair), 26.2 (unreasonably conflict, unreasonably
prejudice), 30 (unreasonably conflict, unreasonably prejudice), 31(b)
(reasonable commercial terms, reasonable period of time, reasonably
practicable), 31(l)(ii) (reasonable terms), 34.1(b) (reasonable efforts),
37.1 (reasonable ground to know, reasonable royalty), 39.2(c)
(reasonable steps), 41.2 (unreasonable time-limits), 43.1 (reasonably
available evidence), 43.2 (reasonable period), 44.1 (reasonable grounds
to know), 45.1 (reasonable grounds), 45.2 (reasonable grounds),
50.3 (reasonably available evidence), 50.4 (reasonable period), 50.6

Graham Cook
(reasonable period), 52 (reasonable period), 53.1 (unreasonably

deter), 53.2 (reasonable period), 55 (reasonable period), 62.1
(reasonable procedures and formalities), 62.2 (reasonable period).
TBT Agreement: Articles 2.9.4 (reasonable time), 2.12 (a reasonable
interval), 3.1 (reasonable measures), 4.1 (reasonable measures), 5.3
(reasonable spot checks), 5.6.4 (reasonable time), 5.9 (reasonable
interval), 7.1 (reasonable measures), 8.1 (reasonable measures), 9.2
(reasonable measures), 10.1 (reasonable enquiries), 10.1.4 (reasonable
information), 10.3 (reasonable measures, reasonable enquiries),
10.3.3 (reasonable information), 10.4 (reasonable measures), 11.3
(reasonable measures), 11.4 (reasonable measures), 12.5 (reasonable
measures), 12.6 (reasonable measures).
SPS Agreement: Articles 4.1 (reasonable access), 5.7 (reasonable
period), 6.3 (reasonable access), 13 (reasonable measures), Annex B:2
(reasonable interval), Annex B:3 (reasonable questions), Annex B:5(d)
(reasonable time), Annex C:1(e) (reasonable requirements) Annex
C:3 (reasonable inspection), and footnote 3 (reasonably available).
DSU: Articles 21.3 (reasonable period of time), 21.3(c) (reasonable
period of time), 21.4 (reasonable period of time), 21.6 (reasonable
measures), 23.2(b) (reasonable period of time), 23.2(c) (reasonable
period of time).
GATS: Articles I:3(a) (reasonable measures), V:1(b)(ii) (reasonable
time-frame) VI:1 (administered in a reasonable manner), VI:3
(reasonable period), VI:5(a)(ii) (not reasonably expected), XXIII:3
(could reasonably have expected), Annex on Telecommunications,
paragraphs 5(a) (reasonable terms and conditions), 5(g) (reasonable
conditions on access).
Agreement on Customs Valuation: Articles 1.2(a) (reasonable
opportunity), 2.1(b) (reasonableness of the adjustment), 3.1(b)
(reasonableness of the adjustment), 7.1 (reasonable means),
Interpretative Note to Article 2, paragraph 5 (reasonableness
of the adjustments), Interpretative Note to Article 3, paragraph 5
(reasonableness of the adjustment), Interpretative Note to Article 5,
paragraph 12 (unreasonable difficulty), Interpretative Note to Article 7,
paragraphs 2 and 3 (reasonable flexibility), Interpretative Note to Article
8.1(b)(ii), paragraph 1 (reasonable manner), Annex II:3 (reasonably
short period of time).
Agreement on Government Procurement: Articles V:11
(reasonable requests), VIII(d) (a reasonably short time), XI:1(a) and
XI:4 (reasonable needs), XII:3(a), (b), and (c) (any reasonable request),
XV:1(b) (reasonable alternative), XX:5 (reasonably should have been
known).
185

Agreement on Rules of Origin: Articles 2(e) (administered in a

reasonable manner), 3(d) (administered in a reasonable manner),
9.1(e) (administrable in a reasonable manner), Annex 1:3 (reasonably
short period of time).
Agreement on Import Licensing Procedures: Articles 1.6
(reasonable period), 3.5(g) (of reasonable duration), 3.5(j) (ensuring a
reasonable distribution).
Agreement on Safeguards: Articles 3.1 (reasonable public notice),
5.2(a) (not reasonably practicable).
Agreement on Preshipment Inspection: Articles 2.15 (unreasonable
delays), 4 (reasonable measures).
Agreement on Aircraft: Articles 4.2 (unreasonable pressure), 6.2
(reasonable expectation of recoupment).
Agreement on Agriculture: Footnote 6 (reasonable prices).
Ministerial Decisions on Customs Valuation9, paragraph 1 (reasonable
doubts, reasonable opportunity); on WTO-ISO Standards10, paragraph
4 (reasonable fee); and on the Agriculture Reform Programme11,
paragraph 2 (reasonable terms and conditions).
For reasons of practicality, this list of references to the term omits two categories
of instruments that are both legally part of the WTO Agreement. The first category
consists of Members schedules to the GATT, GATS, or other agreements comprising
the WTO Agreement. The term reasonable is sometimes used therein.12 The second
category consists of the accession protocols of Members that acceded to the WTO after
1994. Again, these instruments are integral parts of the WTO Agreement, and the
term is sometimes used therein.13 The list of references above also omits references to
reasonableness in various other texts that have been agreed to by WTO Members.14
9
Full title: Decision regarding Cases where Customs Administrations Have Reasons to Doubt the Truth or
Accuracy of the Declared Value
10
Full title: Decision on Proposed Understanding on WTO-ISO Standards Information System
11
Full title: Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on
Least developed and Net Food-Importing Developing Countries
12
For example, the Panel in Mexico Telecoms interpreted the meaning of the term reasonable in Sections 2.1
and 2.2 of the Reference Paper on telecommunications services inscribed in Mexicos Schedule of Commitments
under the GATS. See Mexico Telecoms, paras. 7.5 and 7.178-7.183.
13
For example, see Paragraphs 2(A)2, 2(C)2, and 16(5) of Part I of Chinas Accession Protocol (WT/L/432).
14
For example, on 14 November 2001, WTO Members adopted the Doha Decision on ImplementationRelated Issues and Concerns. Among other things, this text defines the phrase reasonable interval for the purpose
of Annex B:2 of the SPS Agreement and Article 2.12 of the TBT Agreement. Doha Decision on ImplementationRelated Issues and Concerns, WT/MIN(01)/17, 14 November 2001, Paragraphs 3.2 and 5.2. The Appellate Body
has ruled that Paragraph 5.2 of the Doha Decision on Implementation-Related Issues and Concerns qualifies as
a subsequent agreement between the parties regarding the interpretation of the treaty or the application of its
provisions within the meaning of Article 31(3)(a) of the Vienna Convention on the Law of Treaties. Appellate Body
186

Graham Cook
The following observations can be made about the references to the term reasonable
in the WTO Agreements: (i) the word reasonable (and its variants) appears more than
200 times in the legal texts that comprise the WTO Agreement; (ii) these references
appear throughout the WTO Agreement, in a wide range of provisions dealing with
disparate subjects; (iii) rather than serving as an independent and self-standing concept,
the term generally appears as an adjective or adverb, connected to another, immediately
neighbouring term or phrase; and (iv) as with other international legal instruments, the
term reasonable is frequently used in connection to time periods such references
represent about one quarter of the references to reasonableness contained in the WTO
Agreement.
III. R easonableness
as a written legal test in particular

wto provisions
A.I ntroduction
The preceding section identified the references to the term reasonable in the WTO
Agreement. Many of these references have been interpreted and applied by WTO
adjudicators in the context of WTO dispute settlement. WTO adjudicators are required to
objectively and independently interpret provisions of the WTO Agreement in accordance
with customary rules of interpretation of public international law.15 This applies to any
terms of the WTO Agreement, including general legal standards such as reasonable.16
This section of the article will provide an exposition of selected issues in respect of which
WTO adjudicators are expressly mandated to apply a reasonableness test, by virtue of
the wording of the provision at issue. The issues reviewed here include the following, as
illustrative examples: (i) the obligation to administer laws in a reasonable manner under
Article X:3(a) of the GATT; (ii) references to a reasonable period of time in Article
21.3(c) of the DSU, Article 6.8 of the Anti-Dumping Agreement, Article 5.7 of the SPS
Agreement; (iii) obligations referring to reasonable terms and conditions in the GATS;
and (iv) obligations to take reasonable measures to ensure that certain entities comply
with WTO obligations, reflected in Article XXIV:12 of the GATT, and Article 3 of the
TBT Agreement.
Report, US Clove Cigarettes, paras. 241-275.
15
See Article 3.2 of the DSU.
16
In this regard, the approach of WTO adjudicators is no different from that described by the Arbitral
Tribunal in the 1910 North Atlantic Coast Fisheries Case: the reasonableness of any such regulation, if contested, must
be decided not by either of the Parties, but by an impartial authority. Arbitral Tribunal, North Atlantic Coast Fisheries
Case (Great Britain v. United States), Award, 1910, RIAA, Volume XI, p. 189.
187

B.R easonable
administration of laws
Article X:3(a) of the GATT provides that WTO Members shall administer in a uniform,
impartial and reasonable manner all its laws, regulations, decisions and rulings of the kind
falling within the scope of that provision. A similar obligation is found in Article VI:1 of
the GATS, and in Articles 2(e) and 3(d) and Annex 1:3 of the Agreement on Rules of
Origin. The obligation in Article X:3(a) has been interpreted and applied in a number
of different cases17, and WTO adjudicators have been called upon to interpret and apply
the term reasonable in this provision. In US COOL, a recent dispute involving a claim
under Article X:3(a), the Panel stated:
The term reasonable is defined as in accordance with reason, not irrational or absurd,
proportionate, sensible, and within the limits of reason, not greatly less or more than
might be thought likely or appropriate.18 We assess the parties claims of not reasonable
administration in light of these definitions.
In our view, whether an act of administration can be considered reasonable within the
meaning of Article X:3(a) entails a consideration of factual circumstances specific to
each case. This is confirmed by previous disputes where the requirement of reasonable
administration was understood as requiring the examination of the features of the
administrative act at issue in the light of its objective, cause or the rationale behind it.19
In an accompanying footnote, the Panel recalled some relevant findings from previous
WTO disputes:
In Argentina Hides and Leather, for example, the panel considered access to
confidential information by a competitor in the market to be a relevant factor in
determining reasonableness of the administrative action in that dispute (para. 11.86).
We further recall the Appellate Bodys analysis in Brazil Retreaded Tyres that the
analysis of whether the application of a measure results in arbitrary or unjustifiable
17
See Appellate Body Report, EC Bananas III, paras. 199-204, Appellate Body Report, EC Poultry, paras.
109-116, Appellate Body Report, US Shrimp, paras. 182-183, Panel Report, US Stainless Steel (Korea), paras. 6.466.54, Panel Report, Argentina Hides and Leather, paras. 11.56-11.101, Panel Report, US Hot-Rolled Steel, paras.
7.262-7.277, Panel Report, Egypt Steel Rebar, paras. 7.427-7.429, Panel Report, US Offset Act (Byrd Amendment),
paras. 7.137-7.145, Panel Report, US Corrosion-Resistant Steel Sunset Review, paras. 7.284-7.310, Appellate Body
Report, US - Oil Country Tubular Goods Sunset Reviews, paras. 216-220, Panel Report, Dominican Republic Import and Sale
of Cigarettes, paras. 7.365-7.394, Appellate Body Report, EC Selected Customs Matters, paras. 190-270, Panel Report,
Thailand Cigarettes (Philippines), paras. 7.862-7.988; Panel Report, China Raw Materials, paras. 7.679-7.796, Panel
Report, US COOL, paras. 7.814-7.885.
18
(footnote original) Panel Report, Dominican Republic Import and Sale of Cigarettes, para. 7.385 referring to the The
New Shorter Oxford English Dictionary, (Fifth Edition) Oxford University Press, Vol. II, p. 2482 (2002).
19
Panel Report,US-COOL, paras. 7.850-7.851.
188

Graham Cook
discrimination should focus on the cause of the discrimination, or the rationale put
forward to explain its existence (Appellate Body Report, Brazil Retreaded Tyres,
para. 226; Panel Report, Thailand Cigarettes, para. 7.291). In Thailand Cigarettes
(Philippines), the Philippines claimed that the appointment of dual function officials as
directors of a company under administrative proceedings constituted unreasonable
administration because the officials were in a position where they could gather and
reveal confidential information on Philippines industries direct competitors. The
panel found that Thailand did not act inconsistently with Article X:3(a). However, the
overall delays in the administrative proceedings shown throughout the course of the
review process of customs valuation were considered by the panel not appropriate or
proportionate considered against the nature of the circumstances concerned, and
therefore, the administration was considered to be unreasonable (Panel Report,
Thailand Cigarettes, para. 7.969). In Dominican Republic Import and Sale of Cigarettes, the
Panel found that the Dominican Republic had administered the provisions governing
the Selective Consumption Tax in a manner that was unreasonable and therefore
inconsistent with Article X:3(a) of GATT 1994 (paras. 7.365-7.394).20
C.R easonable
periods of time
At least 50 different provisions of the WTO Agreement contain the words reasonable
period of time, or other words to that effect including reasonable time, reasonable
time-frame, reasonable length of time, reasonable period, reasonable interval,
reasonably short period of time, reasonably short time, of reasonable duration,
unreasonable delays and unreasonable time-limits.21 These provisions include Article
6.8 of the Anti-Dumping Agreement, Article 21.3 of the DSU, and Article 5.7 of the SPS
Agreement.
20
21
Panel Report, US-COOL, footnote 1080.
GATT 1994 Articles XXIII:2 (reasonable time), XXIV:5(c) (reasonable length of time), XXIV:7(b) (not
a reasonable period of time), Note Ad Article XVIII:13 and 14 (reasonable period), Note Ad Article XVIII:19
(reasonable period), Note Ad Article XXIV:1, para. 4 (reasonable period), Understanding on Article XXIV
of the GATT, paragraphs 3 (reasonable length of time), 5 (reasonable period); Anti-Dumping Agreement
Articles 2.2.1, 6.8, 8.4, 11.2, 11.3 (each referring to reasonable period), Annex II:1 (reasonable time), Annex II:6
(reasonable period); SCM Agreement Articles 12.7, 18.4, 21.2, 21.3 (each referring to reasonable period), Annex
II(i) (reasonable time period); TRIPS Agreement Articles 31(b) (reasonable period of time), 41.2 (unreasonable
time-limits), 43.2, 50.4, 50.6, 52, 53.2, 55, 62.2 (each referring to reasonable period); TBT Agreement Articles
2.9.4 (reasonable time), 2.12 (a reasonable interval), 5.6.4 (reasonable time), 5.9 (reasonable interval); SPS
Agreement Article 5.7 (reasonable period), Annex B:2 (reasonable interval), Annex B:5(d) (reasonable time);
DSU Articles 21.3, 21.3(c), 21.4, 21.6, 22.1, 22.2, 22.6, 23.2(b), 23.2(c) (each referring to a reasonable period
of time); GATS Articles V:1(b) (reasonable time-frame), VI:3 (reasonable period); Agreement on Customs
Valuation Annex II:3 (reasonably short period of time); Agreement on Government Procurement Article
VIII(d) (a reasonably short time); Agreement on Rules of Origin Annex 1:3 (reasonably short period of time);
Agreement on Import Licensing Procedures Articles 1.6 (reasonable period) and 3.5(g) (of reasonable duration);
and Agreement on Preshipment Inspection Article 2.15 (unreasonable delays).
189

Article 6.8 of the Anti-Dumping Agreement provides that if any interested party
refuses access to, or otherwise does not provide, necessary information within a reasonable
period or significantly impedes the investigation, preliminary and final determinations,
affirmative or negative, may be made on the basis of the facts available. A similar
obligation is found in Article 12.7 of the SCM Agreement. In addition, Annex II:1 of
the Anti-Dumping Agreement provides in relevant part that the authorities should also
ensure that the party is aware that if information is not supplied within a reasonable time,
the authorities will be free to make determinations on the basis of the facts available.
In US Hot-Rolled Steel, the Appellate Body interpreted the terms reasonable period
(in the context of Article 6.8) and reasonable time (in the context of Annex II:1), and
stated:
The word reasonable implies a degree of flexibility that involves consideration of all of
the circumstances of a particular case. What is reasonable in one set of circumstances
may prove to be less than reasonable in different circumstances. This suggests that
what constitutes a reasonable period or a reasonable time, under Article6.8 and
AnnexII of the Anti-Dumping Agreement, should be defined on a case-by-case basis, in
the light of the specific circumstances of each investigation.
In sum, a reasonable period must be interpreted consistently with the notions of
flexibility and balance that are inherent in the concept of reasonableness, and in a
manner that allows for account to be taken of the particular circumstances of each
case. In considering whether information is submitted within a reasonable period
of time, investigating authorities should consider, in the context of a particular case,
factors such as: (i) the nature and quantity of the information submitted; (ii) the
difficulties encountered by an investigated exporter in obtaining the information;
(iii) the verifiability of the information and the ease with which it can be used by the
investigating authorities in making their determination; (iv) whether other interested
parties are likely to be prejudiced if the information is used; (v) whether acceptance
of the information would compromise the ability of the investigating authorities to
conduct the investigation expeditiously; and (vi) the numbers of days by which the
investigated exporter missed the applicable time-limit.22
Turning to Article 21 of the DSU, this provision provides that a WTO Member has
a reasonable period of time to comply in the event of an adverse dispute settlement
ruling. In the event that the disputing parties are unable to agree on what constitutes a
reasonable period of time to comply, an arbitrator may be appointed to resolve the
issue. Article 21.3(c) of the DSU provides that [i]n such arbitration, a guideline for the
arbitrator should be that the reasonable period of time to implement panel or Appellate
Body recommendations should not exceed 15 months from the date of adoption of a
panel or Appellate Body report. However, that time may be shorter or longer, depending
upon the particular circumstances. To date, 27 awards have been issued pursuant to
22
Appellate Body Report, US Hot-Rolled Steel, paras. 84-85.
190

Graham Cook
Article 21.3(c). In US Hot-Rolled Steel (Article 21.3(c)), the Arbitrator considered that
the essence of reasonableness as articulated by the Appellate Body in US Hot-Rolled
Steel in the context of Article 6.8 of the Anti-Dumping Agreement, and already quoted
above, is equally pertinent for an arbitrator faced with the task of determining what
constitutes a reasonable period of time in the context of the DSU.23 Along the same
lines, the Arbitrator in US Offset Act (Byrd Amendment) (Article 21.3(c)) stated that:
The final sentence of Article 21.3(c), moreover, makes clear that the reasonable period
of time cannot be determined in the abstract, but rather has to be established on the
basis of the particular circumstances of each case. I therefore agree, in principle, with
the Arbitrator in US Hot-Rolled Steel, who found that the term reasonable should
be interpreted as including the notions of flexibility and balance, in a manner which
allows for account to be taken of the particular circumstances of each case.24
As a third and final example of a provision that requires WTO adjudicators to

determine a reasonable period of time, Article 5.7 of the SPS Agreement provides
that where relevant scientific evidence is insufficient, a Member may provisionally adopt
sanitary or phytosanitary measures on the basis of available pertinent information. The
provision goes on to state that in such circumstances, Members shall seek to obtain the
additional information necessary for a more objective assessment of risk and review
the sanitary or phytosanitary measure accordingly within a reasonable period of time.
In Japan Agricultural Products II, the Appellate Body considered the phrase reasonable
period of time in the context of Article 5.7 of the SPS Agreement. Not surprisingly,
the Appellate Body stated that what constitutes a reasonable period of time has to be
established on a case-by-case basis:
In our view, what constitutes a reasonable period of time has to be established on a
case-by-case basis and depends on the specific circumstances of each case, including
the difficulty of obtaining the additional information necessary for the review and the
characteristics of the provisional SPS measure. In the present case, the Panel found
that collecting the necessary additional information would be relatively easy. Although
the obligation to review the varietal testing requirement has only been in existence
since 1January1995, we agree with the Panel that Japan has not reviewed its varietal
testing requirement within a reasonable period of time.25
23
Award of the Arbitrator, US Hot-Rolled Steel (Article 21.3(c)), para.26. See also the Award of the Arbitrator,
US Offset Act (Byrd Amendment) (Article 21.3(c)), para.42; and US Gambling (Article 21.3(c)), para.44.
24
Award of the Arbitrator, US Offset Act (Byrd Amendment) (Aticle 21.3(c)), para. 42.
25
Appellate Body Report, Japan Agricultural Products II, para. 93.
191

D. R easonable
terms and conditions
The WTO Agreement contains several references to reasonable terms and conditions.
These include, among others, Article 31(b)26 of the TRIPS Agreement, which provides
for the use of patents without the authorization of the right holder subject to certain
conditions, including making prior efforts to obtain authorization from the right holder
on reasonable commercial terms (Article 31(b)). These also include Paragraph 5(a) of
the GATS Annex on Telecommunications, which provides in relevant part that [e]ach
Member shall ensure that any service supplier of any other Member is accorded access
to and use of public telecommunications transport networks and services on reasonable
and non-discriminatory terms and conditions for the supply of a service included in its
Schedule. In Mexico Telecoms, the Panel interpreted the term reasonable in the context
of Paragraph 5(a) of the GATS Annex:
We next examine whether the rates that are charged to United States suppliers for access to
and use of Mexican public telecommunications transport networks and services constitute
reasonable terms. The dictionary meaning of the word reasonable means being in
accordance with reason, not extreme or excessive.27 The word reasonable implies a
degree of flexibility that involves consideration of the circumstances of a particular case.
What is reasonable in one set of circumstances may prove to be less than reasonable in
different circumstances. The elements of balance and flexibility, as well as the need for
a case-by-case analysis, are inherent in the notion of reasonable.28
In an accompanying footnote, the Panel recalled the Appellate Bodys interpretation

of the term reasonable period in US Hot-Rolled Steel, already quoted further above,
and then stated that although the Appellate Body was interpreting a reasonable period
of time in the context of a different WTO Agreement, we consider that the same basic
elements of the word reasonable also apply in the present context.29
E. R easonable
measures to secure compliance
As a fourth and final example of WTO treaty language expressly mandating the application
of a reasonableness test, certain WTO provisions oblige Members to take reasonable
26
See also Article 31(l)(ii) of the TRIPS Agreement, which contains another condition referring to reasonable
terms.
27
(footnote original) Merriam Webster Online Dictionary; <http://www.webster.com/cgi-bin/dictionary>.
28
29
Panel Report, Mexico Telecoms, para. 7.328. Internal footnote omitted.
Panel Report, Mexico Telecoms, footnote 1029.
192

Graham Cook
measures to ensure that certain entities comply with WTO obligations. Article XXIV:12
of the GATT provides that a Member shall take such reasonable measures as may be
available to it to ensure observance of the provisions of this Agreement by the regional
and local governments and authorities within its territories. Comparable obligations are
found in Article I:3(a) of the GATS, in Article 13 of the SPS Agreement, and in TBT
Articles 3.1, 4.1, 5.3, 7.1, 8.1, 9.2, 10.3, 10.4, 11.3, 11.4, 12.5, and 12.6.
The expression reasonable measures in Article XXIV:12 of the GATT was
interpreted by several GATT panels.30 The GATT Panel in Canada Gold Coins stated that:
The Panel noted that the only indication in the General Agreement of what was meant
by reasonable was contained in the interpretative note to Article III:1, which defined
the term reasonable measures for the case of national legislation authorizing local
governments to impose taxes. According to this note the question of whether the repeal
of such enabling legislation would be a reasonable measure required by Article XXIV:12
should be answered by taking into account the spirit of the inconsistent local tax laws,
on the one hand, and the administrative or financial difficulties to which the repeal of
the enabling legislation would give rise, on the other. The basic principle embodied in
this note is, in the view of the Panel, that in determining which measures to secure the
observance of the provisions of the General Agreement are reasonable within the
meaning of Article XXIV:12, the consequences of their non-observance by the local
government for trade relations with other contracting parties are to be weighed against
the domestic difficulties of securing observance.31
As regards the string of provisions in the TBT Agreement listed above, the Panel in US
Tuna II (Mexico) made reference to one such provision, Article 3.1. This provision states
that Members shall take such reasonable measures as may be available to them to ensure
compliance with certain provisions of the TBT Agreement by local government bodies
and non-governmental bodies. The Panel contrasted the nature of such an obligation
with the obligation found in Article 2.1 of the TBT Agreement:
We also note that the obligation placed on Members [in Article 2.1] is to ensure that
products ... shall be accorded treatment no less favourable. This language requires the
achievement of treatment no less favourable, and not only reasonable measures to that
30
See GATT Panel Report, Canada Measures Affecting the Sale of Gold Coins (Canada Gold Coins), L/5863,
17 September 1985, unadopted, paras. 68-71; GATT Panel Report, Canada Import, Distribution and Sale of Alcoholic
Drinks by Canadian Provincial Marketing Agencies (Canada Provincial Liquor Boards (EEC)), L/6304, adopted 22 March
1988, BISD 35S/37, paras. 4.34-4.35; GATT Panel Report, Canada Import, Distribution and Sale of Certain Alcoholic
Drinks by Provincial Marketing Agencies (Canada Provincial Liquor Boards (US)), DS17/R, adopted 18 February 1992,
BISD 39S/27, paras. 5.37-5.39.
31
Panel Report, Canada Gold Coins, para. 69.
193

end, as is the case under Article 3 in relation to technical regulations by local government
bodies and non-governmental bodies.32
IV. R easonableness
as
an
unwritten
legal
test
in
respect of particular issues
A. I ntroduction
The previous section of this article reviewed some instances in which reasonableness tests
are mandated by the express terms of the provision at issue. As explained below, there
have been situations in which WTO adjudicators have applied reasonableness tests in
the absence of any express reference in the provision at issue. In this regard, one writer
observes that international adjudicators may reformulate a rule by introducing the notion
of reasonable despite its absence in the original text.33 Perhaps this reflects the idea that
the exercise of a regulatory authority is always subject to the rule of reasonableness.34
This section provides an exposition of how reasonableness may function as an unwritten
legal test that WTO adjudicators may apply to decide certain issues when the provisions of
the WTO Agreement are silent or lacking in detail, including the following as illustrative
examples: (i) reasonableness tests to determine whether A is based on B, whether A
is related to B, or whether A is for the purpose of B; (ii) the reasonable exercise of
discretion by WTO panels as an unwritten legal test applied by the Appellate Body when
reviewing decisions on procedural matters not explicitly regulated under the DSU or
panel working procedures; (iii) the concept of reasonable expectations as an unwritten
element of the legal test for establishing a non-violation claim under Article 26 of the
DSU and Article XXIII:1(b) of the GATT; and (iv) reasonableness as an element of the
standard of review applicable to findings of fact.
B. R easonable
relationship tests
Many WTO provisions require that WTO adjudicators consider the relationship between
two things. For example, a provision may require consideration of whether A is based
32
Panel Report, US Tuna II (Mexico), para. 7.277.
33
O. Corten, The Notion of Reasonable in International Law: Legal Discourse, Reason and
Contradictions (1999) 48(3) International and Comparative Law Quarterly 613 at 615.
34
Arbitral Tribunal, Filleting within the Gulf of St Lawrence between Canada and France (La Bretagne Award), Award
of 17 July 1986, 19 RIAA 225, para. 54.
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Graham Cook
on B, whether A is related to B, or whether A is for the purpose of B, and so

forth. When applying such provisions, WTO adjudicators have sometimes relied on a
rational relationship test as the relevant legal standard to be applied. This is a form of
reasonableness test reasonable means the same thing as rational, and the Appellate
Body has used reasonable relationship interchangeably with rational relationship.35
For example, Article 5.1 of the SPS Agreement states that Members shall ensure
that their sanitary or phytosanitary measures are based on a risk assessment. In EC
Hormones, the Appellate Body developed a legal standard for determining whether an SPS
measures is based on a risk assessment:
We believe that Article5.1, when contextually read as it should be, in conjunction with
and as informed by Article2.2 of the SPSAgreement, requires that the results of the risk
assessment must sufficiently warrant -- that is to say, reasonably support the SPS
measure at stake. The requirement that an SPS measure be based on a risk assessment
is a substantive requirement that there be a rational relationship between the measure
and the risk assessment.36
In Thailand Cigarettes (Philippines), the Appellate Body interpreted the phrase action
relating to customs matters in the context of Article X:3(b) of the GATT. Recalling
its prior interpretation of the terms relating to in the context of Article XX(g) of the
GATT, the Appellate Body explained:
Turning to the term relating to, we note that relate to is defined, inter alia, as [h]ave
some connection with, be connected to. The Panel also referred to the Appellate Bodys
interpretation of the term related to in the context of Article XX of the GATT 1994,
where the Appellate Body found that for a measure to be related to a particular objective,
there must be a rational relationship between the measure and the objective pursued.37
For such a rational relationship to exist, the measure must not be disproportionately wide
in its scope and reach in relation to its objective. Similarly, in the context of ArticleX:3(b),
we consider that measures must have a rational connection with customs matters to fall
within the scope of that provision.38
As a third and final example, Article III:8(a) of the GATT provides that the nondiscrimination obligations in Article III shall not apply to laws, regulations or requirements
governing the procurement by governmental agencies of products purchased for
governmental purposes and not with a view to commercial resale or with a view to
use in the production of goods for commercial sale. In the context of interpreting the
35
See e.g. Appellate Body Report, EC Hormones, paras. 193-194.
36
Appellate Body Report, EC Hormones, para. 193.
37
(footnote original) Panel Report, para. 7.1028 (referring to Appellate Body Report, US Shrimp, para.141).
38
Appellate Body Report, Thailand Cigarettes (Philippines), para. 194. Internal footnote omitted.
195

phrase for governmental purposes, the Appellate Body stated the following in Canada
Renewable Energy / Feed-In Tariff Program:
Finally, we recall that Article III:8(a) refers to purchases for governmental purposes.
The word for relates the term products purchased to governmental purposes,
and thus indicates that the products purchased must be intended to be directed at the
government or be used for governmental purposes. Thus, Article III:8(a) requires that
there be a rational relationship between the product and the governmental function being
discharged.39
C. R easonableness
in the review of unregulated procedural issues
The DSU regulates a number of procedural issues. However, like all other international
dispute settlement texts (e.g. the UNCITRAL Arbitration Rules, the Statute of the
International Court of Justice), the DSU does not explicitly regulate every issue that
could conceivably arise in the course of a dispute settlement proceeding. Moreover,
those issues that are regulated are not always regulated in every detail. In this regard,
the Appellate Body has observed that the DSU, and in particular its Appendix 3,
leave panels a margin of discretion to deal, always in accordance with due process,
with specific situations that may arise in a particular case and that are not explicitly
regulated.40 When reviewing the manner in which a panel deals with an issue that
is not explicitly regulated by the DSU (or a panels ad hoc working procedures), the
Appellate Body sometimes applies the standard of whether the panels approach was
reasonable.
The use of reasonableness tests in respect of procedural rulings on what might be
termed unregulated issues can be illustrated through two examples, dealing with
different but related issues. In EC Hormones, the Panel decided to hold a joint meeting
with the scientific experts for the panel proceeding initiated against the European
Communities by Canada, and for the parallel panel proceeding initiated against the
European Communities by the United States. The alternative would have been to hold
two separate meetings. After reviewing the Panels reasoning underlying this decision, the
Appellate Body concluded that the explanation of the Panel [was] quite reasonable.41
In US Offset Act (Byrd Amendment), another dispute involving multiple complainants, the
United States requested, at a late stage of the proceeding, that the Panel issue separate
panel reports in respect of each complaining party. The Appellate Body found that
39
Appellate Body Report, Canada Renewable Energy / Feed-In Tariff Program, para. 5.68. Internal footnote
omitted.
40
41
Appellate Body Report, EC Hormones, footnote 138.
Appellate Body Report, EC Hormones, para.152.
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Graham Cook
the Panel acted within its discretion by denying the US request. In this connection, the
Appellate Body stated that [w]e do not believe that we should lightly disturb panels
decisions on their procedure, particularly in cases such as the one at hand, in which the
Panels decision appears to have been reasonable and in accordance with due process.42
The application of the reasonableness standard is not confined to the Appellate
Bodys review of panel rulings on unregulated procedural issues the Appellate Body
may itself be presented with procedural issues that are not explicitly regulated by the
DSU, or by the Appellate Bodys own working procedures. In such cases, the Appellate
Body has on occasion applied a reasonableness standard. For example, in EC Sardines,
the European Communities conditionally withdrew its notice of appeal, and then
re-filed an amended notice of appeal. At the time, the Appellate Bodys working
procedures did not explicitly regulate such a situation. After reviewing the circumstances
under which the European Communities withdrew its notice of appeal subject to the
condition of filing a replacement notice of appeal, the Appellate Body concluded that
[i]n our view, attaching the condition to the withdrawal was not unreasonable under
the circumstances.43
D. R easonable
expectations
Several WTO provisions use the term reasonable together with the term expected or
expectation. These include Article XI:2 of the GATT, which refers to the proportion
of imports relative to domestic production which might reasonably be expected in
the absence of import restrictions; the GATT Note Ad Article XXIV:1, paragraph
4 refers to the share of the market that Members could reasonably be expected to
have in the absence of certain import restrictions; and Article 6.2 of the Agreement
on Aircraft refers to the reasonable expectation of recoupment of certain costs in
aircraft pricing.
Article XXIII:3 of the GATS provides in part that [i]f any Member considers that
any benefit it could reasonably have expected to accrue to it under a specific commitment
of another Member under Part III of this Agreement is being nullified or impaired as
a result of the application of any measure which does not conflict with the provisions
of this Agreement, it may have recourse to the DSU. This is the so-called nonviolation nullification and impairment remedy in WTO law, which is based on GATT
dispute settlement practice under Article XXIII:1(b) of the GATT. The concept
of reasonable expectations developed as an unwritten standard in the context of
non-violation complaints under Article XXIII:1(b) of the GATT, and the concept of
reasonable expectations remains applicable in WTO dispute settlement proceedings
42
Appellate Body Report, US Offset Act (Byrd Amendment), para.316. Emphasis added.
43
Appellate Body Report, EC Sardines, para. 144.
197

notwithstanding the absence of any reference to reasonable expectations in Article

XXIII:1(b) of the GATT, or in Article 26 of the DSU.
In this regard, the Panel in Japan Film observed that [t]he text of Article XXIII:1(b)
simply refers to a benefit accruing, directly or indirectly, under this Agreement and
does not further define or explain what benefits are referred to. Past GATT panel
reports have considered that such benefits include those that a Member reasonably
expects to obtain from a tariff negotiation.44 The Panel observed that the issue of
reasonable anticipation needs to be addressed on a case-by-case basis.45 Like the Panel
in Japan Film, the subsequent Panel in Korea Procurement recalled the elements of
the text of Article XXIII:1(b), and then stated that [t]o this we would add the notion
that has been developed in all these cases that the nullification or impairment of the
benefit as a result of the measure must be contrary to the reasonable expectations of the
complaining party at the time of the agreement.46
E. R easonableness
in fact - finding
As a fourth and final example of how reasonableness may function as an unwritten

legal test that WTO adjudicators apply to decide certain issues when the provisions of
the WTO Agreement are silent or lacking in detail, there is the matter of the standard
of review that panels apply to factual findings by national investigating authorities,
and that the Appellate Body applies to factual findings by panels.
In the context of reviewing factual findings by investigating authorities in antidumping and countervailing duty determinations, panels and the Appellate Body
have frequently applied the legal standard of whether a reasonable and objective
investigating authority could have reached such a finding on the evidence before
it. The reasonable and objective terminology appears to have first been used by
the Panel in EC Tube or Pipe Fittings, which involved factual findings by national
investigating authorities in an anti-dumping investigation. That Panel stated that [a]
reasonable and objective authority could have reached this determination on the basis
of the record of this investigation. It is not our task to substitute our judgement for
that of the investigating authority.47 With respect to the applicable standard of review
to apply to factual findings by national investigating authorities in a countervailing
duty case, the Panel in EC Countervailing Measures on DRAM Chips stated along the
same lines that:
44
Panel Report, Japan Film, para. 10.72.
45
Panel Report, Japan Film, para. 10.79.
46
47
Panel Report, Korea Procurement, para. 7.85.
Panel Report, EC Tube or Pipe Fittings, para. 7.296.
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We are, therefore, fully conscious of the fact that it is not the role of the Panel to
perform a de novo review of the evidence which was before the investigating authority
at the time it made its determination. We will, therefore, examine whether on the
basis of the record before it, a reasonable and objective investigating authority could
have reached the conclusions the EC investigating authority reached with regard to
the determination of subsidization and injury.48
In EC Asbestos, the Panel considered a different type of factual question, namely,

whether certain products posed a risk to human health. In that context, the Panel
relied on the standard of what a decision-maker for taking public health measures
might reasonably conclude:
The Panel therefore considers that the evidence before it tends to show that handling
chrysotile-cement products constitutes a risk to health rather than the opposite.
Accordingly, a decision-maker responsible for taking public health measures might
reasonably conclude that the presence of chrysotile-cement products posed a risk
because of the risks involved in working with those products.49
In addition to the standard of review that panels apply when reviewing the factual
findings of national bodies, there is the standard of review that the Appellate Body
applies, on appeal, to factual findings by WTO panels. Article 11 of the DSU provides
that panels are to make an objective assessment of the facts. In WTO appeals,
the Appellate Body is sometimes presented with a claim that a panel failed to make
an objective assessment of the facts in respect of one or more issues. In dealing
with such issues, the Appellate Body often applies the legal standard of whether the
panels factual finding was reasonable. For example, in one case the Appellate Body
stated that it appears to us that it was not unreasonable for the Panel to conclude
that the criterion of positive evidence set out in Article 3.1 of the Anti-Dumping
Agreement was not met.50 In another case, the Appellate Body stated that [i]t was
not unreasonable for the Panel to conclude that the effect of the price-contingent
subsidies was significant price suppression, even if some other factor might also have
price-suppressive effects.51
48
49
Panel Report, EC Countervailing Measures on DRAM Chips, para. 7.6.
Panel Report, EC - Asbestos, para. 8.193. See also paras. 8.202, 8.209.
50
51
Appellate Body Report, Mexico Anti-Dumping Measures on Rice, para. 168.
Appellate Body Report, US Upland Cotton, para. 455.
199

V. R easonableness
as
general
principle
of
treaty
interpretation
A. I ntroduction
Turning to the third facet of reasonableness in WTO law, Article 32(b) of the Vienna
Convention on the Law of Treaties refers to a manifestly absurd or unreasonable
result in treaty interpretation. The dictionary defines these two words by reference to one
another: reasonable means not irrational or absurd, and absurd is defined to mean
incongruous or unreasonable.52 In the Aerial Incident Case, some ICJ judges stated that
[i]t is consistent with enlightened practice to apply the test of reasonableness to the
interpretation of international instrumentsa test which follows from the ever present
duty of States to act in good faith.53 In this regard, WTO jurisprudence is consistent
with enlightened practice. This section will review the practice of WTO adjudicators in
applying the general principle that treaties should be interpreted so as to avoid absurd or
unreasonable results, including: (i) the extent to which, and purposes for which, WTO
adjudicators have relied on this principle; (ii) the diverse terminology that has been used
to describe such results (e.g. unreasonable, absurd, irrational, illogical); (iii) the types of
results that may be considered unreasonable (e.g. irrational distinctions, inverted outcomes,
contradictions, impossibility); and (iv) how such arguments are rebutted.
B. R eliance
on the presumption against absurdity
There have been many cases in which WTO adjudicators have rejected a particular
interpretation of a WTO provision on the grounds that it would lead to an unreasonable
result. In this regard, it appears that the situation is no different from other international
courts and tribunals. For example, one commentator on the European Court of Human
Rights observed:
It is common in legal reasoning to ensure that, whenever possible, the consequences of
an interpretation should be reasonable and not unreasonable. This canon is one of many
translations of the idea that the legislator or draughtsman intended to be reasonable and
rational. The most common manifestation of this canon is reasoning by the absurd: how
52
Shorter Oxford English Dictionary, 6th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University Press, 2007),
Vol. 1, p. 10; Vol. 2, p. 2842.
53
International Court of Justice, Aerial Incident of July 27, 1955 (Preliminary Objections) (Israel v Bulgaria) Joint
Dissenting Opinion of Sir Hersch Lauterpacht, Wellington Koo and Sir Percy Spender, 1959, p. 189.
200

Graham Cook
better to sustain a given interpretation than by suggesting that the opposite conclusion
leads to ridiculous results? The majority of dissenting judges use this argument in the
caselaw of the Court.54
WTO adjudicators normally reject interpretations that lead to unreasonable results

without explicitly discussing the presumption against unreasonable results in treaty
interpretation. An exception is the Panel in US Gambling, which, citing Sinclairs book
on the law of treaties, stated that [w]e also note that the principle of good faith in the
process of interpretation underlies the concept that interpretation should not lead to a
result which is manifestly absurd or unreasonable.55 In virtually all other cases, WTO
adjudicators simply apply the principle.
Article 32(b) of the Vienna Convention provides that where the interpretation
according to the elements of Article 31 leads to a result which is manifestly absurd
or unreasonable, recourse may be had to supplementary means of interpretation.
This does not mean, however, that adjudicators may only consider the reasonableness
of an interpretation insofar as this serves as a kind of gateway to preparatory work
or other supplementary means of interpretation. Where a treaty interpreter is able
to demonstrate that one of two opposing interpretations would lead to an absurd or
unreasonable result, this is almost always treated as a reason in and of itself for choosing
the other interpretation, as opposed to merely serving as a gateway for consideration
of preparatory work or other supplementary means of interpretation. In this regard,
interpretative arguments concerning the unreasonable consequences that would
follow from the opposing interpretation are almost always invoked either as additional
support for the conclusion arrived at on the basis of the text of the provision, or as
the principal basis for the decision where the text is inconclusive. Instances of WTO
adjudicators treating an absurd consequence merely as a gateway for consideration of
supplementary means of interpretation are extremely rare.56 In this regard, the practice
of WTO adjudicators appears to be similar to that of other international courts and
tribunals.57
54
Francois Ost, The Original Canons of Interpretation of the European Court of Human Rights in
Delmas-Marty (ed.) The European Convention for the Protection of Human Rights: International Protection Versus National
Minorities (Martinus Nijhoff: 1992), pp. 283-318, at p. 304.
55
Panel Report, US Gambling, para. 6.49 (citing I. Sinclair, The Vienna Convention on the Law of Treaties,
Manchester University Press, 2nd edition, 1984, p. 120.
56
The author is aware of only one instance in which a panel or the Appellate Body used an absurd result
solely as a gateway to other means of interpretation, and even in that instance the approach taken was equivocal
see Appellate Body Report, US Gambling, para. 236 (Yet certain ambiguities about the meaning of the provision
remain. The Panel, at this stage of its analysis, observed that any suggestion that the form requirement must be
strictly interpreted to refer only to limitations explicitly couched in numerical terms leads to absurdity. In either
circumstance, this is an appropriate case in which to have recourse to supplementary means of interpretation, such
as preparatory work.)
57
See e.g. O. Fauchald, The Legal Reasoning of ICSID Tribunals An Empirical Analysis (2008) 19(2)
201

C. D iverse
terminology
WTO adjudicators have rejected interpretations resulting in consequences labelled

unreasonable or absurd. As regards the label unreasonable, for example, in US
Carbon Steel the Appellate Body concluded that the implications of the Panels interpretation
were unreasonable.58 Likewise, in EC Trademarks and Geographical Indications, the Panel
rejected an interpretation that would lead to an unreasonable result.59 As regards the
label absurd, in US Cotton Yarn, the Appellate Body reasoned that [i]t would be
absurd if the breach of an international obligation were sanctioned by proportionate
countermeasures, while, in the absence of such breach, a WTO Member would be
subject to a disproportionate and, hence, punitive, attribution of serious damage not
wholly caused by its exports.60 In EC Commercial Vessels, the Panel concluded that the
interpretation it rejected would yield an absurd result.61 WTO adjudicators have also
used a variety of other labels when characterizing unacceptable consequences, including
anomalous62, bizarre63, contradictory64, curious65, extreme66, far-reaching67,
illogical68,
impractical69,
inconceivable70,
incongruous71,
irrational72,
European Journal of International Law 301 at 353-354 (indicating that the author found that arguments based on
reasonableness could be identified in 36 of the 98 decisions reviewed, but that there was no decision in which an
ICSID tribunal applied reasonableness in the context of Article 32(b), i.e. merely as a gateway to supplementary
means.
58
Appellate Body Report, US Carbon Steel, para. 82.
59
Panel Report, EC Trademarks and Geographical Indications, para. 7.513.
60
Appellate Body Report, US Cotton Yarn, para. 120.
61
Panel Report, EC Commercial Vessels, footnote 369.
62
See e.g. Appellate Body Report, EC Poultry, para. 151; Appellate Body Report, Mexico Anti-Dumping
Measures on Rice, para. 295.
63
See e.g. Panel Report, EC Bed Linen (Article 21.5 India), para. 6.141.
64
See e.g. Panel Report, Argentina Ceramic Tiles, para. 6.34.
65
See e.g. Appellate Body Report, Canada Dairy (Article 21.5 New Zealand and US), para. 105; Appellate Body
Report, Mexico Corn Syrup (Article 21.5 US), para. 70.
66
67
See e.g. Appellate Body Report, US Upland Cotton, para. 652.
See e.g. Panel Report, US Textiles Rules of Origin, para. 6.146.
68
See e.g. Panel Report, Korea - Alcoholic Beverages, footnote 364; Panel Report, Argentina Poultry Anti-Dumping
Duties, footnote 221; Panel Report, US Upland Cotton, para. 7.88.
69
See e.g. Panel Report, EC Bed Linen, para. 6.140.
70
See e.g. Appellate Body Report, US Hot-Rolled Steel, para. 55.
71
See e.g. Appellate Body Report, EC Asbestos, para. 99; Appellate Body Report, Canada Dairy (Article 21.5
New Zealand and US II), para. 105.
72
See e.g. Panel Report, US Carbon Steel, paras. 8.29, 8.69.
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Graham Cook
ludicrous73, nonsensical74, obviously wrong75, ominous76, outlandish77,

surprising78, unacceptable79, and unworkable80. Sometimes WTO adjudicators
employ no qualifier at all, referring simply to such a result81, such consequences82 or
to such an outcome83. In this regard, the practice of WTO adjudicators is similar to
that of other international courts and tribunals, which also use diverse terminology when
describing unacceptable consequences, such as absurd84, or absurd or unreasonable85.
For example, other international courts and tribunals have used such qualifiers as
bizarre86, cloud-cuckoo land87, impossible88, improbable89, inconceivable90,
73
See e.g. Panel Report, US Certain EC Products, para. 5.11.
74
See e.g. Panel Report, EC Trademarks and Geographical Indications, para. 7.136.
75
See e.g. Appellate Body Report, Australia Salmon, para. 206.
76
See e.g. Panel Report, Argentina Hides and Leather, para. 49.
77
See e.g. Panel Report, Brazil Aircraft (Article 21.5 Canada II), para. 5.89.
78
See e.g. Appellate Body Report, Canada Autos, para.140.
79
80
81
See e.g. Panel Report, Brazil Desiccated Coconut, footnote 60; Panel Report, EC Bed Linen, para. 6.43;
Appellate Body Report, US Section 211 Appropriations Act of 1998, para. 141; Panel Report, EC Tariff Preferences,
para. 7.46.
82
See e.g. Appellate Body Report, Canada Aircraft, para. 189.
83
See e.g. Panel Report, Egypt Steel Rebar, para. 7.64.
84
European Court of Human Rights, Case Relating to Certain Aspects of the Laws on the Use of Languages in
Education in Belgium v. Belgium (Merits), Judgment, 1968, at para. 11; European Court of Human Rights, Tyrer v. United
Kingdom, Judgment, 1978, at para. 30.
85
NAFTA Chapter Eleven Arbitration Tribunal, Ethyl Corporation v. The Government of Canada, Award on
Jurisdiction, 1998, 38 ILM 708, at p. 728.
86
International Court of Justice, Case Concerning Military and Paramilitary Activities in and Against Nicaragua
(Nicaragua v. United States), Jurisdiction and Admissibility, Dissenting Opinion of Judge Schwebel, at para. 222.
87
European Court of Human Rights, Guzzardi v. Italy, Judgment, Dissenting Opinion of Judge Fitzmaurice,
1980, para. 13.
88
International Court of Justice, Case Concerning the Application of the Convention of 1902 Governing the Guardianship
of Infants (Netherlands v. Sweden), Judgment, 1958, at p. 70.
89
International Court of Justice, South West Africa (Ethiopia v. South Africa; Liberia v. South Africa), Judgment, 1966,
para. 42.
90
International Court of Justice, Case Concerning the Application of the Convention of 1902 Governing the Guardianship
of Infants (Netherlands v. Sweden), Judgment, 1958, at p. 70.
203

incongruous91, strange92, and surprising93. The practice is also similar to what

happens in the context of domestic statutory interpretation.94 As noted above, many
of these words mean the same thing notably, the dictionary defines reasonable to
mean not irrational or absurd, and the term absurd to mean incongruous and
unreasonable.95 For this reason, these terms are used interchangeably in the discussion
that follows.
D. T ypes
of results that may be considered unreasonable
There is no accepted way of categorizing the different types of results that may be
considered absurd or unreasonable, and different distinctions may be drawn. In
the context of domestic statutory interpretation, one authority identifies what might
be called the standard categories of absurdity as including, inter alia, irrational
distinctions, things deserving better treatment receive worse treatment and vice versa,
contradictions and anomalies, interference with the efficient administration of justice,
and consequences that are self-evidently irrational or unjust.96 For the purposes of this
article, and its focus on reasonableness, we will review certain types of results that most
would regard as inherently unreasonable irrational distinctions, inverted/upside down
outcomes, and contradictions.
91
Iran-United States Claims Tribunal, Amoco International Finance Corporation, Claimant, v. The Government of the
Islamic Republic of Iran, National Iranian Oil Company, National Petrochemical Company and Kharg Chemical Company Limited,
Respondents, Case No. 56, Chamber Three, Award No. 310-56-3, Filed July 14, 1987, Signed July 14, 1987, Partial
Award, at para. 109.
92
International Court of Justice, Conditions of Admission of a State to Membership in the United Nations (Article 4 of the
Charter), Advisory Opinion, 1948, Dissenting Opinion of Judges Basdevant, Winiarski, McNair, and Read, at para. 3.
93
International Court of Justice, Aegean Sea Continental Shelf Case (Greece v. Turkey), Jurisdiction, 1978, at para.
52; (NAFTA Chapter Eleven); NAFTA Chapter Eleven Arbitration Tribunal, Methanex v. United States, Final Award,
2002, para. 138.
94
See e.g. P.A. Cote, The Interpretation of Legislation in Canada, Third Edition (Carswell: 2000), p. 450-451 (Since
the question is one of interpreting an enactment in light of results or consequences that a reasonable legislature
could not have desired, there is extreme diversity in the terminology used by the courts results will be qualified
as unreasonable, unjust, inequitable and an interpretation may be said to lead to injustice, and be described as
grave and obvious. Sometimes emphasis will be put on the fact that an interpretation is unjust and unreasonable,
grossly unjust and absurd, or absurd and unthinkable or defy fairness and common sense or, again, that it
is of such a nature as to lead to no small amount of difficulty. In principle, an interpretation which leads to
distinctions that are arbitrary and irrational leading to a strange result which would shock common sense would
be dismissed.)
95
Shorter Oxford English Dictionary, 6th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University Press, 2007),
Vol. 1, p. 10; Vol. 2, p. 2842.
96
R. Sullivan, Sullivan and Driedger on the Construction of Statutes, Fourth Edition (Butterworths: 2002) pp. 243-251.
204

Graham Cook
Irrational distinctions: It is commonplace for WTO adjudicators to reject an

interpretation on the grounds that it would lead to a distinction in the treatment of two
things that are materially the same. For example, in Korea Alcoholic Beverages the Panel
rejected an interpretation that would lead to an illogical distinction:
We do not consider it a meaningful distinction on this issue that this quote refers to
the first sentence of Article III:2 rather than the second sentence. To find otherwise
would be to imply that one could refer to expectations with respect to determining the
market conditions for examining like products but not for examining whether products
are directly competitive or substitutable. Given that like products are a subset of directly
competitive or substitutable products, this would be illogical.97
In Canada Dairy (Article 21.5 New Zealand and US II), the Appellate Body reasoned
that the provision at issue should be interpreted in a manner that avoided what was, in its
view, an incongruous distinction:
[I]t would be incongruous if the costs of family labour and management were excluded
from the COP standard when provided by family, but included when provided by others.
Likewise, it would be curious if the cost of capital, of which equity is one type, were
excluded from the COP standard when capital is provided through the owners equity,
but included when it is provided through, for instance, debt, merely because the cost of
debt is expressed in recurring cash outlays for interest payments. In each case, the dairy
enterprise is incurring an economic cost and that cost should be appropriately reflected
in the costs of production.98
The Panel in US Gambling reasoned that it would be absurd to find that only
restrictions explicitly couched in numerical terms fall within Article XVI:2(a) because
that would, for example, allow a law that explicitly provides that all foreign services
are prohibited to escape the application of Article XVI, because it is not expressed in
numerical terms.99
Not surprisingly, other international courts and tribunals also seek to avoid
interpretations resulting in distinctions that appear irrational. For example, in Amoco, the
Iran-United States Claims Tribunal rejected an interpretation that would have resulted in
an incongruous and unreasonable distinction:
More generally, it would be incongruous if Article IV, paragraph 2 could be construed as granting
protection only against certain acts of expropriation, and not against others, according to the nature
of the rights expropriated. Any interpretation of the term property to this effect would lead to a
97
Panel Report, Korea Alcoholic Beverages, footnote 364.
98
99
Appellate Body Report, Canada Dairy (Article 21.5 New Zealand and US II), para. 105.
Panel Report, US Gambling, para. 6.332.
205

manifestly absurd or unreasonable result within the meaning of Article 32, paragraph b of the Vienna
Convention. It therefore cannot be admitted.100
Inverted/upside down outcomes: An interpretation that results in things

deserving better treatment receiving worse treatment, and vice versa, might be labelled an
inverted outcome. Such outcomes may be called inverted in the sense that things are
turned upside down or back to front.101 Such outcomes can be deemed unreasonable.
For example, in US Cotton Yarn the Appellate Body reasoned that the following inverted
outcome would be absurd:
It would be absurd if the breach of an international obligation were sanctioned by
proportionate countermeasures, while, in the absence of such breach, a WTO Member
would be subject to a disproportionate and, hence, punitive, attribution of serious
damage not wholly caused by its exports. In our view, such an exorbitant derogation from
the principle of proportionality in respect of the attribution of serious damage could be
justified only if the drafters of the ATC had expressly provided for it, which is not the
case.102
In the same vein, the Panel in Australia Salmon (Article 21.5 Canada) was unable to
interpret the scope of Article 21.5 of the DSU in way that would lead to an upside down
result and therefore be absurd:
The question of whether a measure is one in the direction of WTO conformity or, on the
contrary, maintains the original violation or aggravates it, can, in our view, not determine
whether a measure is one taken to comply. If this were so, one would be faced with
an absurd situation: if the implementing Member introduces a better measure -- in
the direction of WTO conformity -- it would be subject to an expedited Article 21.5
procedure; if it introduces a worse measure -- maintaining or aggravating the violation
-- it would have a right to a completely new WTO procedure.103
In Mexico Olive Oil, the Panel rejected the European Communities argument that
the definition of domestic industry in Article16.1 of the SCM Agreement requires an
enterprise or a group of enterprises to be producing actual output of the like product at the
time of application and / or during the period of investigation, in order to be considered
100
Iran-United States Claims Tribunal, Amoco International Finance Corporation, Claimant, v. The Government of the
Islamic Republic of Iran, National Iranian Oil Company, National Petrochemical Company and Kharg Chemical Company Limited,
Respondents, Case No. 56, Chamber Three, Award No. 310-56-3, Filed July 14, 1987, Signed July 14, 1987, Partial
Award, para. 109.
101
Shorter Oxford English Dictionary, 6th ed., W.R. Trumble, A. Stevenson (eds) (Oxford University Press, 2007),
Vol. 1, p. 1417.
102
Appellate Body Report, US Cotton Yarn, para. 120.
103
Panel Report, Australia Salmon (Article 21.5 Canada), para. 7.10
206

Graham Cook
producers for the purpose of that provision. After referring to the ordinary meaning of
the term and various contextual arguments, the Panel rejected this interpretation on the
grounds of an absurd distinction:
Most importantly, in our view, the European Communities interpretation could lead to
the result that an industry may be so badly injured by subsidized imports as to be forced
to cease production for some period, but would be disqualified from obtaining the very
remedy aimed at addressing such injury. We believe that this outcome would be absurd
and contrary to the intention of the drafters of the SCM Agreement.104
Again, WTO adjudicators are not alone in avoiding what this author terms inverted
outcomes. The reasoning of the Permanent Court of International Justice in Designation
of the Netherlands Workers Delegate to the ILO offers a vivid example of an interpretation that
rejects an inverted outcome:
The following example will show how widely the view maintained by the Netherlands
Confederation of Trades Unions differs from the spirit of Article 389 of the Treaty of
Versailles. In a given country there are six organizations of workers, one with 110,000
members, and five others each with a membership of 100,000. According to the view of
the objectors to the nomination made in the present case, the candidate proposed by the
five last organizations jointly would have to be discarded in favour of the candidate of the
first. One hundred and ten thousand workers would dictate to five hundred thousand.
Such a result is enough to condemn the interpretation which would make it possible,
and unequivocal terms would be required to compel its adoption.105
As another example of reasoning by reference to an inverted outcome, in Case

Concerning Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v. United States)
Judge Schwebel reasoned as follows:
Does it follow from the reporting requirement of Article 51 that aggressors are, under the regime of
the Charter, free to act covertly, but those who defend themselves against aggression are not? That
would be a bizarre result. A more reasonable interpretation of Charter obligations is that, where a State
commits aggression, a profound violation of its international legal obligations, and where it commits
that aggression covertly, it cannot be heard to complain if a State or States acting in self-defence to that
aggression respond covertly.106
104
Panel Report, Mexico Olive Oil, para.7.203.
105
Permanent Court of International Justice, Designation of the Netherlands Workers Delegate to the ILO, Advisory
Opinion, 1922, p. 22.
106
International Court of Justice, Case Concerning Military and Paramilitary Activities in and Against Nicaragua
(Nicaragua v. United States), Judgment, Dissenting Opinion of Judge Schwebel, at p. 373.
207

Contradictions: In the Case Concerning the Temple of Preah Vihear, the International
Court of Justice recalled that the ordinary meaning to be given to a term may be set aside
where it would lead to something absurd or unreasonable, and then noted that [t]he
case of a contradiction would clearly come under that head.107 Not surprisingly, WTO adjudicators
tend to reject interpretations that would result in contradictions between provisions of an agreement. In
Argentina Ceramic Tiles, the Panel reasoned that:
In our view, the presence in the AD Agreement of a requirement to protect confidential
information indicates that investigating authorities might need to rely on such information
in making the determinations required under the AD Agreement. [] It would be
contradictory to suggest that the AD Agreement creates a mechanism for the protection
of confidential information, but precludes investigating authorities from relying on such
information in making its determinations. If that were the case, then there would be no
reason for the investigating authority to seek such information in the first place.108
In Brazil Desiccated Coconut, the Panel rejected an interpretation that would result in
the same provision, Article VI of the GATT, being given two different meanings. The
Panel reasoned:
[A]dditional consequences would result from an interpretation that Article VI of
GATT 1994 could apply in disputes such as this one where the SCM Agreement does
not. As explained below, a signatory to the Tokyo Round SCM Code could find itself
subject to obligations under Article VI of GATT 1994 applied alone which are more
onerous than those to which it was subject pursuant to Article VI of GATT 1947 applied
in conjunction with the Tokyo Round SCM Code and which are also more onerous than
those to which it will be subject at such time as the SCM Agreement applies. This would
represent a result which is both manifestly absurd and unreasonable.109
E. R ebutting
arguments based on allegedly unreasonable results
At the risk of stating the obvious, it does not suffice for a party to a dispute or an adjudicator
to merely assert that the opposing interpretation is unreasonable, or to merely assert that
it fits into one of the categories above. Rather, two essential conditions must be satisfied:
(i) that the result identified is actually unreasonable; and if so (ii) that the interpretation
would actually lead to said result. There are many examples of a WTO adjudicators
finding that one or those conditions is not met.
107
International Court of Justice, Case Concerning the Temple of Preah Vihear (Cambodia v. Thailand), Preliminary
Objections, Judgment, 1961, pp. 32-33.
108
109
Panel Report, Argentina Ceramic Tiles, para. 6.34.
Panel Report, Brazil Desiccated Coconut, para. 244.
208

Graham Cook
The Appellate Bodys analysis in US Carbon Steel illustrates the first of these
conditions, i.e. the requirement to demonstrate that the result identified is actually
unreasonable. In that case, the Panel had reasoned that it would make no sense for a de
minimis rate of subsidisation to be considered injurious at the stage of sunset review and
continuation of a countervailing duty, when the same de minimis rate is, according to the
SCM Agreement, considered non-injurious at the stage of the original investigation. In
the Panels view, this amounted to an irrational result. The Appellate Body disagreed,
and considered that the non-application of an express de minimis standard at the review
stage, and limiting the application of such a standard to the investigation phase alone,
does not lead to irrational or absurd results.110 Another example of the first essential
condition, in US Upland Cotton the United States argued that the Panels interpretation
would lead to a result that is manifestly absurd or unreasonable. The Appellate Body did not agree
that the result was absurd:
We do not agree with the United States submission in this regard. There could have been several
reasons why Members chose not to include export credit guarantees, export credits and insurance
programs under Article 9.1 of theAgreement on Agriculture. One reason, for instance, may be that they
considered that their export credit guarantee, export credit or insurance programs did not include a
subsidy component, so that there was no need to subject them to export subsidy reduction commitments.
There could have been other reasons.111
As indicated above, a treaty interpreter may accept that a particular result would be
unreasonable, but conclude that the interpretation would not necessarily lead to such
a result. For example, the Panel in US Large Civil Aircraft (2nd complaint) accepted the
European Communities argument that a particular result would be manifestly absurd.
However, the Panel was not convinced that the interpretation in question would lead to
such a result:
If a finding that purchases of services are excluded from the scope of the SCMAgreement
necessarily led to the manifestly absurd result that a Member could turn a grant into
an excluded purchase of services simply by that Member labelling the transaction a
contract or purchase of services, then such an interpretation would indeed run counter
to the object and purpose of the SCM Agreement. However, a finding that transactions
properly characterized as purchases of services are excluded from the scope of Article 1.1(a)
(1) would not lead to such a result. There is every reason to believe that WTO panels and
national investigating authorities will be able to detect transactions that are not properly
characterized as purchases of services.112
110
Appellate Body Report, US Carbon Steel, paras. 84-89.
111
Appellate Body Report, US Upland Cotton, paras. 624-625.
112
Panel Report, US Large Civil Aircraft (2nd complaint), para. 7.960. Internal footnote omitted.
209

VI. C onclusion
Reasonableness tests are pervasive in WTO law. The term reasonable (including its variants
unreasonable, reasonably, unreasonably, reasonableness, unreasonableness)
appears more than 200 times in the legal texts that comprise the WTO Agreement. It
appears more than 8,000 times in WTO jurisprudence. WTO jurisprudence relating
to the notion of reasonableness can be usefully categorized according to the following
distinctions. First, reasonableness can function as a legal test that WTO adjudicators are
expressly mandated to apply by virtue of the WTO treaty provision at issue. Second,
as reflected in the many other cases in which WTO adjudicators have assessed whether
certain conduct was reasonable even in the absence of any express reference to the term
in the WTO provision at issue, reasonableness also functions as an unwritten legal test that
WTO adjudicators may apply to decide certain issues when the provisions of the WTO
Agreement are silent or lacking in detail. Third, as reflected in the many cases in which
WTO adjudicators have rejected a particular interpretation of a WTO provision on the
grounds that it would lead to an unreasonable result, reasonableness functions as a general
legal test under the customary rules of treaty interpretation that WTO adjudicators apply
when interpreting provisions of the WTO Agreement.
210
EU-B razil R elations at the W orld T rade

O rganization :D ispute S ettlement as L everage
Jan Wouters, Bregt Natens and David DHollander*
Abstract. This paper addresses how Brazils use of the WTO dispute settlement vis--vis the EU has an impact on
trade relations between both parties. After describing their economic relationship, it is demonstrated that Brazil and
the EU are not only successful and avid users of the dispute settlement system, but are also striving to strengthen its
judicialization. Together with indirect economic advantages and agenda-setting capacities, the judicialization of the
WTO dispute settlement system can be considered factors by which Brazil relatively strengthened its position vis-vis the EU. However, the final section of the paper demonstrates how tensions within Mercosur, the rise of megaregionalism and the prioritization of the EUs negotiation capacity towards the U.S. and Japan, undermine Brazils
position in trade relations with the EU.
Keywords. EU-Brazil trade relations, World Trade Organization, dispute settlement, leverage, mobilization,
judicialization, mega-regionalism
* Prof. Dr. Jan Wouters is Jean Monnet Chair ad personam EU and Global Governance, Full Professor of
International Law and International Organizations, Director of the Leuven Centre for Global Governance Studies
Institute for International Law, University of Leuven and Visiting Professor at the College of Europe (Bruges) and
Sciences Po (Paris); Bregt Natens and David DHollander are Research Fellows at the Leuven Centre for Global
Governance Studies, University of Leuven.
I. I ntroduction
uring the last decade, Brazil has joined the European Union (EU) as one of the principal
players in the global economy. As the global financial crisis and the European sovereign
debt crisis continue to shake the EU at is economic foundations, Brazil has shown resilience
against the economic downturn.1 Along with maintaining economic growth, Brazil has
also been able to carve out a strategic position for itself on the international scene, setting
the tone and influencing policy negotiations in several areas. Under the presidency of
Lula da Silva, Brazil became an assertive global player. It re-oriented its foreign policy
1
WT/TPR/S/283, Trade Policy Review: Brazil, 17 May 2013, 8; A Hurrell, Brazil and the New Global
Order (2010) 109 Current History 60; R Sharma, Bearish on Brazil: The Commodity Slowdown and the End of
the Magic Moment (2012) 91 Foreign Affairs 80, 87.
211

toward developing countries; spearheaded South-South cooperation; and established new,

largely informal, strategic formations with other fast growing world economies such as the
BRICS (Brazil, Russia, India, China and South Africa), the G3 or IBSA (India, Brazil
and South Africa), and BASIC (Brazil, South Africa, India and China).2 Brazils vocal
advocacy of the Global South and its capacity to mobilize coalitions on international
forums have inevitably come into conflict with certain aspects of EU external policies: for
example on combating climate change at the Copenhagen summit at the end of 2009, or
by not supporting European positions in the UN Security Council (e.g. by abstaining when
UNSC Resolution 1973 on Libya was adopted). At the same time, Brussels and Brasilia
share a commitment to multilateralism and international rule-making. The Joint Action
Plan of the EU-Brazil Strategic Partnership highlights this willingness to strengthen the
multilateral system. 3 Still, at the same time, Brazil is also a strong proponent of reforming
the current global institutional architecture. From an international relations perspective,
Brazil acts as a middle-power, preferring multilateral solutions to international
problems.4 The multilateral trading system, embodied by the World Trade Organization
(WTO), is one area where Brazil and the EU have been interacting with each other.
This paper concentrates on the relationship between the EU and Brazil at the WTO,
with a specific focus on how Brazil uses the latters dispute settlement system and how
this impacts their trade relations. Trade ties are at the heart of EU-Brazil relations, and
as stated by EU Trade Commissioner Karel De Gucht, if we can make progress on our
economic agenda we will be laying solid foundations for a stronger alliance across all
areas.5
Interaction concerning trade between the EU and Brazil takes place on several
policy levels: multilaterally through the WTO framework; interregionally through the
EU-Mercosur dialogue; and bilaterally through the dialogue as part of their Strategic
Partnership. Despite these exchanges and the increasing trade flows between Brazil and
the EU, a comprehensive and substantial trade agreement has not materialized. This
paper probes into the dynamics connecting these different levels of engagement between
the EU and Brazil. First, it argues that Brazil has adopted an assertive position in the
WTO particularly in the use of its dispute settlement system in order to generate
2
See C Alden and MA Vieira, The New Diplomacy of the South: South Africa, Brazil, India and
Trilateralism (2005) 26 Third World Quarterly 1077; P Sotero, Brazils Rising Ambition in a Shifting Global
Balance of Power (2010) 30 Politics 71; SW Burges, Brazilian Foreign Policy After the Cold War (University Press of
Florida 2011) 248; PF Vizentini, Brazils Contemporary Foreign Policy: An Affirmative Agenda in W Hofmeister
and S Vogt (eds), G20 - Perceptions and Perspectives for Global Governance (Konrad Adenauer Stiftung 2011); P Dauvergne
and DBL Farias The Rise of Brazil as a Global Development Power (2012) 33 Third World Quarterly 903.
3
Council of the European Union, European Union-Brazil Strategic Partnership Joint Action Plan (4
October 2011).
4
D Flemes, Brazilian Foreign Policy in the changing World Order (2009) 16 South African Journal of
International Affairs 161, 163.
5
K De Gucht, Brazil and the European Union: Allies in a Changing World, Speech delivered at the
International Conference Strategic Challenges in the EU-Brazil Relationship (7 May 2012).
212
EU-Brazil Relations at the WTO

Wouters, Natens & DHollander
leverage. Leverage is understood here as increased strategic advantage resulting from

the following indirect effects of WTO dispute settlement: (i) economic advantages other
than those concerned in the dispute, (ii) international and domestic mobilization and
agenda-setting, and (iii) judicialization of the WTO dispute settlement system. As one
of the most frequent and successful users of this system, Brazil has been able to use it
as a strategic tool, strengthening its position vis--vis the EU and the U.S. Second, it is
submitted that recent developments, inter alia related to political economy, have resulted in
a loss of leverage and weakened Brazils strategic position in trade negotiations.
The structure of the paper is as follows: section 2 sketches the broader economic
context and nature of EU-Brazil trade relations. Section 3 elaborates how Brazils use
of the WTO dispute settlement system has created leverage and how the EU interacts
with Brazilian actions. Section 4 connects these dynamics to Brazils position in trade
negotiations, particularly those for an EU-Mercosur agreement. Section 5 discusses how
recent developments undermine Brazils bargaining strength.
II. B razil ,
A. E conomic
the
EU
and international trade
weight
The decade of growth experienced by Brazils economy stands in contrast to the stagnation
of the Eurozone and this trend is likely to continue.6 In terms of GDP, Brazil has become
the seventh biggest economy in the world, and by 2015-16 it is expected to overtake the
UK and France according to IMF estimates.7 Although the Chinese and Indian economies
are growing at a faster pace, Brazils higher GDP per capita is embodied by a broad and
growing middle class and a thriving consumer market, leading a Financial Times article
to describe it as the perfect marketplace.8 Moreover, Brazils financial responsibility,
exemplified by its efforts to resist hyperinflation and curb its debt, has made it an attractive
place for foreign direct investment and arguably one of the most hyped ones among the
emerging market nations.9
6
Although, according to the 2013 WTO Trade Policy Review (supra note 1), the growth of the Brazilian
economy has slowed down significantly in the last years in comparison to the strong growth between 2006 and 2012,
the IMF still projects healthy growth rates for Brazil in 2013, while the EU27 is expected to experience a minimal
decline. See IMF, World Economic Outlook Update: Gradual Upturn in Global Growth During 2013 (2013).
7
Ibid.
AGA Vallado, Emergent Brazil and the Curse of the Hens Flight, (2013) CEPS Working Document 379,
3; L Lucas and S Pearson, Brazil: Consumer Rhythm Financial Times (7 January 2013).
9
Sharma (n 1) 87.
213

Brazils sustained growth and the EUs lack of growth characterize the broad macroeconomic context of their mutual trade relations, however, this image should be nuanced.
While Brazils growth has propelled its status on the international scene, the combined
economic weight of the EU Member States still dwarfs the Brazilian economy. The EU
is the largest economic entity in the world and is more than seven times the size of Brazil
in terms of GDP. Putting things in perspective by looking at global trade flows, WTO
statistics indicate that EU27 economies account for 37% of the total global export value
and a similar share of total global imports, whereas Brazils share is 1.3% and 1.4%
respectively.10 Nonetheless, Brazil and the EU are important economic partners to each
other.
B. B razil -EU
trade and investment relations
The EU is Brazils largest foreign direct investor and also its largest trading partner,
accounting for 21.7% of its total trade in 2010.11 Vice versa, the economic weight of Brazil
in Europe has increased dramatically over the last decade, with the value of Brazilian
imports doubling between 2000 and 2008. Brazil advanced from being ranked the EUs
twelfth trading partner in 2006 to its ninth in 2011.12 In the first half of 2011, the total
volume of EU-Brazil trade reached new record heights.13 However, the rise of China as
a trade partner for Brazil has led to a relative decline of the EUs prime position. China
has already surpassed the U.S. in becoming Brazils second largest trading partner, and
when considering EU Member States trade separately, China is Brazils biggest partner.
Chinas increasing importance notwithstanding, the EU is still central to Brazils trade
policy agenda.
Two key issues represent the most contentious aspects of the trade relations between
Brazil and the EU. First, the Brazilian and EU positions in regard to agriculture have
up to now proven to be irreconcilable. The majority of Brazilian exports to the EU are
agricultural products, making up about 42% of exports in 2011.14 Brazil is the single
biggest exporter of agricultural products to the EU, giving it a clear offensive interest in
this area. Agricultural output is a key component of the other Mercosur economies as well.
Accordingly, better market access for Brazils and Mercosurs agricultural exports mainly
soy beans, coffee, sugar, meat, and dairy products has been one of the most sensitive
10
WTO, International Trade Statistics (WTO Publications 2012) 24.
11
Commission (EC), Brazil: EU Bilateral Trade and Trade with the World <http://trade.ec.europa.eu/
doclib/docs/2006/september/tradoc_113359.pdf>, accessed 2 April 2013.
12
Commission (EC), Bilateral Relations: Statistics <http://ec.europa.eu/trade/creating-opportunities/

bilateral-relations/statistics/>, accessed 2 April 2013.
13
Ibid.
14
Commission (EC) (n 11).
214

issues in trade negotiations. Thus, the European Commissions Trade Sustainability

Impact Assessment of a possible EU-Mercosur trade agreement notes that the overall
effect for EU agricultural production is expected to be adverse while the competitive
agricultural sector in Brazil and other Mercosur countries would benefit significantly.15 As
is well-documented, certain key EU Member States form a bloc which, in this respect, is
notoriously more protectionist than the U.S..16 This bloc has shown an unwillingness
to compromise on reducing tariffs or increasing tariff quotas for these product groups.
This in turn protects European farmers from external competition. The EUs agricultural
protectionism has been openly challenged by Brazil on various occasions, both through
dispute settlement at the WTO and in the Doha Round of negotiations, where Brazil has
pushed for a multilateral solution in this area.17
A second key issue in EU-Brazil trade dialogues has arisen from Brazils defensive
interests in the manufacturing sector. Historically, protecting the domestic economy from
potential trade-related vulnerabilities has been central to Brazilian foreign policy, and
arguably, Brazil still has one of the most protected economies in the world.18 Despite
economic liberalization taking off in the early 1990s, some manufacturing sectors, notably
the automobile sector, were able to maintain high levels of protection.19 More recently,
the increasing importance of agricultural and commodity exports to the EU and China
has generated fears concerning a possible de-industrialization of the Brazilian economy.
This in turn has spurred the Rousseff administration to emphasize its defensive interests
in trade negotiations and take additional protectionist measures.20 At Brazils WTO
trade policy review in June 2013, the EU expressed serious concerns with respect to
Brazils current policies and the impact on trade and investment. Angelos Pangratis, EU
Ambassador to the WTO, stated that Brazils protectionist industrial policies, especially
through indirect taxation of imported goods, in many respects run counter Brazils
international commitments.21 As EU exports to Brazil consist principally of manufactured
goods, particularly machinery and transport equipment, these developments have led the
15
C Kirkpatrick and C George, Trade Sustainable Impact Assessment of the Association Agreement under
Negotiation Between the European Community and Mercosur (University of Manchester 2009), 41.
16
P Messerlin, The Mercosur-EU Preferential Trade Agreement: A view from Europe (2013) CEPS Working
Document 377, 3.
17
R Leal-Arcas, The European Union and New Leading Powers: Towards Partnership in Strategic Trade
Policy Areas (2008) 32 Fordham International Law Journal 345, 386.
18
M Doctor, Brazils New Government and Trade: An Evaluation of Policy and Performance (2012) 38
Critical Sociology 799, 800; Sharma (n 1) 87.
19
P Motta Veiga, Brazils Trade Policy: Moving Away from Old Paradigms? in L Brainard and L MartinezDiaz (eds), Brazil as an Economic Superpower? Understanding Brazils Changing Role in the Global Economy
(Brookings 2009).
20
21
Doctor (n 18) 803; Messerlin (n 16) 2.
A Pangratis, EU Statement at the Trade Policy Review of Brazil (24 June 2013).
215

European Commission to urge Brasilia to refrain from protectionism.22 Importantly, the

EU has also reminded Brazil of its responsibility to address the broader trend towards
protectionism within the Mercosur bloc, particularly concerning Argentina, which, as
discussed below (infra, 5.2), has adopted a problematic position in this regard.23
These main offensive and defensive trade interests have marked EU-Brazil trade
relations and not surprisingly, have resulted into cases at the WTO. They are also a crucial
obstacle in EU-Mercosur trade negotiations. However, EU officials and commentators
have recently indicated that these traditional issues are not the main problem at hand and
that the problem is one of a changed political climate (see in more detail infra, 5.2).
III. B razil -EU
interactions in
WTO
dispute settlement
Brazil has been a contracting party to the GATT, the precursor to the WTO, since July
1948 only months after the multilateral trading system was established. As the fifth most
active user, Brazil frequently engaged in the GATT dispute settlement system.24 From
the beginning, many of these disputes involved the then named European Economic
Communities.25 Since the establishment of the WTO in 1995, Brazil has become a very
active user of the WTO dispute settlement system as well. 26 On a total of around 450
cases, it brought complaints in 26 cases, was respondent in 14 and acted as a third party
in 74 more. The EU makes even more use of the system, acting as complainant in 87
cases, as respondent in 73 and as a third party in 131. Considering these figures and the
reciprocal importance of their economies for each other, it is inevitable that Brazil and
the EU would bring up complaints against each other. This occurred in five disputes
leading to panel reports and, as each of them was also appealed, Appellate Body (AB)
22
Commission (EC), EU Urges Brazil to resist protectionism (9 March 2009) Press Release. Also see
Commission (EC), Trade and Investment Barriers Report 2013 (28 February 2013) Report to the European Council.
23
K De Gucht (n 5).
24
G Shaffer, M Ratton Sanchez and B Rosenberg, The Trials of Winning at the WTO: What Lies Behind
Brazils Success? (2008) 41 Cornell International Law Journal 383, 404-405.
25
As concerns adopted Panel reports: Brazilian Internal Taxes (1949); ECRefunds on Exports of Sugar (1980);
SpainTariff Treatment of Unroasted Coffee (1981); JapanTrade in Semiconductors (1988) (Brazil acted as a third party);
USCountervailing Duties on Non-Rubber Footwear from Brazil (1989); USRestrictions on Imports of Sugar (1989) (Brazil
acted as a third party); USDenial of Most-Favoured-Nation Treatment as to Non-Rubber Footwear from Brazil (1992); Brazil
Imposition of Provisional and Definitive Countervailing Duties on Milk Powder and Certain Types of Milk from the EEC (1994);
EC Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil (1995).
26
This happened right from the start: Brazil was the complainant in the fourth WTO case, WT/DS4, US
Gasoline.
216

reports.27 Six disputes between both parties were settled.28 The present section illustrates
how Brazil has attempted to influence and strengthen the rules-based nature of the WTO
dispute settlement system and which role the EU played in this respect. It also explores
how Brazils successful use of the dispute settlement system resulted in increased leverage
vis--vis the EU.
Brazils gradual shift towards a more open market under Henrique Cardosos presidency
coincided with the establishment of the WTO and its dispute settlement system.29 Brazil
built up significant domestic legal capacity to adequately deal with issues of WTO law
and policy. This resulted in a pluralist trade law community based on three pillars. First,
there is a specialized WTO dispute settlement unit within the government. Second, Brazil
has a WTO mission in Geneva which coordinates with the WTO unit in Brazil. The third
pillar consists of the private sector, law firms, and economic consultants.30 Moreover, the
country benefits from strong trade associations which help businesses mobilize, compile
information, and fund assistance to the government for trade disputes if necessary.31 Brazil
has used this pluralist trade law community intensively to advance and defend its interests.
Apart from being an avid user of the WTO dispute settlement system, Brazil has
also put forth several proposals at the WTO regarding the improvement of its rules and
procedures, four of which are highlighted here. The EU has played a significant role in two
of these procedural reform issues as well. These proposals all seem to aim at strengthening
the judicialization of the system (see infra, 4.3).
First, both Brazil and the EU have been involved in the contentious issue of amicus
curiae briefs in WTO dispute settlement since 2000. The year 2000 marked the first case
in which the AB presented its legal reasoning on accepting such briefs32, which had been
accepted in an earlier case.33 In US - Lead and Bismuth II, the U.S. argued in favor of
the AB accepting amicus curiae briefs. The EU (complainant in the case) and Brazil (as a
third party) opposed such acceptance, both arguing that the AB could not accept such
briefs. Brazil also stated that parties and third parties are uniquely qualified to make
27
WT/DS69, ECPoultry; WT/DS219, ECTube or Pipe Fittings; WT/DS266, ECExport Subsidies on Sugar;
WT/DS269, ECChicken Cuts; WT/DS332, BrazilRetreaded Tyres.
28
WT/DS81, BrazilAutos; WT/DS116, BrazilPayment Terms for Imports; WT/DS154, ECCoffee; WT/
DS183, BrazilImport Licensing & Import Pricing; WT/DS209, ECSoluble Coffee; WT/DS409, ECGeneric Drugs.
29
Shaffer, Ratton Sanchez and Rosenberg (n 24) 404.
30
Ibid 423-446.
31
Ibid 399-404 and 446-456.
32
WT/DS138/AB/R, USLead and Bismuth II, 39-42. See P Alai, Judicial Lobbying at the WTO: The
Debate over the Use of Amicus Curiae Briefs and the U.S. Experience (2000) 24 Fordham International Law
Journal 62; A Appleton, Amicus Curiae Submissions in the Carbon Steel Case: Another Rabbit from the Appellate
Bodys Hat? (2000) 3 Journal of International Economic Law 691; G Marceau and M Stillwell, Practical
Suggestions for Amicus Curiae Briefs Before WTO Adjudicating Bodies (2001) 4 Journal of International Economic
Law 155; G Marceau and M Hurley, Transparency and Public Participation in the WTO: A Report Card on WTO
Transparency Mechanisms (2012) 4 Trade, Law & Development 19.
33
WT/DS58/AB/R, USShrimp, 91.
217

legal arguments.34 Nonetheless, the AB followed the reasoning of the U.S. and held that
the AB, as well as panels, may accept amicus curiae briefs when they find them useful and
pertinent based on their right to draft their own working procedures, as enshrined in
Article 17.9 of the Dispute Settlement Understanding (DSU).35 It has been argued that the
ABs position was an attempt to manage and make public an existing practice of judicial
lobbying36, however, it did so in an activist way by assuming a broad interpretation
of the working procedures it adopted.37 In a subsequent report, the AB even drew up an
additional procedure, applicable only to the case at hand, regulating the filing of amicus
curiae briefs.38 This led many WTO Members, including Brazil and the EU, to fiercely
object this openness to accept briefs.39 Nonetheless, panels and the AB continue to accept
and take into consideration unsolicited amicus curiae briefs.40
Second, in 2003 Brazil presented a proposal to amend the WTO DSU, which establishes
the procedures of the WTO dispute settlement system. According to Brazil, the system
would be rendered more efficient and streamlined by a fast track panel or expedited
procedure. According to the proposal, in cases in which a Members measure has been
found inconsistent with WTO law through the WTO dispute settlement system, another
Member whose rights are nullified or impaired by that same measure would have the right
to an expedited procedure. The complainant would first have to prove that the measure is
identical to the one found inconsistent with the issuing Members obligations. A separate
finding on that matter would determine whether, in case the measure is not the same,
the ordinary procedure applies. If it is the same, the expedited procedure applies.41 As a
result, a fast track panel would reduce the timeframe and options for political compromise
or diplomatic tactics, placing an emphasis on legal rules rather than diplomatic power.42
Although the EU highlighted that a similar expedited procedure could be useful in regard
to unjustified initiations of antidumping and countervailing duty investigations,43 it did
34
WT/DS138/AB/R, USLead and Bismuth II, 37.
35
Ibid, 39.
36
Alai (n 32) 94.
37
Appleton (n 32) 699.
38
39
WT/DS135/AB/R, ECHormones, 52.
WT/GC/M/60, Minutes of the Meeting Held on 22 November 2000 (23 January 2001), 41-47 and 94-96.
40
41
For a detailed account of practice, see Marceau and Hurley (n 32) 30-34.
TN/DS/W/45/Rev.1, Communication from Brazil (4 March 2003). The proposal was discussed at a
meeting of the Dispute Settlement Body Special Session, see TN/DS/M/9, Minutes of Meeting Held on 17-18
February 2003 (1 July 2003).
42
TA Zimmermann, The DSU Review (1998-2004): Negotiations, Problems and Perspectives in D

Georgiev and K Van der Borght (eds), Reform and Development of the WTO Dispute Settlement System (Cameron May
2006), 455 and 457-458.
43
TN/RL/W/67, Negotiations on Anti-Dumping and Subsidies - Reflection Paper of the European

Communities on a Swift Control Mechanism for Initiations (7 March 2003); TN/RL/W/142, Replies by the
European Communities to Questions on TN/RL/W/67 - Reflection Paper of the European Communities on a
218

not take a formal stance regarding Brazils proposal. The proposal no longer appears to
be on the table.
A third point concerns the relationship between WTO disciplines and currency
manipulations. Although the best-known case is the one regarding the U.S. discontent
with Chinas monetary policy, Brazil plays a central role in this debate. In 2010, Brazils
Finance Minister Guido Mantega stated that the global economy was in an international
currency war as developed economies (among which he referred explicitly to the EU)
were devaluating their currency to improve their competitiveness.44 These headlinegrabbing remarks were the result of an appreciated real which negatively influenced
Brazils export capacity and augmented imports, putting pressure on domestic producers.45
Triggered by these effects, Brazil has raised its tariffs on certain goods and imposed antidumping measures on Chinese steel.46 Moreover, Brazil took exchange rate volatility and
currency misalignment to the WTO and has actively tried to have the organization
deal with the trade-distortive effects of these issues. Although exchange rate volatility
and undervaluation of currencies do have an impact on trade, it remains subject to
debate to what extent the WTO is or should be the forum to address these issues.47 It
was argued recently that the WTO and the International Monetary Fund (IMF) should
not renounce responsibility for this issue considering the extraordinary monetary policies
resulting from the economic and financial crises without explicitly indicating whether
WTO and/or IMF disciplines apply.48 Brazil clearly favors the former and prepared
two submissions.49 Meanwhile, as attention had shifted from exchange rate volatility to
currency misalignment, Brazil issued a conceptual note on the latter. In this note it holds
Swift Control Mechanism for Initiations (28 July 2003).
44
ICTSD, Brazilian Finance Minister Warns of International Currency War (29 September 2010) 14
Bridges Weekly 33.
45
ICTSD, Brazil Pushes Forward with Currency Discussion at WTO (28 September 2011) 15 Bridges
Weekly 32.
46
ICTSD, Brazil Slaps Anti-Dumping Tax on Chinese Steel Imports (14 September 2011) 15 Bridges
Weekly 30.
47
See, inter alia, R Staiger and AO Sykes, Currency Manipulation and World Trade (2010) 9 World
Trade Review 583; H Jung, Tackling Currency Manipulation with International Law: Why and How Currency
Manipulation Should be Adjudicated? (2012) 9 Manchester Journal of International Economic Law 184; Brazilian
researchers have also shown a particular interest in this matter. See A de Lima-Campos and JA Gaviria, A Case
for Misaligned Currencies as Countervailable Subsidies (2012) 46 Journal of World Trade 1017; V Thorstensen,
E Maral and L Ferraz, Exchange Rate Misalignments and International Trade Policy: Impacts on Tariffs (2012)
46 Journal of World Trade 597; V Bovarotti Lopes, Exchange Undervaluations: The Solution Must Come from
the WTO (2013) 1 Latin American Journal of International Trade Law 383; and V Thorstensen, D Ramos and C
Muller, The Missing Link Between the WTO and the IMF (2013) 16 Journal of International Economic Law 353.
48
49
R Zoellick, Questions for the Worlds Next Trade Chief Financial Times (1 April 2013).
WT/WGTDF/W/53, Submission by Brazil (13 April 2011); WT/WGTDF/W/56, Submission by Brazil

(20 September 2011). Subsequently, the WTO Secretariat issued a note on the subject: WT/WGTDF/W/57, The
Relationship between Exchange Rates and International Trade: A Review Of Economic Literature (27 September
2011) and an update: WT/WGTDF/W/65 (18 July 2012).
219

that the WTO should look into ways to address their effects in a systemic manner. Brazil
submits that no appropriate remedies currently exist under GATT law and therefore
suggests starting analytical work to consider the need for exchange rate trade remedies.50
Aside from some remarks on the appreciation of currencies in Eastern Europe, the EU
remained silent on the matter on record51 apart from a statement by the French delegation
welcoming the discussion of the issue at the WTO.52 Despite Finance Minister Mantegas
naming and shaming the EU as one of the currency manipulators, an overvalued currency
is a problem for the EU as well. The euro appreciated substantially with respect to major
currencies, deteriorating the competitive position of European exporters.53 However,
from opposite views within the Euro area on political intervention in the euros exchange
rate54 it appears that the EU is not looking to subject the sensitive issue of exchange rate
policy to the scrutiny of the WTO dispute settlement system.
A fourth point concerns the issue of access to documents, a theme on which the
EU has developed a great amount of case-law before its Court of Justice. At the 28
January 2013 meeting of the Dispute Settlement Body (DSB), Brazil issued a statement
on the manner in which preliminary rulings have been issued as of late. It submitted
that an indiscriminate use of preliminary rulings in the absence of proper rules may
have systemic impacts on dispute settlement proceedings as a whole. Moreover, the
procedural aspects which are usually the subject of requests for preliminary rulings are
relevant rules of the DSU.55 Although it is not clear what systemic consequences Brazil
referred to, it appeared again in favor of a transparent rules-based approach to the
WTOs dispute settlement system. Scholarship is divided on the question of whether
panels are well-suited to issue preliminary rulings and how to approach them.56 In any
case, Brazils concerns on preliminary rulings were partly echoed at the same meeting by
the EU, which raised the issue of third party access to documents in preliminary ruling
procedures. While such rulings are usually reproduced in the panel reports, this may
50
WT/WGTDF/W/68, A Conceptual Note by Brazil (5 November 2012).
51
WT/WGTDF/M/24, Report of the Meeting of 27 and 28 March 2012 (24 September 2012), 24.
52
WT/WGTDF/W/64, Statement by the French Delegation (25 May 2012).
53
A Evans-Pritchard, Europe Drawn into Global Currency Wars as Slump Deepens The Telegraph (16
January 2013); M Hesse and A Seith, Calls for Cheap Euro: ECB Caught in Currency-War Crossfire Der Spiegel
(11 February 2013).
54
I Wishart, Concerns Growing over Global Currency Wars, European Voice (14 February 2013), <http://
www.europeanvoice.com/article/imported/concerns-growing-over-global-currency-wars-/76419.aspx>, accessed
28 March 2013.
55
The minutes of this meeting were still restricted at the time of writing. A summary of the meeting was prepared
by the WTO Secretariat and is available at <http://www.wto.org/english/news_e/news13_e/dsb_28jan13_e.htm>.
56
See for example a current Appellate Body member who, prior to his appointment, indicated dealing with
preliminary rulings as an issue of the current system of ad hoc panels: SW Chang, Comment on a WTO Permanent
Panel Body (2003) 6 Journal of International Economic Law 211, 221. See for a different view by an experienced
panellist, M Cartland, Comment on a WTO Permanent Panel Body (2003) 6 Journal of International Economic
Law 211, 216.
220

be too late for third parties to anticipate and act upon them. Therefore, the question
arose whether panels should issue the preliminary ruling to third parties. Currently, this
is a discretionary decision by the panel in the context of its right to organize working
procedures, within the limits of the DSU and more specifically Appendix 3 thereof.
Practice shows that panels sometimes do and sometimes do not issue the rulings.57 The
same is true for the participation of third parties in preliminary proceedings. On this
issue, a panel has held that in such a case third parties were to be invited to participate
in the proceedings up to the time the panel issued its preliminary ruling.58 In a case
where Brazil was the complainant, a different panel held that third parties should have
access to the parties initial written comments and any written comments the parties
may make on each others comments.59
The matter continues to be contested as in the aforementioned DSB meeting, the EU
(and Australia and China) stated that third parties should be given access to information
submitted by the parties and should be given the opportunity to comment.60 The EUs
statement should not come as a surprise, as it has long been addressing third party rights
to access to documents. For example, the EU has previously requested preliminary
rulings giving third parties access to all written submissions of the parties in Article 21.5
DSU proceedings. However, these requests were denied by panels in various instances.61
The EU persevered and found a panel which endorsed its reasoning.62 However, the
finding was not followed by another panel in a subsequent case.63 To settle the matter,
the AB stated that the relevant provision of the DSU, Article 10.3, is to be interpreted as
meaning that third parties shall be given all written submissions made prior to the first
meeting of the panel.64 In practice, this means that only the first written submissions of
the complainant and the respondent are to be issued to third parties since the rebuttal
submissions of both parties are typically only filed after the first meeting of the panel.65
57
See for example WT/DS156/R, GuatemalaCement II, 8.11, in which the third parties were issued the
preliminary ruling, and WT/DS291/R, WT/DS292/R, WT/DS293/R, ECApproval and Marketing of Biotech
Products, 7.47, in which only the parties did.
58
WT/DS276/R, CanadaWheat Exports and Grain Imports, 6.6 and footnote 3.
59
WT/DS267/R, USUpland Cotton, 7.3.
60
Supra (n 55).
61
WT/DS18/RW, AustraliaSalmon, 7.5-7.6; WT/DS126/RW, AustraliaAutomotive Leather II, 3.9.
62
WT/DS103/RW, WT/DS113/RW, CanadaDairy, 2.34.
63
WT/DS108/RW , USFSC, 6.1-6.3.
64
WT/DS108/AB/RW, USFSC, 245.
65
Appendix 3 to the DSU, 12.
221

IV. L everage
for
B razil
vis - - vis the
EU
This section establishes how the above interactions in the area of WTO dispute settlement
may have increased Brazils leverage vis--vis the EU in three respects: (i) by creating
indirect economic advantages, (ii) by increasing international and domestic mobilization
and agenda-setting, and (iii) by strengthening the judicialization of the WTO dispute
settlement system.
A. I ndirect
economic advantages
First of all, the active use of the dispute settlement system and concurrent domestic
capacity building has made Brazil a very successful WTO complainant, one that is
able to bring and win cases against highly contested EU measures especially in the
context of the EUs agricultural policy.66 The outcome in EC - Export Subsidies on Sugar,67
a prominent case against essential measures of EU sugar policy, induced significant
sectoral changes with positive effects for the Brazilian economy. After the AB found the
EUs export subsidies on sugar inconsistent with the WTO Agreement on Agriculture,
the EUs sugar policy was substantially reformed.68 As a result of these reforms, the EU
became a net importer of sugar. Even though the EU imports mainly from African,
Caribbean and Pacific states and least developed countries which may benefit from
duty-free quota-free access to the EU market, its altered sugar policy favors Brazil as the
worlds largest sugar producer and exporter.69 These benefits extend the direct outcome
of the dispute, and thus create economic leverage for Brazil. This case, as well as the
dispute against U.S. export subsidies for upland cotton, brought before the WTO on the
same day,70 were also instrumental in a broader sense and enhanced Brazils position as
a complainant.
66
See WT/DS69/AB/R, ECPoultry, in which a European measure which disadvantaged exported poultry
from Brazil, was deemed inconsistent with Article 5.5 of the Agreement on Agriculture; WT/DS269/AB/R, EC
Chicken Cuts, in which a modification of the EUs Combined Nomenclature altered the tariffs for salted chicken cuts,
leading to less favourable treatment for poultry within this category than the treatment awarded in the EUs tariff
concessions; and WT/DS266/AB/R, ECExport Subsidies on Sugar, also discussed in this section.
67
WT/DS266, ECExport Subsidies on Sugar.
68
2013.
Commission (EC), Sugar (2012) <http://ec.europa.eu/agriculture/sugar/index_en.htm>, accessed 2 April
69
D Brough, Brazil Sugar, Ethanol Exports at Peaks - ISO Reuters (8 January 2013) <http://www.reuters.
com/article/2013/01/08/brazil-sugar-ethanol-idUSL5E9C8A9S20130108>, accessed 2 April 2013.
70
WT/DS267, USUpland Cotton.
222

B. I nternational
and domestic mobilization and agenda - setting
This relates to a second point. Through its success as a WTO litigator, Brazil was able
to prominently and bluntly put the EUs restrictive agricultural policy measures on the
international agenda. This strengthened the position of opponents of agricultural subsidies
both within the EU and amongst other WTO Members.71 Consequently, international
pressure mounted on the EU regarding one of the most contentious issues of its trade
policy. In return, this gave more weight to Brazils request to diminish or end EU export
subsidization of agricultural products. Similar dynamics can be seen in a patent protection
case lodged by the U.S. against Brazil, in which the latter claimed that the contested
measures were necessary to combat an HIV epidemic.72 After initial international outrage
regarding the relationship between trade and access to medicine, and a symbolically
interesting opening of the United Nations General Assembly on HIV/Aids, the case was
settled.73 Here too, international agenda-setting proved valuable for Brazilian trade policy.
With respect to the EU and building on their position as proponents of access to generic
medicines74, Brazil and India lodged two separate WTO complaints against the EU and
the Netherlands regarding Indian produced generic drugs that were seized in transit to
the Netherlands on their way to Brazil.75 The measure provoked comments from inter alia
sixteen WTO Members, public health advocates, global health care interest groups and
NGOs.76 In the end, Brazil was able to put its interests in a positive light in comparison to
the EUs interpretation of intellectual property protection and trade rules.
Brazils efforts to bring such high-profile contentious issues before the WTOs dispute
settlement system led to increased leverage for it as a negotiator in the Doha Round,
reaffirming its leadership in the G-20 of developing countries, an informal coalition
which it had co-established with India and South Africa.77 Moreover, Brazils harder
negotiation position during the Lula administration vis--vis the EU in the Doha Round
71
Shaffer, Ratton Sanchez and Rosenberg (n 24) 421-422.
72
WT/DS199, BrazilMeasures Affecting Patent Protection.
73
P Capella, Brazil wins HIV Drug Concession from US The Guardian (26 June 2001).
74
See J Wouters et al, Some Critical Issues in EU-India Free Trade Agreement Negotiations (2013) Leuven
Centre for Global Governance Studies Working Paper 102, 14-16. India has reached an interim agreement with the
EU on the matter: India-EU Generic Drug Row Resolved at Brussels Summit BBC News Europe (10 December
2010) <http://www.bbc.co.uk/news/world-europe-11971568>, accessed 2 April 2013.
75
WT/DS408, WT/DS409, EU and a Member StateSeizure of Generic Drugs in Transit, respectively brought by
India and Brazil.
76
ICTSD, Brazil Slams EU for Seizure of Generic Drugs (4 February 2009) 13 Bridges Weekly; EU
Challenged on Generics Seizures (3 September 2010) 14 Bridges 3.
77
Shaffer, Ratton Sanchez and Rosenberg (n 24) 421-422.
223

was arguably one of the main reasons why Brussels decided to establish the EU-Brazil
Strategic Partnership.78
Apart from these external aspects, WTO litigation also contains a domestic leverage
dimension for Brazil. First of all, and importantly, complaints have given rise to increased
domestic interest and support from well-organized sectoral interest groups and private
sector actors. Their trade knowhow and political and financial mobilization resulted in
interactions with the government, helping Brazil to win cases and build more capacity.79
Second, a number of symbolically important cases in which Brazil acted as a respondent
have incited attention in public opinion. The most symbolic dispute settlement saga
followed a Canadian complaint against Brazil for alleged aircraft subsidies, followed by
two complaints by Brazil against Canada on the same subject.80 At first, Canadas claim
was successful. However, in the cases brought by Brazil, the Canadian subsidies were
deemed inconsistent with WTO law as well. Shortly after this decision, Canada banned
Brazilian beef on the account of alleged risks of BSE or mad cow disease.81 This caused
a stir among Brazilian trade unions and farmers and influenced anti-Canadian actions
by the Brazilian public.82 The result of such internal leverage is increased political and
financial mobilization in favor of Brazils trade interests. Nonetheless, even though their
influence is significant indirect domestic factors do not seem to play a vital role in Brazils
position in trade negotiations.83
C. J udicialization
of
WTO
dispute settlement
Brazils active use of the dispute settlement mechanism and its proposals for reform
contribute to focusing the WTO dispute settlement system more on rules and less on
economic power. Judicialization aims at increasing predictability and transparency and
allows economically weaker parties to bring complaints against stronger economies, as
typified by the catchphrase right perseveres over might.84 The split between judicialization
78
E Mesquita Ceia, The new approach of the European Union towards Mercosur: What is behind the launch
of the Strategic Partnership with Brazil and what are its chances of being effective? (2008) 61 Studia Diplomatica 81.
79
Shaffer, Ratton Sanchez and Rosenberg (n 24), 481.
80
WT/DS46, BrazilAircraft; WT/DS70, CanadaAircraft; WT/DS222, CanadaAircraft Credits and

Guarantees. See Shaffer, Ratton Sanchez and Rosenberg (n 24), 414-416 for an account of these matters.
81
ICTSD, Canadian Ban on Brazilian Beef Imports Escalates Trade Battle (13 February 2001) 5 Bridges
Weekly 5.
82
ICTSD, Canada Under Pressure to Revoke Ban on Brazilian Beef (20 February 2001) 5 Bridges Weekly
6; J Rich, Tempers Flare and Losses Mount After Canada Bans Brazil Beef , New York Times (20 February 2001).
83
A Hurrell and A Narlikar, A New Politics of Confrontation? Brazil and India in Multilateral Trade
Negotiations (2006) 20 Global Society 415, 433.
84
J Lacarte-Mur and P Gappah, Developing Countries and the WTO Legal and Dispute Settlement
System: A View from the Bench (2000) 3 Journal of International Economic Law 395, 400-401 (original emphasis).
224

and politicization has been referred to as the fundamental controversy in negotiations

on amending the dispute settlement system.85 Although Brazil can hardly be considered
a small economy and one may therefore ask what interest it has in judicialization, it must
be noted that its trade disputes mainly involve the U.S. and the EU. These actors are
not only Brazils main trading partners but also the two largest economies in the world.
Additionally, a rules-based orientation implies that legal capacity is crucial in making
optimal use of the complex and expensive system.86 Combining these two factors, it
becomes clear why Brazil is a fierce proponent of an increased judicialization of the
WTO dispute settlement system.87
Brazils use of the WTO dispute settlement system and its reform proposals illustrate its
interest in the judicialization of the system. An active use of the dispute settlement system
allows the panels and AB to interpret WTO law, which reduces the scope for political
arguments as economic and legal arguments become more important.88 Participation
helps shaping WTO law by influencing how the gaps in the WTO agreements are filled by
the panels and AB. This in turn affects the bargaining position of a Member in subsequent
negotiations.89 The relative power of an economically more powerful party may decline
as a result of the other partys influence on how legal gaps are bridged. However, in
the case of Brazil and the EU, both appear to be on the same side of this argument.
Apart from its positions on reform discussed in the previous section, the EU also proposed
increasing external transparency90 and strengthening third party rights91 in order to
reduce the power element in the WTOs dispute settlement system.92 This being said, the
EU has also initiated a proposal for reform which at first glance tends to strengthen the
power-orientation of the dispute settlement system. The proposal concerns an automatic
85
Zimmermann (n 42) 455-468.
86
ML Busch, E Reinhardt and G Shaffer, Does Legal Capacity Matter? A Survey of WTO Members
(2009) 8 World Trade Review 559, especially pp. 559-563 in which the authors refer to various other studies on the
impact of legal capacity in WTO law.
87
More so, these two factors are to be seen in a direct relationship with the judicialization of the WTO dispute
settlement system. See D De Bivre, Legislative and Judicial Decision Making in the World Trade Organization
in M Koenig-Archibugi and M Zrn (eds), New Modes of Governance in the Global System: Exploring Publicness, Delegation
and Inclusiveness (Palgrave Macmillan 2006), 51. See more generally: G Shaffer, How to Make the WTO Dispute
Settlement System Work for Developing Countries: Some Proactive Developing Country Strategies, (2003) ICTSD
Sustainable Development and Trade Issues Resource Paper 5.
88
J Wouters and M Burnay, China And The European Union in the World Trade Organization: Living
Apart Together? in J Wouters et al (eds), China, the European Union and the Restructuring of Global Governance (Edward
Elgar 2012), 85.
89
G Schaffer, Developing Country Use of the WTO Dispute Settlement System: Why it Matters, the
Barriers Posed in J Hartigan (ed), Trade Disputes and the Dispute Settlement Understanding of the WTO: An Interdisciplinary
Assessment (Emerald 2009), 172.
90
TN/DS/W/1, Communication from the EC, 13 March 2002, 6-7.
91
TN/DS/W/38, Communication from the EC, 23 January 2003, 15-16.
92
See, for a categorisation of proposals for reform, Zimmermann (n 42) 466.
225

lapse and easier withdrawal of requests for consultations or for the establishment of
panels.93 This may be seen as facilitating a tactical use of such requests for the purpose
of negotiations.94 Nonetheless, considering that at the time of writing, 143 disputes are
in consultations95 and in 22 cases a panel has been established but not yet composed96
on a total of 456 disputes, current procedures have clearly not restrained Members from
tactically requesting consultations and, to a lesser extent, the establishment of a panel. In
that sense, the EUs proposal does not reduce the judicialization of the dispute settlement
system.
The foregoing does not mean that Brazil or the EU refrain from using power politics in
trade disputes. Brazil does use the threat of WTO dispute settlement vis--vis the EU from
time to time. Apart from the dispute regarding the seizure of generic drugs mentioned
above, it threatened to lodge a WTO complaint if EU environmental standards would
harm Brazilian ethanol exports.97
When considering the impact of judicialization of the WTO dispute settlement system
on the interaction between Brazil and the EU, it should also be noted that the EU, one of
the two most experienced users of the system, has built up an equally strong legal capacity
in the WTO. Moreover, whether for ideological, cultural, historical or strategic reasons,
the EU also favors the judicialization of the WTO dispute settlement system. This perhaps
is not surprising, as even from the perspective of power politics, this approach entails less
uncertainty on the outcome of disputes and alleviates potential economic power loss.
Although this may be, the increasing importance of rules over power may only shift
the concern, as substantial legal capacity may serve as a deterrent in a similar way as
economic power.98 Nonetheless, the former may perhaps be solved more easily than the
latter.99 In this sense, Brazil may serve as a model for newly emerging economies as it has
93
EC (n 90), 9.
94
Zimmermann (n 42) 463.
95
Of which only about 30 stem from the last five years and can thus be expected to possibly lead to the
establishment of a panel.
96
Of which about half for more than five years.
97
ICTSD, Doha Round at Crossroads (May 2008) 12 Bridges 3, 19. Brazil had a similar trade row with the
U.S. on ethanol, which led to a request for consultations in WT/DS365, USAgricultural Subsidies. The complaint
was framed broader than ethanol. A mutual agreement appears to have been found. See L Karp and M Stevenson,
Green Industrial Policy: Trade and Theory (2012) World Bank Policy Research Working Paper 6238, 12-13. In
this respect, also see WT/DS443, EU and a Member StateCertain Measures Concerning the Importation of Biodiesels
in which Argentina brought a complaint against Spain and the EU attacking the Spanish implementation of
the EU regulatory framework for energy from renewable sources. Argentina has put this dispute on hold after
Spain announced it would modify the measure. Additionally, see WT/DS459, EU and Certain Member States
Certain Measures on the Importation and Marketing of Biodiesel and Measures Supporting the Biodiesel Industry. In this
case, Argentina is targeting support schemes which promote renewable energies. ICTSD, Argentina Lodges New
WTO Complaint on EU Biodiesel Policies (16 May 2013) 17 Bridges Weekly 17.
98
99
Busch, Reinhardt and Shaffer (n 86), 577.
T Sattler and T Bernauer, Gravitation or Discrimination? Determinants of Litigation in the World Trade
226

strengthened its trade position through legal capacity-building whilst gaining economic
power.
V. R ecent
developments
for
causing
B razil
loss
of
leverage
The previous sections explained how Brazil and the EU are both committed to
strengthening the WTO dispute settlement systems rules-based approach. It also
discusses how Brazil has successfully created leverage through using the system to further
its economic interests, strengthen its position in trade negotiations, and consolidate its
image as an assertive new global player. However, this leverage might be dampened by
several trade dynamics that currently shape international trade and commerce.
A. E merging
global trends and developments
First, the stalemate at the WTOs Doha Round of negotiations is a disappointing outcome
for Brazil, as it has been one of the focal points of its trade negotiation strategy for
more than a decade.100 As illustrated above, Brazil uses the dispute settlement system
to successfully target the protectionist agricultural policies of developed countries,
strengthening its negotiating position in the Doha Round, where it initially played an
assertive role. Brazil and the EU have moderated their demands and adopt a constructive
approach in the Round, however, India and the U.S. still cling to their initial positions. To
a certain extent, this neutralizes the Brazils and the EUs key role in these negotiations.101
At the Sixth EU-Brazil Summit in January 2013, both partners agreed on the need to
accelerate negotiations in Geneva and reiterated their commitment to concluding the
Doha Round.102 Despite this reaffirmation an evergreen in all statements under the
EU-Brazil Strategic Partnership both partners seem unable to reinvigorate the Doha
process.
Second, Brazils overall trade negotiating position is being undermined by a number
of broader dynamics outside the WTO framework at the same time. This includes the
informal consultations on a plurilateral free trade agreement addressing solely services,
the International Services Agreement or Trade in Services Agreement. This initiative
was launched by a group of countries in 2012 in an effort to make progress on services
Organisation (2011) 50 European Journal of Political Research 143, 163.
100
Vallado (n 8) 1.
101
Messerlin (n 16) 1-2.
102
Council of the European Union, VI Brazil-EU Summit Joint Statement (24 January 2013).
227

liberalization outside the paralyzed Doha framework. Negotiations are meanwhile

entering the formal stage.103 Brazil and other emerging economies are not involved and
have openly criticized this initiative for compromising progress in the Doha Round and
not meeting the standards of transparency and inclusiveness.104
Furthermore, progress has recently been made towards several comprehensive
multilateral trade negotiations, which signals a trend towards mega-regionalism. There
is the Trans-Pacific Partnership (TPP) between the U.S. and ten countries around the
Pacific, including Japan and perhaps South Korea in a later stage.105 In the same region,
talks to form a trilateral trade agreement between Japan, South Korea and China have
been initiated but have not yet entered the stage of formal negotiations.106 In Latin
America, progressing talks on a Pacific Alliance between Chile, Colombia, Mexico, and
Peru could lead to a competing trade bloc for Mercosur.107 Interestingly, the EU (and the
U.S.) has trade agreements in place with all current Pacific Alliance members. In addition,
negotiations for a Trans-Atlantic Trade and Investment Partnership (TTIP) between the
U.S. and the EU will commence in July 2013. If concluded, the TTIP would be the biggest
trade deal ever negotiated.108 Importantly, Brazil is not part of any of these processes.
While the scope and successful conclusion of these mega-regional trade agreements
are still very uncertain, these agreements, if concluded, will shape the future of the global
trade regime. Because of the sheer combined size and economic weight of the trade blocs
involved, these new agreements have the potential to set standards for international trade.
The TTIP has even been described as an attempt to create a WTO version 2.0.109
Brazils economic interests and its role in the Doha Round could be undermined by the
emergence of these mega-regional trade blocs. These concerns have been expressed by its
Foreign Minister Antonio Patriota. Addressing the EU-U.S. negotiations, he noted there is
a strong possibility that something might emerge outside the framework and regulations
of the World Trade Organization, referring to a framework which then they will want
103
Commission (EC) Negotiations for a Plurilateral Agreement on Trade in services (15 February 2013)
MEMO/13/107.
104
RK Devarakonda, An Assault on Multilateral Trade Negotiations, International Press Service (17 March
2012) <http://www.ipsnews.net/2012/03/an-assault-on-multilateral-trade-negotiations/>, accessed 9 April 2013.
105
PA Petri and MG Plummer, The Trans-Pacific Partnership and Asia-Pacific Integration: Policy
Implications (2012) PIEE Policy Brief.
106
Joint Study Committee, Report for an FTA among China, Japan and Korea, 30 March 2012, <http://
www.meti.go.jp/english/press/2012/0330_06.html>, accessed 16 April 2013.
107
B Kotschwar, Will the Pacific Alliance Succeed in Latin America After Other Trade Pacts Have Failed?
(23 May 2013) PIEE Real Time Economic Issues Watch.
108
Commission (EC), European Union and United States to launch negotiations for a Transatlantic Trade
and Investment Partnership (13 February 2013) MEMO/13/95,.
109
Messerlin (n 6) 4.
228

to impose on the rest of world trade.110 Brazil seems to fear that WTO rules, including
the Doha Round, might lose relevance. This is perhaps of a lesser concern for the EU.
The prospect of a TTIP between the U.S. and the EU also has implications for
EU-Mercosur negotiations. Foreign Minister Antonio Patriota, while admitting that the
start of EU-U.S. negotiations constitutes an alert signal, reassured the Brazilian senates
Foreign Affairs Committee that EU-Mercosur negotiations have reached a further stage.
Whereas the emergence of mega-regionals is pressuring Brazil to conclude an agreement
with the EU, similar dynamics pressure the EU to reassess its priorities and make a pivot
to East Asia and away from Latin America.111
B. D evelopments
undermining
B razil s
position vis - - vis the
EU
Brazils ability to generate leverage and gain influence in the international trade
community was one of the reasons why the EU took steps to upgrade its relationship
with Brazil to a Strategic Partnership in 2007. However, Brazils position vis--vis the EU
has come under pressure since then. First of all, at the end of 2013 Brazil will be removed
from the list of countries benefiting from the EUs Generalized Scheme of Preferences
(GSP), which grants preferential access to the EU market.112 To come to a new, substantive
trade agreement on market access with the EU, Brazil is dependent on progress in the
EU-Mercosur dialogue. While negotiations on the EU-Mercosur trade agreement have
carried on since 1998, fifteen years later Brussels and Brasilia still remain committed to an
interregional agreement and do not openly consider a bilateral Brazil-EU alternative.113
Despite this commitment, EU-Mercosur trade negotiations continue to face a number of
challenges. The Mercosur bloc is experiencing internal changes which make it difficult
for Brazil, its largest economic power and therefore its main negotiator, to turn all heads
in the same direction. These changes include the new membership of Venezuela, the
possible opening of accession dialogues with Bolivia and the suspension of Paraguay.114
In addition to these membership issues, Mercosur is plagued by a number of economic
difficulties. Argentina, the second biggest economy in Mercosur, has proven to be unwilling
110
BricsPost, Brazil FM Warns EU-US on trade talks (6 April 2013) <http://thebricspost.com/brazilfm-warns-eu-us-on-trade-talks/#.UWQlqUrZfTo>, accessed 9 April 2013; MercoPress, Brazil hopeful an EU/
Mercosur Trade Accord can be Concluded This Year (6 April 2013), <http://en.mercopress.com/2013/04/06/
brazil-hopeful-an-eu-mercosur-trade-accord-can-be-concluded-this-year>, accessed 9 April 2013.
111
P Messerlin, The Much Needed EU Pivoting to East Asia (2012) 10 Asia-Pacific Journal of EU Studies 1.
112
As Brazil has entered the group countries with a high or upper middle income per capita according to World
Bank classification, the EUs GSP expires.
113
In the second Joint Action Plan of the EU-Brazil Strategic Partnership, covering 2012-2014, the partners
agreed to continue to work towards the conclusion of a balanced and comprehensive EU-Mercosur agreement.
114
RG Flres In Search of a Feasible EU-Mercosul Free Trade Agreement (2013) CEPS Working Document
378, 5-6.
229

to make concessions to clinch the trade agreement. At the same time, the country faces
problematic inflation rates, and the government has taken a number of controversial
regulatory measures. Argentinas expropriation of the Spanish-owned petrol company
YPF Repsol has been particularly painful for relations with the EU. In late 2012, the
EU, Japan and the U.S. requested a WTO dispute panel to rule on Argentinas import
restrictions.115 Buenos Aires has made the prospects of trade and foreign investment in
Argentina increasingly unattractive, to the point where it has been labeled a pariah
in the global economy.116 Not surprisingly, top EU officials have denounced Argentinas
actions and spelled out its negative effects for the EU-Mercosur negotiations.117 Within
Mercosur, similar trade tensions have arisen, and Brazil has expressed frustration with
Argentinas regulatory measures which delay Brazilian imports.118
Both Mercosurs membership issues and the problematic economic policies of
Argentina greatly undermine Brazils negotiating position vis--vis the EU. Indeed, as
Brazilian and EU officials reiterated the need to come to an agreement as fast as possible,
Argentinas President Cristina Kirchner downplayed this sense of urgency and called for
a more cautious approach.119 While Brazil accounts for 80% of Mercosurs total GDP,
the highly asymmetrical power relations within the trade bloc have impeded it from
effectively leading and concluding negotiations.120
Not only do these issues complicate Brazils efforts to conclude a trade agreement
with the EU, in all likelihood, the EUs trade policy will be focused elsewhere for the
coming years. First, the TTIP negotiations will be a priority. Second, in response to the
U.S.-led TPP and the possible start of trilateral negotiations between China, Japan and
South Korea, the EU is likely to invest its efforts in securing its trade interests in East
Asia.121 To this end, in addition to the EU-Korea trade agreement, official negotiations
with Japan were launched in March 2013. The upcoming negotiations with Washington
and Tokyo, and additionally, the plurilateral services agreement, are expected to be
115
WT/DS438, WT/DS445 and WT/DS446, ArgentinaMeasures Affecting the Importation of Goods; ICTSD,
Four Argentina WTO Disputes Reach Panel Stage (30 January 2013) 17 Bridges Weekly 3.
116
F Erixon and L Brandt, Pariah in the World Economy: How Should Countries Respond to Argentinas
Return to Economic Nationalism? (2013) ECIPE Policy Brief 1 .
117
MercoPress, Argentinas Behaviour Main Obstacle for EU-Mercosur Trade Talks Says Brussels
(14 December 2012), <http://en.mercopress.com/2012/12/14/argentina-s-behaviour-main-obstacle-for-eumercosur-trade-talks-says-brussels>, accessed 16 April 2013; MercoPress, EC Regrets Stances of Protectionism
and Populism in some Mercosur Members (5 September 2012) <http://en.mercopress.com/2012/09/05/ecregrets-stances-of-protectionism-and-populism-in-some-mercosur-members>, accessed 16 April 2013.
118
ICTSD, Brazilian Minister: EU-Mercosur Talks to Pick Up Momentum This Year (11 April 2013) 17
Bridges Weekly 12.
119
MercoPress, Cristina Fernandez Delaying Mercosur/EU discussions for a Free Trade Agreement (28
January 2013) <http://en.mercopress.com/2013/01/28/cristina-fernandez-delaying-mercosur-eu-discussions-fora-free-trade-agreement>, accessed 16 April 2013.
120
121
Leal-Arcas (n 17) 384.
Messerlin (n 111).
230

demanding and will likely absorb much of the high-level political support needed to
conclude such comprehensive trade agreements. Hence, trade negotiations with Brazil
or Mercosur are unlikely to receive similar attention. It has been argued that only when
Brazils economy eventually becomes big, dynamic and better regulated enough, it
will appear on the EUs political agenda and progress will be made.122 Several experts
advance alternative approaches to the EU-Mercosur dialogue, indicating that it might
be more constructive to first agree on a smaller package or an agreement on anything
but trade.123 However, such an approach seems unlikely as the EU has signaled that
it is only interested in concluding a trade agreement with Mercosur if it is substantial.
Moreover, to come to a fully-fledged trade agreement, there might also be hurdles within
the EU. Not only does the economic crisis continue to plague European economies, it
is also uncertain whether the current French administration has the political capital to
face Europes strongest agricultural lobby, which stands to lose in the case of a future
EU-Mercosur trade agreement.124
VI. C oncluding
remarks
On international trade issues the EU and Brazil interact at several scenes: multilaterally
in the WTO, plurilaterally through the EU-Mercosur dialogue, and bilaterally. This paper
examined how Brazil created leverage through these interactions in the WTO, and how
recent trade developments are likely to reduce this leverage. Brazil made successful use
of the WTO dispute settlement system and is committed to strengthening the rules-based
approach of the system. As a result of its successful challenges of inter alia EU agricultural
measures, Brazil created internal and external leverage to strengthen its position in the
trade dialogue with the EU. In this sense, the experience of Brazil might serve as an
example for other developing countries, and highlights the importance of domestic
capacity-building.
Nonetheless, it was found that a number of current developments undermine
Brazils position. These include the negotiations to conclude a number of very large
trade agreements, such as the TTIP, the TPP, trade integration proposals in Asia, or
the international services agreement. These agreements are being negotiated outside
the WTO framework as regional trade agreements and Brazil is not involved in any
of them. If these agreements are concluded, they risk to isolate Brazil and reduce its
competitiveness concerning market access conditions and trade diversion. As a result of
this pressure, Brazil appears committed to conclude the long overdue EU-Mercosur free
122
Messerlin (n 16) 5.
123
These views were presented at the conference The Brazil-EU Strategic Partnership: Realities and
Potential, organized by Centre for European Policy Studies (CEPS) (Brussels 4-5 March 2013).
124
Vallado (n 8) 12.
231

trade agreement, but faces challenges in finding a common position with other Mercosur
members, particularly Argentina. Moreover, the EUs interest to conclude the talks will be
limited at a time where negotiations with the U.S. and Japan and the plurilateral services
agreement are more likely to attract political support and prioritization.
In the meantime, the EU and Brazil continue to address and denounce each others
trade restrictive measures. The Commissions most recent report on Potentially Trade
Restrictive Measures lists Brazil, as wells as Argentina, among the countries which
have resorted to the highest number of new restrictive measures.125 The EUs vote for
Mexicos Herminio Blanco in the race for the position of WTO Director-General, won
by the Brazilian Roberto Azevdo may be illustrative of existing tensions, although the
vote may be of little political significance.126 It remains to be seen how trade relations
between the EU and Brazil will continue to be shaped by all these current developments.
If no agreement is reached swiftly, it would appear that Brazils position will gradually
deteriorate. It might then take a long time before Brussels and Brasilia reconnect.
125
Commission (EC), Ninth Report on Potentially Trade Restrictive Measures Identified in the Context of
the Financial and Economic Crisis (6 May 2012).
126
P Sotero, Lessons of Azevdos Victory at the WTO Financial Times Beyond BRICS (9 May 2013).
232
WTO M arket
and non - market economies :
the hybrid case of
C hina
Vera Thorstensen, Daniel Ramos, Carolina Muller and Fernanda Bertolaccini*

Abstract. The Multilateral Trading System was created in order to liberalize and promote trade as an instrument
of economic development. Aiming to become universal, it gave support to the participation of both market and
non-market economies (NMEs). With the strengthening of the Cold War, NMEs left the negotiations leading to
the GATT. Nevertheless, the accession and presence of some NME countries in the GATT has brought light to the
specificities of trade between market and non-market economies. With the end of the Cold War and the creation
of WTO, all economies invited to participate in the organization agreed to become market economies, with the
objective to participate fully in the system. The case of China, the first major hybrid economy to accede to the
WTO, in 2001, however, reinstated the debate on adequate systemic rules and reforms. This article will discuss the
systemic challenges of integrating hybrid economies, and their NME features, into the WTO. It will analyze how the
Multilateral Trading System has dealt differently with the issue with the issue during the GATT and the WTO eras.
It will then discuss the relationship between NMEs and the principles and rules of the system.
Keywords. WTO, Non-market economies; China
* Vera Thorstensen is a Professor at the So Paulo School of Economics (EESP) from FGV and Coordinator of the
Center on Global Trade (CGTI). Daniel Ramos, Carolina Muller and Fernanda Bertolaccini are research assistants
at CGTI.
I. I ntroduction
the Multilateral Trading System was created in the 1940s with the GATT, containing
clear objectives to liberalize and promote trade as an instrument of economic

development. Aiming to become universal, the Multilateral Trading System gave
support and incentives to both market and non-market economies (NMEs) to
participate in its activities. With the strengthening of the Cold War, however, NMEs
left the negotiations leading to General Agreement on Trade and Tariffs (GATT).
During the second half of the 20th century, it was a common perception that the
GATT system, along with the OECD, was the club of market economies in contrast
to the Council for Mutual Economic Assistance Comecom that would be the
club of centrally-planned economies. In this sense, GATT rules, tailored for marketeconomies, did not envisage dealing with the different aspects of NMEs.
233

Nevertheless, throughout the history of GATT, and especially after the creation of
the WTO, the accession and presence of NME countries in the Multilateral Trading
System has brought light to the specificities of trade between market and non-market
economies.
With the end of the Cold War and the creation of WTO, all economies invited
to participate in the Multilateral Trading System negotiated and agreed to the
commitment to become market economies, accepting specific rules in their Protocols
of Accession, with the objective to participate fully in the Organization.
The case of China, the first major hybrid economy1 containing NME features
to accede to the WTO, in 2001, however, attracted attention from other WTO
members and reinstated the debate on adequate systemic rules and reforms. The
recent accession of Russia and other former centrally-planned economies enhanced
the importance of the discussion.
When acceding, China committed to undertake several reforms, regarding, e.g.,
subsidies, management of state-owned enterprises (SOEs), and liberalization of its
banking system which would assure a level playing field between China and other
economies under the WTO system. This purpose is clearly stated in its Protocol of
Accession.2
However, there is strong evidence to the effect that, ten years after accession, China
still has not completed its transition process. The World Bank has published a study
about China where it affirms that the government continues to dominate key sectors
and that close links between the government, big banks, and state enterprises have created vested
interests that inhibit reforms and contribute to continued ad hoc state interventions in the economy.3
Furthermore, the report states that
Chinas transition to a market economy is incomplete in many areas. A mix of market
and non-market measures shapes incentives for producers and consumers, and there
remains a lack of clarity in distinguishing the individual roles of government state
enterprises, and the private sector. It is imperative, therefore that China resolve these
1
The Working Party Report on the Accession of China constantly refers to the Chinese economic model
as in transition towards a Socialist Market Economy and it signals to the fact that the Chinese economy bears
characteristics of both market and non-market economies. WTO, Report of the Working Party on the Accession of China,
WT/ACC/CHN/49, October 2001, para. 4.
2
See provisions concerning the liberalization of the Right to Trade (Article 5), Non-Tariff Measures, especially
paragraph 3 (Article 7), Price Controls (Article 9) and Price Comparability in Determining Subsidies and Dumping (Article
15) in WTO, Protocol of Accession of the Peoples Republic of China. WT/L/432, 10 November 2001. Julian Qin refers to these
obligations as being obligations to practice market economy and obligations concerning domestic governance. See
QIN, Julia Ya, China, India and WTO Law, in SORNARAJAH, Muthucumaraswamy; WANG, Jiangyu, China, India
and the International Economic Order, Cambridge University Press, 2010,pp 172-173.
3
WORLD BANK, China 2030 Building a Modern, Harmonious, and Creative High-Income Society. Conference
Edition, 2012. Available at: <http://www.worldbank.org/content/dam/Worldbank/document/China-2030complete.pdf>, p. 25.
234
Market and Non-Market Economies

Thorstensen, Ramos, Muller & Bertolaccini
issues, accelerate structural reforms and develop a market-based system with sound
foundations in which the state focuses on providing key public goods and services
while a vigorous private sector plays the more important role of driving growth.4
In truth, China still relies heavily upon SOEs to implement public policies
conceived by the Communist Party. Considering the internal opposition to further
liberalization and privatization reforms, some commentators are starting to doubt
that China could ever complete its transformation into a full market economy, given
the intrinsic political links between the Communist Party, SOEs and the means by
which public policies are implemented.
Not only China, but other emerging economies seem to have lost the drive to
continue their liberalization processes and to finish their economic reforms. A renewed
interest on state developmentalism and a reinforced role of the state in the economy
are recent marks of many governments in important emerging and developing
countries, arguably inspired by the recent robust economic growth of China and
sloppy performance of western economies. The mechanisms through which these
governments seek to advance state-led economic growth are well known and were
characteristic of NMEs. These NME features impact the Multilateral Trading System
in many ways.
Since the WTO was not designed to regulate trade practices of NMEs, neither
to force them to transform their economies into market ones, the Organization is
unable to properly supervise the specificities of international trade between market
and NMEs, failing to properly regulate international trade.
Some relevant questions can, thus, be posed:

Is the WTO an organization created under market economy principles

and rules or does it provide rules for both market and NMEs?
Can it be assumed that, by acceding the WTO, China, Viet Nam
and other countries committed to transform themselves into market
economies, or can two economic systems be allowed?
Is the WTO properly equipped with mechanisms to allow for fair trade
between State-led and Market-led economies?
This article will discuss the systemic challenges of integrating hybrid economies,
and their NME features, into the WTO. It will analyze how the Multilateral Trading
System has dealt differently with the issue during the GATT and the WTO eras. It
will then discuss the relationship between NMEs and the principles and rules of the
Multilateral Trading System.
First of all, however, the following section will look into the definitions for NMEs
which are available in the context of international trade.
4
Ibid, p. 25.
235

II. D efinition
of market and non - market economies
China joined the WTO in 2001 through its Protocol of Accession, in which the country
committed to a series of obligations that should theoretically lead it into a market
economy. Chinas status of NME is also referred to in a few provisions of the Protocol,
namely in its Article 15, where concerns are raised about the difficulties arisen from the
absence of market economy conditions for the determination of dumping and subsidies.
Nevertheless, there is no definition, under the Protocol, of the expression non market
economy. The provisions of Article 15 only presume that China is a NME, but give no
further clarifications.
Chinas Accession Working Party Report, when referring to Article 15 of the Chinese
Accession Protocol, states that:
Several members of the Working Party noted that China was continuing the process
of transition towards a full market economy. Those members noted that under those
circumstances, in the case of imports of Chinese origin into a WTO Member, special
difficulties could exist in determining cost and price comparability in the context of antidumping investigations and countervailing duty investigations.5
The Working Party thus evidenced some NMEs effects on the WTO system, especially
on the proper functioning of its mechanisms, but did not give a definition of what precisely
is deemed to be a NME or a full market economy. In this context, one can raise the
question: what is a market economy and how to define it?
Although the main concern with the concept of NME focuses on dumping
investigations, as shown by Chinas Protocol of Accession, such definition is crucial to
shed some light on other NME challenges to the rules of the Multilateral Trading System,
and to fully understand the participation of China, as well as that of other NMEs in the
WTO.
A. I nternational
definitions
There are a diversity of economic parameters and subtle gradations between a centrally
planned and a market economy. Hence, the difficulty of legally defining a market economy
or a NME. Apart from the United Nations Conference on Trade and Development
(UNCTAD), a legally detailed description has still not been produced among influent
international organizations, though there are punctual official statements that, together,
5
WTO, Report of the Working Party on the Accession of China, WT/ACC/CHN/49, October 2001, para. 150.
236

form an official structure of what is needed for a country to be considered as a market

economy.
1. UNCTAD
UNCTAD defines market economy as a national economy of a country that relies heavily upon
market forces to determine levels of production, consumption, investment and savings without government
intervention.6
Likewise, UNCTADs definition of a NME is as follows:
A national economy in which the government seeks to determine economic activity
largely through a mechanism of central planning, as in the former Soviet Union, in
contrast to a market economy which depends heavily upon market forces to allocate
productive resources. In a non-market economy, production targets, prices, costs,
investment allocations, raw materials, labour, international trade and most other
economic aggregates are manipulated within a national economic plan drawn up by a
central planning authority; hence, the public sector makes the major decisions affecting
demand and supply within the national economy.
2. WTO
The Multilateral Trading Systems first discussion on the subject happened during the
Review Session of GATT, in 1954-55. Article VI, which contains dispositions on subsidies
and dumping matters, was interpreted through the second Supplementary Provision to
paragraph 1 (Ad Note):
Ad Article VI
Paragraph 1
2. It is recognized that, in the case of imports from a country which has a complete
or substantially complete monopoly of its trade and where all domestic
prices are fixed by the State, special difficulties may exist in determining price
comparability for the purposes of paragraph 1 (...).(Emphasis added).
Point 2 of the Ad Note refers to the determination of price comparability between

market and centrally planned economies. But is it a WTO definition of a NME? Evidence
in that sense can be found in the reference to the Ad Note present in Article 15 of the
Tokyo Round Subsidies Code, paragraph 1, which states:
6
UNCTADs Glossary of Customs Terms, available
asp?term=market+economy>. Last viewed on 31st January 2012.
at:
<http://www.asycuda.org/cuglossa.
237

Article 15
Special situations
1. In cases of alleged injury caused by imports from a country described in Notes
and Supplementary Provisions to the General Agreement (Annex I, Article
VI, paragraph 1, point 2) the importing signatory may base its procedures and
measures either: (...) (Emphasis added).
Through that indirect reference to the Ad Note, the Panel on US Antidumping and
Countervailing Duties (WT/DS/379), paragraph 14.119 declared that:
(T)he predecessor to the SCM Agreement the Tokyo Round Subsidies Code
contained a provision that explicitly addressed the concurrent use of NME
[non-market economies] methodologies in anti-dumping investigations, and of
countervailing duties, in respect of imports from NMEs. Where imports from nonmarket economies were at issue, Article 15 of that Code imposed upon the importing
Member a choice between the use of anti-dumping measures or of countervailing duties.
(Emphasis added).
The presumption that the inferred Article deals with imports from NMEs can also be
found in Paragraph 578 of the Appellate Bodys decision on the same case, which states
that:
Article 15 of the Tokyo Round Subsidies Code imposed upon an importing signatory
a choice between the use of anti-dumping duties and the use of countervailing duties
against imports from NMEs.7 (Emphasis added).
The reference to the Ad Note in the heading of Paragraph 1 is explicit, and therefore it
seems reasonable to infer that the definition of the Ad Note is, for the Dispute Settlement
Body (DSB), a definition of a NME. This interpretation is confirmed by the Appellate
Body in the case EC Fasteners, in a footnote to its decision:
We observe that the second Ad Note to Article VI:1 refers to a country which has a
complete or substantially complete monopoly of its trade and where all domestic prices
are fixed by the State. This appears to describe a certain type of NME, where
the State monopolizes trade and sets all domestic prices.8 (Emphasis added).
However, the Appellate Body continues:

7
WTO Appellate Body Report, US Antidumping and Countervailing Duties, WT/DS/379, 11 March 2011, para.
14.119.
8
WTO Appellate Body Report, EC Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China
(DS397), WT/DS397/AB/R, adopted on 15 July 2011, para. 285, footnote 460.
238

The second Ad Note to Article VI:1 would thus not on its face be applicable
to lesser forms of NMEs that do not fulfill both conditions, that is, the complete
or substantially complete monopoly of trade and the fixing of all prices by the State.9
(Emphasis added).
This leads to the interpretation that, although the Ad Note provides a definition of
a NME, it does not cover the whole meaning of the expression. As the Appellate Body
stated, there are other forms of NMEs besides a country which has a complete or substantially
complete monopoly of its trade and where all domestic prices are fixed by the State. Even though the Ad
Note may not be applicable to such other forms of NMEs, they could be recognized as so.
The matter of NME was also addressed in the Agreement on Subsidies and
Countervailing Measures (SCM). Article 29 approaches the market economy issue while
dealing with time-frame extensions for countries in transition to market economies:
Article 29: Transformation into a Market Economy
29.1 Members in the process of transformation from a centrally-planned into
a market, free-enterprise economy, may apply programmes and measures
necessary for such a transformation.
Article 29.3 determines that countries considered to be in the process of transformation

from a centrally-planned into a market-oriented economy (Article 29.1) shall notify the
Committee on Subsidies and Countervailing measures of subsidies to which Article 3 of
the SCM Agreement would apply. The lack of a legal definition enables WTO Members
to decide politically on the matter to some extent. Notifications under Article 29.3 of
the SCM Agreement were submitted by countries that were transitioning to a market
economy.
The Agreement on Trade Related Intellectual Property Measures (TRIPS) also
handles the market economy or NME condition in order to rule over measures that may
arise from the transitional situation:
Article 65
Transitional Arrangements
3. Any other Member which is in the process of transformation from a centrallyplanned into a market, free-enterprise economy and which is undertaking
structural reform of its intellectual property system and facing special problems in
the preparation and implementation of intellectual property laws and regulations, may
also benefit from a period of delay as foreseen in paragraph 2. (Emphasis added).
The Anti-Dumping Agreement (ADA) is more cautious. In its Article 2.2, there is a
vague concept that is not further explored:
9
Ibid.
239

2.2 When there are no sales of the like product in the ordinary course of trade in the
domestic market of the exporting country or when, because of the particular
market situation or the low volume of the sales in the domestic market of the exporting
country, such sales do not permit a proper comparison, the margin of dumping shall be
determined by comparison with a comparable price of the like product when exported to
an appropriate third country, provided that this price is representative, or with the cost of
production in the country of origin plus a reasonable amount for administrative, selling
and general costs and for profits. (Emphasis added).
Paragraph 2.7 of the same Article asserts that its provisions are without prejudice to the
second Supplementary Provision to paragraph 1 of Article VI in Annex I to GATT 1994. These specific
clauses were never discussed in the DSB with a view to determine their relationship,
and there is, up until now, no clear definition as to what a particular market situation
is, although it seems to have a much wider meaning than a NME, since such a market
situation can also prevail in a specific sector of a market economy, e.g. a natural monopoly.
The Agreement on Agriculture in its preamble only points out to a market-oriented
agricultural trading system:
Recalling that their long-term objective as agreed at the Mid-Term Review of the Uruguay
Round is to establish a fair and market-oriented agricultural trading system and that
a reform process should be initiated through the negotiation of commitments on support
and protection and through the establishment of strengthened and more operationally
effective GATT rules and disciplines. (Emphasis added).
All other agreements of the Uruguay Round are silent on the matter.
3. World Bank
Like other international organizations, the World Bank has not explicitly defined what
a market economy is. However, in its reports and studies, especially on countries in
transition to market economies during the 1990s, some standards were defined. Those
reports provide an overview of the economy and discuss policy reforms and institutional
changes deemed necessary for achieving a quick transition from a centrally planned to a
market economy, after some members have applied for membership.
Czechoslovakia had reapplied membership in 1991 and requested the World Bank
and IMFs assistance into changing to a market economy. On the country report, the
World Bank makes the following statements:
240

A market economy requires a modern banking system with a clear division of labour
between the Central Bank in charge of monetary policy and bank supervision on the one
hand, and the commercial banking sector on the other.10
The state must play an active role to promote competition and avoid monopolies. The
implementation of anti-trust legislation and regulations are the most obvious requirements,
but not the only ones. Thus, the state also needs to avoid controls and regulations that
may be used to strengthen monopoly powers (for example, controls on the establishment
or expansion of economic activities not clearly justified by necessary zoning, health and
safety considerations; or the allocation of import licenses for essential-inputs to a favoured
group of producers). There may also be a need for a positive program to encourage new
entrants in to particular activities.11
The World Bank also points at price controls as a relevant issue when assessing the
proper functioning of a market economy. Such controls are admitted only in extraordinary
circumstances:
(...) (A) market economy cannot function properly without competition and the freedom
to set prices and that, eventually, price controls will remain for only few activities, such as
natural monopolies like water, electricity, and gas, and social services like health care, as
in other market economies.12
B. N ational
definitions
Complementing the international provisions on market economy or NME, some countries

have more specific legal definitions and procedures which often become reference to other
countries domestic legal system.
1. United States
The United States (US) legal system is based on common law, and some acts are compiled
under the US Code (USC). Its Tome 19 treats Customs Duties issues and regulations
and defines what a NME is under the Section 771(18) of the Tariff Act of 1930 and, as
amended, under 19 USC 1677(18):
10
World Bank, Czechoslovakia: Transition to a Market Economy, The World Bank Country Studies, Washington,
1991.
11
Ibid, p. 43.
12
Ibid, p. 56.
241

(18) Nonmarket economy country (A) In general

The term nonmarket economy country means any foreign country that the
administering authority determines does not operate on market principles
of cost or pricing structures, so that sales of merchandise in such country
do not reflect the fair value of the merchandise. (Emphasis added)
(B) Factors to be considered
In making determinations under subparagraph (A) the administering authority shall take
into account
(i) the extent to which the currency of the foreign country is convertible into the
currency of other countries,
(ii) the extent to which wage rates in the foreign country are determined by free
bargaining between labour and management,
(iii) the extent to which joint ventures or other investments by firms of other foreign
countries are permitted in the foreign country,
(iv) the extent of government ownership or control of the means of production,
(v) the extent of government control over the allocation of resources and over the
price and output decisions of enterprises, and
(vi) such other factors as the administering authority considers appropriate.
(C) Determination in effect
(i) Any determination that a foreign country is a nonmarket economy country shall
remain in effect until revoked by the administering authority.
(ii) The administering authority may make a determination under subparagraph (A)
with respect to any foreign country at any time.
If a country has not been formally designated as a NME, it is presumed to be a market

economy. If an interested party alleges that the country is a NME and documents its
allegation with respect to each of the factors listed above, the Department of Commerce
(DoC) will initiate a formal inquiry to determine whether the country should be treated
as a NME or not.
The Title 12 that regulates banks and banking brings, under 12 USC 635, brings the
definition of a Marxist-Leninist country:
(B) Marxist-Leninist country defined.
(i) In general.For purposes of this paragraph, the term Marxist-Leninist country
means any country that maintains a centrally planned economy based on
the principles of Marxism-Leninism, or is economically and militarily
dependent on any other such country.
As for a market economy, there is a definition under 19 USC 2703a (d), which contains
conditions for Haiti to receive economic aid:
(d) Eligibility requirements
242

(1) In general
Haiti shall be eligible for preferential treatment under this section if the President
determines and certifies to Congress that Haiti:
(A) has established, or is making continual progress toward establishing:
(i) a market-based economy that protects private property rights,
incorporates an open rules-based trading system, and minimizes
government interference in the economy through measures such as price
controls, subsidies, and government ownership of economic assets;
(...)
Regarding the Russian Federation, the United States recognized Russia as a market
economy on June 7, 2002.13
2. European Union
The European Community had laid down several market economy features a NME
producer should have in order to demonstrate that it operates under Market Economy
conditions in Art. 7(c) of its Council Regulation (EC) No 384/96. Due to the paradigm
change on NME discussion caused by size of Chinas economy, the Council Regulation
EC 1225/2009 repealed that document and added new and more specific clauses. About
NMEs, its legal text determines, on Article 7, that:
(b) In anti-dumping investigations concerning imports from the Peoples Republic of
China, Vietnam and Kazakhstan and any non-market economy country which is a
member of the WTO at the date of the initiation of the investigation, normal value
shall be determined in accordance with paragraphs 1 to 6, if it is shown, on the basis of
properly substantiated claims by one or more producers subject to the investigation and
in accordance with the criteria and procedures set out in subparagraph (c), that market
economy conditions prevail for this producer or producers in respect of the manufacture
and sale of the like product concerned. When this is not the case, the rules set out under
subparagraph (a) shall apply.
(c) A claim under subparagraph (b) must be made in writing and contain sufficient
evidence that the producer operates under market economy conditions, that is if:
decisions of firms regarding prices, costs and inputs, including for instance raw
materials, cost of technology and labour, output, sales and investment, are made in
response to market signals reflecting supply and demand, and without significant State
interference in this regard, and costs of major inputs substantially reflect market values,
firms have one clear set of basic accounting records which are independently audited
in line with international accounting standards and are applied for all purposes,
the production costs and financial situation of firms are not subject to significant
distortions carried over from the former non-market economy system, in particular
13
As provided by Pub. L. 107246, 2, Oct. 23, 2002, 116 Stat. 1511.
243

in relation to depreciation of assets, other write-offs, barter trade and payment via
compensation of debts,
the firms concerned are subject to bankruptcy and property laws which guarantee
legal certainty and stability for the operation of firms, and
exchange rate conversions are carried out at the market rate. (Emphasis added).
The conditions to be fulfilled by countries acceding to the European Union (EU) shed
some further light on the matter. According to the Treaty on European Union, Article 49,
any European State that desires to join the European Union shall be welcome to do so as
long as it respects the European Union principles stated at Article 6 of the same treaty.14
Also, a broad analysis of the institutional and systemic reforms required for an acceding
member to be able to respect such principles will be done by the EU.
In June 1993, during the European Council meeting at Copenhagen, the conditions
for countries aiming to accede to the EU were further developed into a series of criteria:
the Copenhagen Criteria.15 These criteria list necessary attributes for a country to be able
to join the European Union and included a functioning market economy, as well as
the ability to cope with the pressure of competition and the market forces at work inside the Union.
Concerning the accession of former USSR members, a more specific description
relating to acceding countries of Central and Eastern Europe to the EU was outlined:16
ii) The European Council welcomed the courageous efforts undertaken by the associated
countries to modernize their economies, which have been weakened by 40 years of
central planning, and to ensure a rapid transition to a market economy. The
Community and its Member States pledge their support to this reform process. Peace and
security in Europe depend on the success of those efforts.
iii) The European Council today agreed that the associated countries in Central and
Eastern Europe that so desire shall become members of the European Union. Accession
will take place as soon as an associated country is able to assume the obligations of
membership by satisfying the economic and political conditions required.
Membership requires that the candidate country has achieved stability of institutions
guaranteeing democracy, the rule of law, human rights and respect for and protection of
minorities, the existence of a functioning market economy as well as the capacity
to cope with competitive pressure and market forces within the Union. Membership
presupposes the candidates ability to take on the obligations of membership including
adherence to the aims of political, economic and monetary union. (Emphasis added).
Hence, the EU regards as market economies all its 27 members, including the
former socialist states, as expressly declared in their Protocols of Accession. Similarly,
14
These are the principles of liberty, democracy, respect for human rights and fundamental freedoms, and the
rule of law. See EU, Treaty on European Union, Maastricht, 7 February 1992, Article 6.
15
See EU, European Council Meeting, Copenhagen, 21-22 June 1993, DOC/93/3.
16
Ibid, point 7A.
244

the EU established a framework for EU negotiations with the Western Balkan countries
(also comprising financing programs): the Stabilization and Association Process,17 to be
followed and updated until the countries eventual accession. The Process has amongst its
aims: stabilizing the countries and encouraging their swift transition to a market
economy.
This kind of EU initiative demonstrates the weight it gives to the existence of a market
economy in order for a country to be part of the Union and for it to function properly.
There is no single recipe, however, for which reforms are needed in order to achieve a
functioning market economy, as the EU will work with acceding members in a case-bycase manner, addressing each countrys specific needs.
3. Brazil
Brazil also has specific norms on the matter of determining NMEs in the context of
antidumping legislation. The Decree 1.602, dated 23 August 1995, enacts administrative
procedures of anti-dumping investigation and states:
Art.7 In finding difficulties in determining the normal value in case of imports from not
predominantly market oriented economies, where domestic prices are mainly fixed by the
state, the normal value can be determined using the actual amounts incurred and realized
by the exporter or producer in question or can be a constructed value of a like product in
a third market economy country, or the export price to other countries, exclusive Brazil,
or, whenever that is not possible, the normal value can be based on any other reasonable
method, including the price paid or price to pay by the similar product on Brazilian
market, dully adjusted, if necessary, in order to include a reasonable profit margin.
Circular N. 59, dated 28 November 2001, clarifies some provisions of the

aforementioned Decree. Article 3.2 defines economies in transition:
3.2 Considering the transformations undergone by several countries with economies
that are traditionally non-market orientated economies, which reached the stage of
economies in transition having implemented important measures with a view to removing
state monopolies and the control and state intervention on domestic prices, the following
understanding will be adopted:
3.2.1 The following countries are considered as economies in transition:
Bulgaria, the Slovak Republic, Slovenia, Hungary, Poland, Romania and the Czech
Republic.
17
European Community Commission, Communication from the Commission to the European Council and Parliament,
Brussels, 26 May 1999, COM(1999)235. See also, European Council, Conclusions on the Development of a Comprehensive
Policy Based on the Commission Communication on The Stabilisation and Association Process for Countries of South-Eastern Europe,
2192nd Council meeting, General Affairs, Luxemburg, 21-22 June 1999.
245

3.2.2 As regards the initiation of the investigation involving the countries mentioned in
paragraph3.2.1, the provisions of Article 7 of Decree 1.602, of 1995, shall not apply.
However, if during the investigation it is verified that the market rules do
not prevail in the sector where the producer/exporter under investigation operates,
the provisions of Article 7 may be applied for the calculation of the normal value.
(Emphasis added).
The Circular 59/2001s Article 3 also states:

3.3 For the assessment of the existence of market economy conditions, the
following elements, inter alia, will be observed:
(a) the degree of government control over the companies or over the means of production;
(b) the level of state control over the allocation of resources, over prices and over the
production decisions by companies;
(c) the legislation to be applied in terms of ownership, investment, taxation and
bankruptcy;
(d) the degree of freedom in the determination of wages in negotiations between
employers and employees;
(e) the level at which distortions inherited from the centralized economy system persist in
relation to, inter alia, assets amortization, other assets deductions, direct swap of assets
and payments in the form of debt compensation; and
(f) the level of state interference on currency exchange operations. (Emphasis added).
In any case, companies from NMEs countries may request market economy treatment
for their specific markets, for the purpose of dumping investigations.
The NME treatment of China is under discussion in Brazil. In 2004, Brazil signed the
Memorandum of Understanding on Trade and Investment Cooperation Between the
Peoples Republic of China and the Federative Republic of Brazil, recognizing China as
a market economy.
However, such declaration of market economy recognition, to have effect on the
domestic legal system, must be internalized, through an act of the Executive Power,
specifically through a Circular passed by SECEX of MDIC, as it happened in other
instances (Russia, Ukraine, Slovakia, Slovenia, Estonia, Hungary, Latonia, Lithuania,
Poland, Czech Republic, Bulgaria and Romania). No Circular on China has been enacted
yet, meaning that, for internal purposes, China is still considered a NME.
C. C onclusions
The definition of a NME is imprecise, especially when it attempts to cover multiple

economic situations in which a country relies upon different degrees of government
interference in its economy. The case of transitional economies is particularly difficult to
246

comprehend. During a transitional period in which the economy will neither be centrally
planned nor a market economy, the government is required to intervene on behalf of the
consumer, and anti-competitive behavior may arise from the possible distortions to the
market. To assist countries in that endeavor, assistance is granted in the form of special
conditions and periods extensions to fully abide by the WTO norms while reforms take
place.
From the WTO normative system and Accession Protocols, it can be inferred that
the main legal provisions to deal with the presence of NMEs in the WTO are related to
the determination of normal value for dumping investigations, and that the supporting
treaties are deliberately vague due to the difficulty of regulating such complex economic
feature.
This explains why the definitions of NMEs, both under the WTO and several national
legislations can only be found in the limited context of dumping investigations. A more
comprehensive discussion over the issue was seldom undertaken under the Multilateral
System. Nevertheless, as it will be discussed below, NMEs impact on the WTO system
goes well beyond antidumping rules.
III. NMES
A. T he GATT
at the multilateral trading system
era
At the end of World War 2, nations aimed at creating an international economic framework
which would regulate economic relations of all countries, capitalists and socialists. The
so-called Bretton Woods system would have included, in addition to the International
Monetary Fund (IMF) and the World Bank, an International Trade Organization (ITO).
The founding document for the ITO, the Havana Charter, contained provisions
enabling the participation of NMEs in the projected trading system. Nevertheless,
both because the USSR decided not to participate in the negotiations and because of
the strengthening of the Cold War rivalry, these provisions on NMEs were gradually
weakened. In the GATT, initially seen as a provisional agreement to the creation of the
ITO, only one of those provisions dealing with NME subsisted: GATT Article XVII, on
state-trading enterprises (STEs).
The ITO never came into force and the GATT was the main source of multilateral
trade regulation for almost 50 years. It did not concentrate in finding ways to adapt socialist
economies to its framework, partly because of its provisional status and also because of
the lack of interest of the USSR in the emerging Multilateral Trading System.
Even the applicability of Article XVII to NMEs was questioned: Grzybowski affirms
that when the Article binds state-trading enterprises to make transactions solely in
247

accordance with commercial considerations, it theoretically excludes other motivations, which

seems to contradict the basic tenets of economic planning in a socialist country of the soviet type.18
The first difficulties of applying GATT rules to NMEs arose during the 1950s with
the transition of Czechoslovakia, a GATT founding member, towards a centrally-planned
economy. One of the first issues brought up was the calculation of dumping margins and
the determination of normal value.
Czechoslovakia argued that no comparison of export prices with prices in the domestic market
of the exporting country is possible when such domestic prices are not established as a result of fair
competition in that market, but are fixed by the State19. The main problem was that, since the
prices inside the country were fixed, they could often be higher than export prices, which
led to the determination of dumping by other countries and consequent application of
antidumping rights.
Czechoslovakia proposed, thus, an amendment to Article VI, by which, in countries
where the domestic prices were fixed by the State, the margins of dumping should be
calculated using (i) the average comparable price for the like product for export by third countries to the
importing country in question in the ordinary course of trade, or (ii) in the absence of such price,
the average comparable price for the like product for export by the exporting country to
third countries, or (iii) the cost of production plus a reasonable addition for selling cost
and profit.20
The GATT Contracting Parties did not accept the proposal, but agreed on adding an
Interpretative Note on Article VI, affirming that in the case of imports from a country
with complete or substantially complete monopoly of trade and where domestic prices
are fixed by the State, special difficulties may exist in determining price comparability
based on prices practiced on the domestic market, and members may find that such strict
comparison may not always be appropriate.21
In practice, however, the use of a third country, as proposed by Czechoslovakia,
became the common alternative methodology and was later explicitly mentioned at the
Working Party on the Accession of Poland.22
The transition of Czechoslovakia (to a NME) also brought difficulties in the application
of Article XV:6. The provision deals with the membership of the contracting parties at
the International Monetary Fund, stating that parties that fail to join the Fund shall enter
into special exchange arrangements with the CONTRATING PARTIES. The Article
18
GRZYBOWSKI, K., Socialist Countries in GATT, The American Journal of Comparative Law, v. 28, n. 4,
Autumn, 1980, p 548.
19
GATT, Article VI Proposals by the Czechoslovakia Delegation Revision, W.9/86/Rev.1, Review Working Party II
on Tariffs, Schedules and Customs Administration, Contracting Parties Ninth Session, 21 December 1954, W.9/86/
Rev. 1.
20
Ibid.
21
GATT, Report of Review Working Party III on Barriers to Trade other than Restrictions or Tariffs, Contracting Party
Ninth Session, L/334, 1 March 1955.
22
GATT, Report of the Working Party on the Accession of Poland, 23 June 1967, L/2806, p. 3, 13.
248

aimed to avoid parties to adopt exchange rate policies incompatible with the rules of the
multilateral financial system that could impact on international trade.
Czechoslovakia claimed that a country with complete monopoly of foreign trade
could change the par value of its currency without affecting international commercial
transactions and without impairing any concessions made under the GATT. Thus, a
waiver from the obligations under GATT Article XV:6 was accorded to the country.23
The case of Czechoslovakia is relevant because it shows that its transition to a centrally
planned economy was never regarded, neither by other contracting parties, nor by itself,
as incompatible with its obligations in the Multilateral Trading System. The parties
considered the need to adjust some of the rules, in order to adapt to the particularities of
centrally planned economies, but the core of the system would remain intact.
The second NME acceding to the GATT, Yugoslavia, was already a centrally planned
economy. In that case, GATT contracting parties formally requested from Yugoslavia
some changes in its commercial policies, in order to make it able to participate in the
GATT.24
The 1959 Decision on relations with Yugoslavia affirms that the government of Yugoslavia
is not at present in a position to assume all the obligations involved in accession to the General Agreement.25
Parties agreed, thus, that Yugoslavia would endeavor, in the development of arrangements affecting
its commercial policies, to move progressively toward a position in which it can give full effect to the
provisions of the General Agreement.26
Yugoslavia did not become a market economy, but it undertook some important
changes which allowed its provisional admittance to the GATT in 1962.27 Such reforms
included: the elimination of state intervention in the activities of individual enterprises
and business decision-making; the adoption of customs tariffs; the promotion of a reform
in the pricing system, allowing free pricing for a range of commodities and removing
certain price limits for basic industries; and the decentralization of investment resources,
reducing the role of government in investment financing.
Finally, in 1966, despite the fact that Yugoslavia clearly was yet a NME, it acceded
to the GATT28. It can however be argued that the entry of Yugoslavia under market
conditions owed more to political than economic reasons, to reinforce Yugoslavias nonalignment with the USSR and thus further restrain soviet influence over the region.29
23
GATT, Waiver granted to Czechoslovakia of the provisions of Article XV:6 (Decision of 5 March 1955, SR.9/45,
Contracting Parties Ninth Session, 18 March 1955.
24
GATT, Report of the Working Party on the Accession of Yugoslavia, L/2562, 24 February 1966.
25
GATT, Decision on Relations with the Federal Peoples Republic of Yugoslavia, L/986, Contracting Parties Fourteenth
Session, 16 May 1959.
26
Ibid.
27
GATT, Provisional Accession of Yugoslavia, L/1939, Contracting Parties Twentieh Session, 13 November 1962.
28
29
GATT, Report of the Working Party on the Accession of Yugoslavia, L/2562, 24 February 1966.
See POLOUEKTOV, Alexander, The Non-Market Economy Issue in International Trade in the Context of WTO
Accessions, Unctad/DITC/TNCD/MISC.20, Unctad Report, 9 October 2002, p. 39.
249

The following NME to accede to the GATT was Poland, in 1967. Its accession
contrasts with Yugoslavias, because some special provisions were devised for application
to Poland that differed from the obligations of all other GATT contracting parties. No
change was requested from Polands economic system; this time the adaptation lied on the
rules applicable to the country.
The adjustments proposed by Czechoslovakia were also applied to Poland.30
Regarding the application of the Interpretative Note to Article VI:1, the Working Party
Report acknowledged the possibility of using the surrogate country methodology (the
construction of the normal value based on the prices of the same product produced in
another country), which was not expressly foreseen in the Note.
Since Poland did not have any customs tariff, its concessions were based on import
commitments: Poland committed to increase the total value of its imports from the
territories of the contracting parties by no less than 7% per annum. Also, to counter any
sharp increase on imports of Polish products under non market conditions, a specific
safeguard mechanism was created.
Furthermore, members were permitted to maintain quantitative restrictions against
Poland, even if these were inconsistent with GATT Article XIII, provided that the
discriminatory element of the restriction was not increased and was progressively relaxed.
The accession of Poland became a model for future NME accessions. In the case of
Romania, which acceded in 1971, the only significant difference was in its Schedule of
Commitments, where it committed to increase its imports from the contracting parties as a whole
at a rate not smaller than the growth of total Romanian imports provided in its Five-Year Plans.31 This
provided some flexibility to its obligations on imports, if compared to Poland.
The accession of Hungary, in 1973, presented a few more differences: the country
already had a customs tariff and had recently undertaken a reorganization of the central
management of its economy, which, according to Grzybowski, would have introduced
market relations32. The economic changes did not alter the planned character of the
countrys economy, but it allowed Hungary to negotiate concessions under a tariff base.
Nevertheless, it remained subject to quantitative restrictions and special safeguards by
other contracting parties. It also reserved its position with respect to Article XV:6 and was
subject to the application of the Interpretative Note on Article VI.33
The GATT made, therefore, only few adaptations in order to accommodate NMEs
into its framework, but it never fully closed itself to the participation of such countries.
30
GATT, Accession of Poland, L/2851, 19 September 1967, para. 8; and GATT, Accession of Poland Report of the
Working Party, L/2806, 23 June 1967, para. 13.
31
GATT, Protocol for the Accession of Romania to the GATT, BISD 18S/5 (Eighteenth Supplement, TwentySeventh Session, 1969-1970), April 1972.
32
GRZYBOWSKI, K., Socialist Countries in GATT, The American Journal of Comparative Law, v. 28, n. 4,
Autumn, 1980, p 549.
33
GATT, Report of the Working Party on the Accession of Hungary to the GATT, BISD 20S/3-8 (Twentieth
Supplement, Twenty-Ninth Session, 1971-1972), January 1974, p. 3, 18.
250

According to Jackson, as the sole offspring of the failed ITO, the GATT attempted
to accommodate different market structures, not only NMEs, but also countries with
different levels of industrial development and with policies of economic development not
fully consistent with market oriented principles.34
The accessions of Poland, Romania and Hungary show the range of adjustments
allowed in GATT rules.
These adjustments were referred by Jackson as the interface principle. The idea
was to create mechanisms that would mediate between the different economic structures,
providing rules to reduce the incompatibilities among them.35 The negotiations of quotas
instead of tariffs and the creation of specific safeguard mechanisms in NMEs accessions
to the GATT are vivid examples of that approach.
But Jackson also stresses that the NMEs participating in the GATT system were
relatively small and the accession of China or the USSR could create much more
significant impacts, demanding either a more complex interface system or a decision to
revert GATT to being a forum designated primarily for market oriented economies.36
B. T he WTO
era
With the collapse of communist regimes in Eastern Europe, a number of countries were
willing to promote significant economic reforms towards a market oriented economy.
Their accessions triggered a change of direction in how the Multilateral Trading System
approached NMEs: instead of adapting WTO rules to integrate NMEs, the main concern
was to promote a more efficient transition of such economies.
Interestingly, the accession of Yugoslavia to the GATT became the main reference in
that new approach, to a certain degree. In the same way as Yugoslavia had been required
to undertake reforms such as the adoption of customs tariff, the transition economies
had to promote economic reforms in a much deeper way than the ones required during
GATT era to be granted membership in the WTO.
Acceding members, such as Mongolia, Bulgaria, the Kyrgyz Republic, Latvia,
Estonia, Albania, Croatia, Georgia, Lithuania and Moldova, were required to commit
to obligations in the fields of: foreign exchange; state ownership and privatization;
pricing policies; trading rights; subsidies; industrial policy; state-trading enterprises and
transparency.37
34
JACKSON, John H., Restructuring the GATT System, Royal Institute of International Affairs, London, 1990,
pp. 81-82.
35
Ibid, pp. 84-85.
36
37
Ibid, p. 82.
POLOUEKTOV, Alexander, The Non-Market Economy Issue in International Trade in the Context of WTO
Accessions, Unctad/DITC/TNCD/MISC.20, Unctad Report, 9 October 2002, p. 26.
251

The WTO agreements provided a few rules specifically devoted to transition economies
(e.g., Article 29 of the SCM and Article 65 of TRIPS), mostly granting them more time to
enforce their obligations, but there were no material changes in the WTO rules in order
to allow a better participation of these economies.
A different approach to the integration of NMEs into the Multilateral Trading System
was also a consequence of the evolution of the System itself over time. With the successful
GATT rounds of negotiation, tariff levels had been significantly reduced and non-tariff
measures had become the major perceived obstacle to trade liberalization. The WTO
extended its scope to measures once considered of domestic competence, bringing the
organizations influence into domestic policy making.
The position of WTO members vis--vis the transition process from non-market to
market economy evolved from adaptations and incentives to obligations, since NMEs
practices became incompatible with a more integrated Multilateral Trading System. The
interface principle was no longer sufficient to allow the functioning of the rules: new
members were required to undertake deep economic reforms towards a market oriented
model in order to fully comply with WTO rules.
C. T he
accession of
C hina
to the
WTO
The Chinese accession in 2001, and Viet Nams accession in 2007, followed this new
pattern, and represent interesting examples of the new approach.
China was the first large NME to integrate the WTO system. While other NMEs
had little weight in international trade and, thus, any distortions to competition could
be easily overlooked by other members, China had a much larger economy, which could
cause greater impact on other members economies. The accommodation of China in
the system would necessarily be more complex than other NMEs, as every NME feature
could give rise to disruptions in other markets.
In its accession process, China committed: to accord non-discriminatory treatment
at the procurement of inputs and goods and in respect of the prices and availability
of goods and services supplied by governmental authorities; to liberalize the availability
and scope of the right to trade; to refrain from taking measures to influence on direct
state-trading enterprises, except in accordance with WTO Agreements; to allow prices for
traded goods and services in every sector to be determined by market forces; to eliminate
export subsidies on agricultural products, amongst others.
Chinas Protocol of Accession38 also has provisions on: a progressive elimination
of quantitative measures imposed by other members that are incompatible with WTO
Agreements; the application of transitional specific safeguards; the use of alternative
methodology for the determination of normal value in the calculation of dumping
38
WTO, Protocol of Accession of the Peoples Republic of China. WT/L/432, 10 November 2001.
252

margins; a special safeguard for textiles; special methodologies for identifying subsidy
benefits.
In one hand, Chinas Protocol has a series of obligations that should lead China towards
a market oriented economic system, an essential feature for the smooth functioning of the
WTO system. On the other hand, the Protocol contains interface mechanisms, some of
provisional character, similar to those used for NMEs during the GATT era.
D. C onclusions
The failure to establish the International Trade Organization (ITO) led to a lack of specific
trade rules applying to international trade between planned and market economies.
Article XVII of the GATT dealt with only a minimal spectrum of the challenges posed
by the subject. The process of accession of NMEs to the GATT, during the subsequent
years, put on view some of these challenges and how they were dealt with in the protocols
of accession mainly through buffer mechanisms and import obligations.
As the Multilateral Trading System gradually changed its focus, from import tariffs to
non-tariff barriers, and started to supervise internal policy measures from its members in
order to guarantee a level playing field, so did the adaptations required for the accession
of NMEs. With the creation of the WTO, there was a substantial change in the nature of
obligations imposed on acceding NME countries in order to preserve the well functioning
of the system. They now focus on a systemic approach, requiring deep economic changes
and an adaptation of the development model of the acceding NME.
IV. I mpacts
of
NMES
on the
WTO
system
The shift in the treatment of NMEs when acceding to the WTO attempted to respond to
the practical difficulties brought by competition on the international market with products
from NMEs, whose weight in some economic sectors can have an important trade impact.
The Economist highlighted some of the fears of market economies:
Another concern is the impact of the model on the global trading system (...). Ensuring
that trade is fair is harder when some companies enjoy the support, overt or covert, of
a national government. Western politicians are beginning to lose patience with statecapitalist powers that rig the system in favor of their own companies. For emerging
countries wanting to make their mark on the world, state capitalism has an obvious
appeal. It gives them the clout that private-sector companies would take years to build.39
39
The rise of state capitalism, The Economist, 21 January 2012. Available at: <http://www.economist.com/
node/21543160>. Viewed at: 27 January 2012.
253

In light of these concerns and considering the impact that the Chinese accession has
had to the Multilateral Trading System, it is worth analyzing what exactly are the trade
rules and instruments that are not adapted or would not be fit to deal with trade from
NMEs
A. I mpacts
on multilateral trading system instruments
First of all, it is important to stress that, after the end of the socialist block and the gradual
transition of planned economies to market-oriented ones, it is hard to determine, today,
a whole economy as planned or as NME. Nevertheless, one can identify forms of
NMEs40 with different levels of government interference in the economy. This central
planned interference can attain different levels and might indicate NME features that
may cause difficulties in the application of WTO rules. It is also interesting to indicate
that these features are not exclusive to socialist or transition economies, being identifiable,
albeit in lesser levels, in western market economies in different moments of their history.41
During the GATT period, the contracting parties were mainly concerned with two
aspects of NME inconsistencies with the Multilateral Trading System: governments had
the monopoly of international trade; and internal prices were fixed by the government.
The monopoly of international trade dictated that import tariffs. The inadequacy
of import tariffs was overcome by import commitments from acceding NMEs. This
solved the immediate problem of market access but could not be extended to all acceding
members since it created another market distortion by forcing artificial levels of import
rather than regular market forces to dictate trade between the contracting parties.42
The real problem underlining the initiative was how to reconcile market access
negotiations and obligations with the state control of market decisions. The multilateral
negotiations were based under the premise that, apart from the barriers to trade imposed
by countries, economic agents would be free to seek products from whichever market
offered the best prices and conditions. The fact that imports were actually centrally decided
undermined this principle and was irreconcilable with the dynamics of multilateral
negotiations.
In fact, the GATT already acknowledged the difficulties brought by import control by
the State, through import monopolies. Its Article II.4 establishes that:
40
See WTO Appellate Body Report, EC Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from
China (DS397), WT/DS397/AB/R, adopted on 15 July 2011, para. 285, footnote 460.
41
HUANG, Chien, Non-market Economies Accessions to the WTO: An Empire is Rising?, ISA Annual
Convention, San Francisco, CA, March 23-26, 2008, p. 17.
42
POLOUEKTOV, Alexander, The Non-Market Economy Issue in International Trade in the Context of WTO
Accessions, UNCTAD report, 9 October 2002, UNCTAD/DITC/TNCD/MISC.20, p. 10.
254

If any contracting party establishes, maintains or authorizes, formally or in effect, a

monopoly of the importation of any product described in the appropriate Schedule
annexed to this Agreement, such monopoly shall not, except as provided for in that Schedule
or as otherwise agreed between the parties which initially negotiated the concession,
operate so as to afford protection on the average in excess of the amount of
protection provided for in that Schedule. The provisions of this paragraph shall
not limit the use by contracting parties of any form of assistance to domestic producers
permitted by other provisions of this Agreement. (Emphasis added).
In this sense, the GATT sought to restrain the domestic market protection afforded
through import monopoly to the limits established in each partys Schedule of Concessions.
These, however, translated market access obligations into import tariffs. It is thus hard to
imagine a practical and efficient way to translate the market access granted through a given
bound tariff rate into import obligations. Considering these difficulties, an Interpretative
Note to Article II.4 was adopted stating that:
Except where otherwise specifically agreed between the contracting parties which initially
negotiated the concession, the provisions of this paragraph will be applied in the light of
the provisions of Article 31 of the Havana Charter.
The relevant part of Article 31 of the Havana Charter for this analysis is its Paragraph
5 that requires the contracting party that has imposed an import monopoly over a product
to import and offer for sale such quantities of the product as will be sufficient to satisfy the full
domestic demand for the imported product. This interpretation has been confirmed by two
GATT panels.43 Once again, the definition of what would satisfy the full domestic demand for
the imported product is hard to establish.
In any case, the direct reference of the Interpretative Note to Article II.4 of the Havana
Charter highlights the difficulties imposed by the non-creation of the ITO for the purpose
of integrating NMEs in the Multilateral Trading System. The Havana Charter had a
whole section Section D: State Trading and Related Matters dedicated to dealing with
such issues. It is interesting to note that during the GATT Review Session of 1954-55,
the Review Working Party on Other Barriers to Trade considered proposals for amending
the state trading provisions of the General Agreement either by consolidating them or
by adopting Articles 29-31 of the Havana Charter, but these proposals failed to gather
unanimous approval and were abandoned.
Another reaction to state monopoly of international trade was the possibility of
contracting parties to apply special safeguards, specifically aimed at imports from the
acceding NME countries. Also, the existing quantitative import restrictions could be
43
GATT Panel Report, Japan Restrictions on Imports of Certain Agricultural Products, L/6253, adopted on 2
February 1988, BISD 35S/163, paras. 5.2.2.1-5.2.2.2 and the three parallel Panel Reports on Republic of Korea
- Restrictions on Imports of Beef, L/6503, L/6504, L/6505, adopted on 7 November 1989, BISD 36S/202, 234,
268.
255

maintained regarding these countries as long as they were progressively relaxed, although
no final term was provided. The justification was the fear that, due to the weight of
the State when compared with individual enterprises, a decision by a NME country to
export a particular product would cause considerable damage to some sectors of market
economy countries. The competition of private owned enterprises with state backed ones
was considered unfair and would justify these buffer mechanisms. In this sense, in order
to promote a fair competition between members of The Multilateral Trading System, a
separation between state and private producers would be required.
***
I. GATT
articles
There are many challenges in applying the Multilateral Trading System rules, as they are,
to NMEs. Some of them are highlighted here.
Article XVII of the GATT regulates the participation of SOEs in the economy of the
contracting parties so as to limit potential negative effects on fair trade between private
and SOEs. It states that:
1. (a) Each contracting party undertakes that if it establishes or maintains a state
enterprise, wherever located, or grants to any enterprise, formally or in effect, exclusive
or special privileges,* such enterprise shall, in its purchases or sales involving either
imports or exports, act in a manner consistent with the general principles of
non-discriminatory treatment prescribed in this Agreement for governmental
measures affecting imports or exports by private traders.
(b) The provisions of subparagraph (a) of this paragraph shall be understood to
require that such enterprises shall, having due regard to the other provisions of
this Agreement, make any such purchases or sales solely in accordance with
commercial considerations,* including price, quality, availability, marketability,
transportation and other conditions of purchase or sale, and shall afford the enterprises
of the other contracting parties adequate opportunity, in accordance with customary
business practice, to compete for participation in such purchases or sales.
(c) No contracting party shall prevent any enterprise (whether or not an enterprise
described in subparagraph (a) of this Paragraph) under its jurisdiction from acting
in accordance with the principles of subparagraphs (a) and (b) of this paragraph.
Article XVII establishes the principles under which all enterprises should operate.
In this sense, it seeks to obligate SOEs to act as private enterprises so as to afford the
enterprises of other contracting parties adequate competition opportunity, guaranteeing
fair trade. Although answering theoretically to the challenges posed by competition
256

between private and SOE, subsequent practice has shown the difficulties in analyzing
whether purchases by SOEs have been made in accordance with commercial considerations.44
It is worth noting that the GATT did not regulate government procurement and Article
XVII.2 extends this to government procurement made through SOEs. In this sense,
another challenge is that one must separate purchases made for government purposes
from those made in regular commercial trade while analyzing whether these have respected
commercial considerations. Article XVII.3 seems to acknowledge these challenges and
the potential damage to fair trade of the abuse of SOEs, stating that:
3. The contracting parties recognize that enterprises of the kind described in Paragraph
1 (a) of this Article might be operated so as to create serious obstacles to trade; thus
negotiations on a reciprocal and mutually advantageous basis designed to limit or reduce
such obstacles are of importance to the expansion of international trade
The solution proposed was that countries counting with SOEs should negotiate special
agreements to limit or reduce the obstacles posed by SOEs. These special agreements
demonstrate the exceptionality of state-controlled production in the Multilateral Trading
System. Also, it is interesting to note that the Interpretative Note paragraph 3 of Article
XVII makes reference to the special agreements made under Article II.4, which in turn
refers to the dispositions present in the Havana Charter. Yet again the dispositions of
GATT were considered insufficient to deal with NME features and the recourse to the
non-adopted Havana Charter has been deemed necessary. The extent and economic
presence of SOEs in NMEs further enhance the challenges posed by the subject and
indicate the insufficiency of GATT rules to discipline competition between private and
SOEs.45
The second aspect of NMEs highlighted during GATT time was the fixing of domestic
prices by the State. This problem was mainly linked to the difficulties in determining
normal value in anti-dumping investigations and the Ad Note to Paragraph 1 of Article
VI of GATT was considered as a suitable arrangement. Nonetheless, the fact that internal
prices were not determined by market forces, but rather by the government, made it hard
to guarantee any level of market access for certain products deemed as sensitive by each
NME country. If the government decided, due to policy options, that, for instance, the
price of a good should not surpass a determined level, it would be, in practice, impeding
44
The cases Korea Various Measures on Beef and Canada Wheat Exports and Grain Imports, in the WTO, both
demonstrated the difficulties in analyzing the rationale behind SOE import decisions and of the proof of whether they
acted in accordance with commercial considerations.
45
In light of the creation of the WTO, an Understanding on the Interpretation of Article XVII of the
GATT 1994 was adopted. It sought to enhance transparency in SOE matters and created a working party to review
notifications and counter-notifications in the subject. However, no substantial modifications to the discipline of
Article XVII were promoted and the WTO provided no further development in the subject.
257

any imports of that product in higher prices than the one established. This problem, keen
in the case of NMEs, was already highlighted by the GATT, in its Article III.9 that states:
The contracting parties recognize that internal maximum price control measures, even
though conforming to the other provisions of this Article, can have effects prejudicial to
the interests of contracting parties supplying imported products. Accordingly, contracting
parties applying such measures shall take account of the interests of exporting contracting
parties with a view to avoiding to the fullest practicable extent such prejudicial effects.
Although this practice has been used several times in Western countries considered to
be market economies, the extent of its use and the economic justifications regarding NME
practices brings further challenges to the implementation of the National Treatment
principle.
A. E xchange
rates
Besides the issues above already highlighted in the accessions of NME during GATT
time, it is possible to identify other challenges posed by the presence of NME in the
Multilateral System, considering its present structure and legal order.
The control over exchange rates and the constraints on free currency convertibility
has been indicated as of particular concern regarding some NME. The manipulation
of exchange rates can be detrimental to imports both by its impact on tariffs as for
the difficulties for economic agents to deal in international trade.46 GATT Article XV
is the logical reference to deal with this issue, along with the surveillance of the IMF.
Nevertheless, this subject is under much debate nowadays and an effective remedy against
exchange rate manipulations is still under discussion. This brings unpredictability to the
whole system, but is of particular concern regarding NMEs.
B. S ubsidies
The practice of subsidies in NME also presents special difficulties related to the inherent
relationship between the source of the subsidies the government and their main
beneficiaries SOE. The rules present in GATT Article VI and in the SCM do not solve
all these specificities, making it difficult to identify mechanisms that would allow for a clear
separation between subsidy beneficiaries and benefactors.
46
THORSTENSEN, Vera, MARAL, Emerson, FERRAZ, Lucas, (2011) - Impacts of Exchange Rates on
International Trade Policy Instruments: The Case of Tariffs, Journal of World Trade, v. 46, i. 3, 2012.
258

It is worth recalling that the reason why subsidies might be considered negative in the
context of international trade is that they are governmental stimulus to direct resources
to a particular sector of the economy. In this sense, the government would be influencing
in the allocation of resources that would otherwise be directed to whichever sector of the
economy presented better comparative advantages and better efficiency. If one considers
that a NME feature would be precisely the allocation of the resources of the economy
by the government, the very concept of subsidies may not fit properly to this reality.
Nonetheless, the surveillance and discipline of subsidy programs is an important part of
the functioning of the Multilateral Trading System and it would be to the detriment of
the systems coherence to exclude NMEs from it.
Finally, the control over investments decisions/planning in NME can raise other kinds
of challenges, which the narrow legal basis of the WTO in the subject would not be apt
to resolve.
II. C hina s
obligations
The accessions of NMEs to the WTO have produced much more debate and specific
obligations to the acceding country than those during GATT. One can argue that this
is due to the change in the nature of WTO obligations compared to those of GATT
being much more concerned today with policy aspects of members international trade.
Nonetheless, the accession of some countries to the WTO, deemed to be NME, have
entailed especial obligations, reproduced in their respective Accession Protocols.47 These
obligations can serve as indications of which aspects of their economies were considered
to be in conflict with the legal and economic order of the WTO.
The analysis of the Protocol of Accession of China and of its Working Party Report
offer some indications of the structural economic adaptations required of a NME in
order to integrate itself in the Multilateral Trading System. Some key obligations are
highlighted next.
A. U niform
administration of
WTO
rules over the territory
Under Article 2.A of the Accession Protocol, China must apply WTO rules in a uniform
manner over all its territory, including border trade regions and minority autonomous
areas, special economic zones, open coastal cities, economic and technical development
zones. This is relevant since the planned-economy development model created several
47
It is worth noting that WTO members have expressly considered China to be in the process of transition
towards a full market economy. WTO, Report of the Working Party on the Accession of China, WT/ACC/
CHN/49, 1 October 2001, p. 29, para. 150.
259

special zones in which trade rules could vary substantially. The uniform application of
trade rules represents a considerable adaptation from this model.
B. R ule
of
L aw
Article 2.C and 2.D requires the establishment of an official journal and of a judicial
system, impartial and independent, with possibility of appeal. These two requirements
can be interpreted as being necessary to implement the rule of law in China. These
obligations relate to the manner by which rules are negotiated, monitored and implemented
in Western countries. In this sense, these obligations are considered imperative in order to
adapt the Chinese system to the legal functioning of the WTO.
C. N on - discrimination
foreign capital and individuals
The Protocol of Accession, in its Article 3, establishes the obligation of China to concede
national treatment for foreign individuals, enterprises and foreign-funded enterprises.
Although this obligation extends to all WTO members, it has a special meaning for NME,
since it implies that all foreign individuals and enterprises shall be free to participate in the
economy of the country, at the same rate as nationals. This has particular implications to
the treatment conceded to foreign capital in NMEs.
D. R ight
to trade
monopoly of international trade
The right to trade and the monopoly of international trade by the State are main concerns
for the well functioning of the Multilateral Trading System. In this regard, Chinas
Working Party Report (WPR) states that:
80. Some members of the Working Party noted that China was in the process of liberalizing
the availability of the right to import and export goods from China, but that such rights
were now only available to some Chinese enterprises (totalling 35,000). In addition,
foreign-invested enterprises had the right to trade, although this was restricted to the
importation for production purposes and exportation, according to the enterprises scope
of business. Those members stated their view that such restrictions were inconsistent
with WTO requirements, including Articles XI and III of GATT 1994, and welcomed
Chinas commitment to progressively liberalize the availability and scope of the right
260

to trade so that within three years after accession all enterprises would have the right to
import and export all goods (...).48
Articles 5 and 8 of the Protocol of Accession dealt with this subject. In order to conduct
international trade in a manner consistent with the WTO Agreement, China must progressively
liberalize the availability and scope of the right to trade for both its national and foreign individuals
and enterprises (Article 5). This adaptation should be done, generally, in three years. Also
import and export licensing should be liberalized and a justification by China would be
required for maintaining the restriction on its scheduled date of termination (Article 8.b).
E. P rice
controls
Article 9 of the Protocol of Accession regulates price controls in China. This subject has
been of key interest when dealing with NME. Article 9 states that China shall allow
prices for traded goods and services in every sector to be determined by market forces
and provides for the elimination of multi-tier pricing practices. In this manner, WTO
members sought to address the problem highlighted by Article III.9 of the GATT.
At the time of accession, Chinese representatives recognized that:
52. There were presently three types of prices: government price, government guidance
price and market-regulated price. The government price was set by price administration
authorities and could not be changed without the approval of these authorities. Products
and services subject to government pricing were those having a direct bearing on the
national economy and the basic needs of the peoples livelihood, including those products
that were scarce in China.49
Regarding this issue, China WPR states that:

50. Some members of the Working Party noted that China had made extensive use
of price controls, for example in the agricultural sector. Those members requested
that China undertake specific commitments concerning its system of state pricing. In
particular, those members stated that China should allow prices for traded goods and
services in every sector to be determined by market forces, and multi-tier pricing practices
for such goods and services should be eliminated. Those members noted, however, that
China expected to maintain price controls on the goods and services listed in Annex4 to
the Draft Protocol, and stated that any such controls should be maintained in a manner
48
49
Ibid, p 15.
Ibid, p. 10.
261

consistent with the WTO Agreement, in particular Article III of the GATT1994 and
Annex 2, paragraphs 3 and 4, of the Agreement on Agriculture.50
China undertook the obligation to terminate, generally, the price control system, and
to maintain only those contained at Annex 4 of the Protocol of Accession. In so, China
also agreed not to implement price controls in such way as to provide further protection
for its domestic market.
F. S ubsidies
and countervailing measures
Regarding the subsidisation of Chinese economy, the special characteristics of Chinas

development model bring further challenges to the implementation of the SCM
Agreement. In this sense, China WPR stated that:
171. Some members of the Working Party expressed concern that the special features
of Chinas economy, in its present state of reform, still created the potential for a
certain level of tradedistorting subsidization; this could have an impact not only on
access to Chinas domestic market, but also on the performance of Chinese exports
in the markets of other WTO Members, and should be subject to effective SCM
Agreement disciplines. (...) The representative of China (...) informed the Working
Party of the efforts being undertaken, as part of its ongoing reform process, to reduce
the availability of certain types of subsidies.51
Annex 5.A of the Accession Protocol of China brought a list of 22 types of subsidies,
3 of which should be phased out after accession (Annex 5.B). Those are: subsidies
provided to certain state-owned enterprises which are running at a loss; the priority in
obtaining loans and foreign currencies based on export performance; preferential tariff
rates based on localization rate of automotive production.
Also, due to the difficulties in identifying subsidies in NMEs and determining
specificity during countervailing duties investigations, Article 10.2 of the Protocol of
Accession considered that subsidies provided to state-owned enterprises will be viewed as specific
if, inter alia, stateowned enterprises are the predominant recipients of such subsidies or stateowned
enterprises receive disproportionately large amounts of such subsidies.
50
51
Ibid, p. 10.
Ibid, p. 34.
262

G. S tate - owned
enterprises
The rate of participation of SOEs in the economy is considered one of the most
important features of NMEs. China undertook the obligation not to allow government
interference in SOE commercial decisions, which would be dependent solely upon
commercial considerations.
45. The representative of China emphasized the evolving nature of Chinas economy and
the significant role of FIEs and the private sector in the economy. Given the increasing
need and desirability of competing with private enterprises in the market, decisions by
state-owned and state-invested enterprises had to be based on commercial considerations
as provided in the WTO Agreement.
46. The representative of China further confirmed that China would ensure that all
state-owned and state-invested enterprises would make purchases and sales based solely
on commercial considerations, e.g.,price, quality, marketability and availability, and
that the enterprises of other WTO Members would have an adequate opportunity to
compete for sales to and purchases from these enterprises on non-discriminatory terms
and conditions. In addition, the Government of China would not influence, directly or
indirectly, commercial decisions on the part of state-owned or state-invested enterprises,
including on the quantity, value or country of origin of any goods purchased or sold,
except in a manner consistent with the WTO Agreement. The Working Party took note
of these commitments.
H.
T ransitional
product - specific
safeguard
comparability in anti - dumping investigations
mechanism
and
price
Two buffer mechanisms were conceived to address WTO members concerns about the
impact on their economies of Chinas accession to the WTO. The first one is the reference
to special rules regarding price comparability in anti-dumping and countervailing
measures investigations against imports from China.
As it was the case in other NME accessions, the use of alternative methodologies
to calculate normal price during anti-dumping investigations was deemed appropriate
considering the difficulties provided by special characteristics of the Chinese domestic
market. The lack of normal commercial environment and the high level of State presence
in the economy were considered as NME features that would render anti-dumping
investigations based on internal prices as impractical.
Although the possibility of using alternative methodologies for normal price
determination concerning NMEs already existed under GATT Article VI, through its Ad
263

Note, a new special and temporary system was created.52 Under this new special system, provided
for in Article 15 of Chinas Accession Protocol, there is no need for countries to apply the
exception of the Ad Note to China since it would be objectively considered as a NME, for
price comparability purposes, for 15 years, i.e. until 2016.
This mechanism had already been previewed in the WPR of Viet Nam53 and can be
seen as a means to enhance the protection granted through the application of alternative
methodologies in anti-dumping investigations against NMEs, especially considering the
difficulties by investigating authorities to access relevant data.
The second buffer mechanism is the use of transitional product-specific safeguard
mechanism one general (until 2013) and another specific to the textile sector (no longer
in force). This is a common feature of NME accessions to the Multilateral Trading System
and has been reproduced in the Protocol of Accession of China in its Article 16 and in
China WPR Para. 242, respectively.
The transitional element of both mechanisms is proof of political bargain but also of
the understanding that such mechanisms would not be needed once the NME features of
China that justified them were surpassed.
I.T ransitional
review mechanism
As a sign of the importance of all the above-mentioned systemic changes required of

China, a special transitional review mechanism was provided for in Article 18 of the
Protocol of Accession of China. This mechanism would examine Chinas implementation
of its obligations both under WTO agreements and under China WPR and Protocol of
Accession. China was subject to annual reviews in the first eight years of its accession and
to an additional review by the tenth year (the last one occurred in 2011).
It is worth noting that the transitional review mechanism operated in conjunction with
the regular Trade Policy Review Mechanism to which all countries are subject regularly.
China is subject to reviews each two years under the regular mechanism (the first was
conducted in 2006). The combination of both review mechanism made Chinas economy
52
The legal basis and the deadline for the applicability of this new system has been the focus of much academic
debate recently. See TIETJE, Christian and NOWROT, Karsten, Myth or Reality? Chinas Market Economy
Status under WTO Anti-Dumping Law after 2016, Policy Papers on Transnational Economic Law, No. 34, Transnational
Economic Law Research Center, December 2011. See also OCONNOR, Bernard, Market-economy status for China
is not automatic, VoxEu 27 November 2011. Available at <http://www.voxeu.org/index.php?q=node/7345>. Last
access on 01.03.2012. and in GAO, Henry, If you dont believe in the 2012 myth, do you believe in the 2016 myth?, WTO
and China, 20 November 2011. Available at <http://wtoandchina.blogspot.com/2011/11/if-you-dont-believe-in2012-myth-do-you.html>. Last access on 01.03.2012.
53
See WTO, Report of the Working Party on the Accession of Viet Nam, WT/ACC/VNM/48, 11 January 2007,
para. 255.
264

as the most scrutinized since its accession, demonstrating the impact of its accession to the
Multilateral Trading System.
III. C onclusions
There are several WTO provisions that are not adapted to NMEs. Core principles such as
the national treatment, as well as rules on market access, established in GATT Article II,
face challenges when applied to NMEs. Furthermore, even Article XVII, created to deal
with the issue of state-trading enterprises show itself as insufficient to regulate NMEs and
to assure their compatibility with the Multilateral Trading System.
The WTO members, therefore, decided to require new obligations from acceding
NMEs, imposing substantial economic changes and eliminating aspects considered
incompatible with the multilateral system. Considering all these deep systemic obligations
to which China had to adhere before acceding to the WTO, it is fair to argue that WTO
members sought to guarantee the adequacy of Chinas economy to multilateral trading
rules by demanding reforms that would curb Chinese NME features. In this sense, Julia Ya
Qin states that as a result of these obligations, whether China practices market economy is no longer a
mere matter of domestic policy; instead, it has become a matter of WTO law.54
IV. I mplications
of the nme issue for the
WTO
The present study has analyzed the systemic challenges posed by the integration of NMEs
into the Multilateral Trading System. The relationship between market and planned
economies has seen an interesting evolution on how the GATT and the WTO dealt with
the specificities of trade between the two economic systems. The accession of China has,
in this sense, required 15 years of intensive negotiations, including extensive economic
and legal analysis to conclude a set of systemic adaptations required of China so as to
allow for its accession.
These systemic adaptations comprise obligations in the fields of: foreign exchange; state
ownership and privatization; pricing policies; trading rights; subsidies; industrial policy;
state-trading enterprises; investment; rule of law and transparency. These obligations
were considered by the members of the WTO as indispensable for the establishment of
a level playing field regarding trade with China and for the well-functioning of the WTO
legal order.
After 10 years of Chinas accession, however, trade disputes and tensions between
China and some of the most important members of the WTO, especially the US, have
54
QIN, Julia Ya, China, India and WTO Law, in SORNARAJAH, Muthucumaraswamy; WANG, Jiangyu,
China, India and the International Economic Order, Cambridge University Press, 2010, p 173.
265

arisen over Chinas compliance with WTO obligations. In the wake of the worst financial
crisis since the Great Depression, trade rows and resentment over Chinas trade and
industrial policies have been present daily in international and local news. This study
argues that much of the tension expressed by members of the WTO is due to the fact
that the Multilateral Trading System is not apt to deal with NME features still present in
Chinas economy.
The Multilateral Trading System, in its present state, does not offer the necessary
mechanisms to allow a leveled playing field in trade between market and NMEs. A
solution would be to negotiate new provisions to regulate specific features of China and
other NMEs, if the transition of these countries towards a market oriented model remains
incomplete.
The first action that should be taken is the creation of a Working Group under the
WTO that would study the impacts caused by NME features to multilateral trade rules.
The Working Group would be able to evaluate the specific elements of NMEs that may
be considered incompatible with the Multilateral Trading System and which elements
require an adaptation of the Multilateral Trading System in order to allow a better
application of WTO rules.
It is also imperative to adapt the existing rules on trade defense: antidumping (especially
the Ad Note to GATT Article VI, considered outdated), subsidies and safeguards. Special
attention must be given to GATT Article XVII on SOEs. A deeper study in this Working
Group could reveal more provisions that would need to be discussed.
It is essential to WTO members to deal with the concerns raised by NMEs participation
at the WTO. The rules of the Multilateral Trading System are no longer able to provide
a consistent trade regulation that assures the respect of the organizations core principles.
The conflicts raised by the issue of NMEs between WTO members have the potential to
undermine the Organization. Members must negotiate a solution urgently.
With the impasse of the Doha Round and no political will to unblock the System,
either WTO members take the challenge in their hands and negotiate new rules to
accommodate this challenge, or, once again, this explosive issue will go to the Dispute
Settlement Body. The diplomatic-judicial Tribunal of the WTO will have the task to
solve a dispute through rulings of the Appellate Body based on ambiguous old articles.
Once again, negotiations and diplomacy will be surpassed by judicial decisions, called
upon to solve conflicts by adapting the existing rules to unforeseen situations.
266
M otions in the procedures of a B i - national

P anel s review under article 1904 of the
N orth A merican free trade agreement
Natividad Martnez Aguilar*
Abstract. Regarding the review on motions in procedural matters that may be reviewed by Bi-national Panels,
it is necessary to analyze the specific cases that may arise; since the possibility of presenting all directly related
motion proceeding is not precluded by the specified motion proceedings. Although, to date even in dismissed cases,
the possibility that the parties continue defending against Panels orders does not prescribe. This situation will be
analyzed in a more detailed manner, further in this article.
Keywords: Chapter 19, Dumping, motions, review, antidumping, countervailing duty, unfair practices, NAFTA,
proceedings.
* PhD. Professor in the Division of Graduate Studies of the Faculty of Law at the National Autonomous University
of Mexico. The opinions expressed in this article are those of the author.
Translation by Mara del Sol Magaa Garca
I. I ntroduction
ncidents in the procedures of a bi-national panels review of article 1904 of the North
American Free Trade Agreement (NAFTA) are related with the procedures for Panel
review on Final Antidumping and Countervailing Duty Determinations, as provided in
NAFTA Chapter XIX.
II. G eneral
remarks
From the procedures provided in NAFTA Chapter XIX, the ones regarding the Review
of Unfair Practices Determinations international trade practices by a bi-national panel
267

under the Article 1904, by its legal nature, have been defined as sui generis.1 It can also be
established that:2
Chapter 19 distinguishes two ad-hoc tribunals and two committees:

An Arbitral tribunal to determine whether a legislative amendment, in matters of
antidumping, is in accordance with NAFTA, specifically with Chapter 19.3

An arbitral tribunal to review the relevant determinations rendered by the domestic
entities.4

A special Committee to safeguard the review mechanism.5

An Extraordinary Challenge Committee.6
While remaining as arbitral procedures, the revision of final on antidumping and

countervailing duty determinations considers some procedural aspects, as those who
are brought before the national courts of the NAFTA parties, for this purpose, NAFTA
Article 1904.14 provides:
14. To implement the provisions of this Article, the Parties shall adopt rules of procedure
by January 1, 1994. Such rules shall be based, where appropriate, on judicial rules of appellate
procedure, and shall include rules concerning: the content and service of requests for
panels; a requirement that the competent investigating authority transmit to the panel
the administrative record of the proceeding; the protection of business proprietary,
government classified, and other privileged information (including sanctions against
persons participating before panels for improper release of such information); participation
by private persons; limitations on panel review to errors alleged by the Parties or private persons; filing
and service; computation and extensions of time; the form and content of briefs and other papers; pre and
post-hearing conferences; motions; oral argument; requests for rehearing; and voluntary terminations of
panel reviews. The rules shall be designed to result in final decisions within 315 days of the
date on which a request for a panel is made, and shall allow:
(Emphasis added)
1
Final decision of the review panel for final resolution of the antidumping investigation on imports of rolled steel
plate originating from Canada, number of case: MEX-96-1904-026, published in the Official Gazette on February
6, 1998. Panel composed by D.M.M. Goldie, Luca Reina Antua, W. Roy Hines, Rodolfo Terrazas Salgado y
Gustavo Vega Cnovas (President).
2
Binational panel decision and dissenting vote on the final resolution of the antidumping investigation on
imports of carbon steel pipe with straight lengthwise seam, goods currently classified in tariff items 7305.11.01 and
7305.12.01 of the Tariff Law of the General Taxes of Importation and Exportation, originating in the United States
of America regardless of the country of origin, File number MEX-USA-2005-1904-01, published in the Official
Gazette on March 31, 2008. Panel composed by James Holbein, Hctor Cuadra y Moreno, Oscar Cruz Barney, Dale
Tursi and Francisco Jos Contreras Vaca (President).
3
NAFTA, Articles 1902.2 and 1903.
NAFTA, Art. 1904.
NAFTA, Art. 1905.
NAFTA Art. 1904, paragraph 12 and annex 1904.13.
268
Panels review under NAFTA Article 1904

Natividad Martnez
Thus, Mexico, the United States and Canada subscribed the Rules of Procedures
for Article 1904 of NAFTA (Rules of Procedures),7 which contain the possibility of
participants in those proceedings, of filing along itself a number of motions and wide
variety of proceedings.
Before discussing the different types of motions contained in the Rules of Procedure
and making comments on some of Mexicos cases, according to the Dictionary of the
Royal Spanish Academy of Language,8 the term:
Incident.
(From lat. Incidens,-entis).
1. adj. That occurs in the course of an issue or business and have some connection with
this.
2. n. Dispute, brawl fight between two or more people.
3. n. Other matter different from main issue of the trial, but related to it, being heard
and decided separately, often suspending the course of that, and then called of special
preliminary ruling
Prior the discussion of the different types of motions contained in the rules of
Procedures and the later exposition of some cases in Mexico, according to the MerriamWebster Dictionary, the term motion means:
1. n. an act or process of moving
2. n. a formal proposal made in a deliberative assembly
3. a. an application made to a court or judge to obtain an order, ruling or direction.
Doctrine has determined the existence of three types of motions, the ones of special
and preliminary ruling, the ones of special ruling,9 and the ones that can be issued among
with the final determination. The first must be issued before the determination of the
main issue; the second requires a special statement and the third are those that may be
issued with the final determination.
In the different cases of panel review, although there is no classification as such in the
Rules of Procedure, the three cases have been brought, particularly, the panel review of
Final Determination, issued by the Ministry of Economy, concerning the Antidumping
7
On June 20, 1994 the Department of Commerce and Industrial Development (now Ministry of Economy)
published in the Mexican Official Gazette the Rules of Procedure for Article 1904 and the Rules of Procedure
of the Extraordinary Challenge Committee of the North American Free Trade Agreement; on March 20, 1996
clarifications to the above Rules were issued, on September 15, 2008, certain amendments were issued only to the
Rules of Procedure for Article 1904.
8
9
<http://buscon.rae.es/draeI/> o <http://www.merriam-webster.com>/
Saucedo Lpez, Antonio, Los incidentes en el Amparo, Jurdica. Yearbook of the Department of Law of the
Iberoamerican University, Mexico, Number 18, Section Previa, 1986, <http://www.juridicas.unam.mx/publica/
librev/rev/jurid/cont/18/pr/pr7.pdf>.
269

Investigation on Imports of High Fructose Corn Syrup from the United States of America,
with file number MEX-USA-1998-1904-01,10 in this case different types of motions
concurred, in other cases, the motions presented have terminated the proceedings, such
as the case revision of caustic soda11 and pork legs12, which will be discused this article.
III. M otions
in
the
review
of
final
antidumping
and
countervailing duty determinations
In this section the different types of motion procedures for the Binational Panel Review
established in Article 1904 of NAFTA will be described, beginning with the general basis
to activate the motion mechanisms; proceeding later with the specific ones.
A. R ule 61. M otions
in general
In Accordance with the Rules of Procedure, motions begin with a Notice of Motion made
by a party in the process of binational panel review, even if the request is made by the
investigating authority; nominative motions find their basis on a particular rule, others
exist, such as those arising during the procedure and that are simply based on Rule 61(1),
all to the effect that the panel members solve any issue related with the main issue.
Regarding this mechanism, by virtue of incidental proceedings it can be established
that:
According to Rule 61 (1) motions shall be made in writing, except when, due to the
circumstances, it is unnecessary or impracticable; they may be accompanied by affidavits
in support whenever treaties, laws, regulations, judicial precedents or any other document
10
11
First Decision issued on August 3, 2001 and published in the Mexican Official Gazette on October 10, 2001.
Award regarding the jurisdiction of the Binational Panel issued on July 13, 2006. On November 1, 2006, the
termination NOTICE of the panel review of the final determination was issued by the Ministry of Economy on the
review removal consequences of the final countervailing duty imposed on imports of liquid caustic soda, classified in
item 2815.12.01 of the Ley de los Impuestos Generales de Importacin y de Exportacion, originating in the United
States of America, with record number of MEX-USA-2003-1904-01. Mostly consisted of Stephen Powell, Gustavo
Uruchurtu and , Leonel Pereznieto Castro (Chair), the dissenting minority were Gustavo Arratibel Salas and Dale
Beck Furnish. To consult the award see page of the Secretariat of the Free Trade Agreement North America <www.
nafta-sec-alena.org>.
12
Binational Panel Review, in accordance with Article 1904 of NAFTA in North America, in the Review of
the determination that concludes the Antidumping Investigation on Imports of Meat of Swine (Pork), Originating
in the United States of Americacase with file number MEX-USA-2006-1904-01, issued on December 5, 2008 and
published in the Mexican Official Gazette on December 28, 2008. Panel composed by Elizabeth Anderson, Howard
Fenton, Leonard Santos, Jorge Miranda and Hector Cuadra y Moreno (President).
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Natividad Martnez
are mentioned but not contained in the formal file. It shall also be accompanied by a
proposed order of the Panel and shall be filed with the responsible Secretariat, together
with proof of service on all participants, as provided in Rule 61(2).
Participants wanting to respond to a Notice of Motion, may file a response within 10
days after the Notice of Motion is filed. The notice of motion that is not answered by the
participants is understood as a Consent Motion, as indicated in Rule 61(5).
The sub judice nature of a motion does not alter the original terms of the procedure. The
panel must issue the determinations, no later than the day that it issues its final decision
or, if a motion is filed in terms of Rule 76, the day that the Notice of Final Determination
is issued.
When a panel chooses to hear the arguments of the parties contained in the motions in
accordance with Rule 64, a motion hearing could be agreed. It is the obligation of the
Secretariat to notify the date, time and venue of the same.
It is noteworthy that the panel issues orders related with the motions, in which it meets
or discard the contents. These orders may also establish requirements and deadlines to
be met by the parties.13
In addition to the provisions of section 61 of the Rules of Procedure, the numerals 62,
63 and 64 establish general provisions, consisting of:
a. Subject to subrules 20(2) and 76(6), unless the panel otherwise orders, a
participant may file a response to a Notice of Motion within 10 days after the
Notice of Motion is filed.
b. The panel may hear oral arguments or, subject to subrule 26(b), direct that a
motion be heard by means of a telephone conference call with the participants.
(Protecting the confidentiality of the information) and may deny a motion
before responses to the Notice of Motion have been filed.
The way in which binational panels make determinations on issues arisen during the
procedure are the orders, through which Panels make determinations and reviews, grant
time extensions, establish the date, place and time where the ublic hearing will be held,
require information to participants, resolve the motions and even in the final decision
Panel issues an order.
Having described the general aspects of the motions in the procedures for bi-national
panel review, the different types established in the Rules of Procedure can be described.
13
Martnez Aguilar, Natividad, El mecanismo de solucin de controversias del Captulo XIX del TLCAN,
exhibition at the Seminar on the Administration of Dispute Settlement Regimes in Free Trade, Organization of
American States / Canadian International Development Agency / Ministry of Economy, in Internet: <http://
www.sedi.oas.org/dctc/AdmAcuerdos/Administracion%20Solucion%20de%20Controversias/7.%20exp_nma_
mx.pdf>, Lecture delivered at Puebla on March 24, 2006.
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B. R ule 20. E xtensions
The first type of incident that will be addressed, is the one provided in Rule 20
regarding the granting of extensions, which shall be allowed if:
a. Adherence to the time period would result in unfairness or prejudice to a
participant or the breach of a general legal principle of the country in which
the final determination was made;
b. the time period is necessary extent;
c. the decision is concurred by 4 of the 5 panelists and the panel takes into
consideration the purpose of the Rules of Procedure to secure just, speedy ad
inexpensive reviews if final determinations
d. application must be submitted at least 10 days before the deadline; the response
in this case must be filed within 7 days after the notification. In the event that
the request was not presented in the referred time, the participant who wants to
apply for an extension must request permission for late submission, motivating
this fact and justifying the reason for the failure.
e. Normally the panel will rule on the motion before the deadline which is the
subject of the motion.
Usually, in cases brought in Mexico deadlines are met, but there are some cases in
which extensions have been ordered, a very meaningful occurred when the investigating
authority requested an extension for the presentation of the administrative record on the
review of the final resolution of the anti-dumping investigation on imports of meat and
edible offal of cattle, originating in the United States of America, with file number MEXUSA-2000-1904-02, unfortunately at that stage of the proceedings the binational panel
was not integrated, therefore the Secretary of the Mexican Section of the Secretariat
of the North American Free Trade Agreement received the administrative record, out
of the original term, and on February 22, 2002 binational panel14 ruled as suitable the
authoritys motion considering as fulfilled the obligation of presenting the administrative
record in a timely manner, established in paragraph 41 of the Rules of Procedure, a fact
confirmed in paragraph 4.2 of its Final Determination.
14
Final Decision issued on March 15, 2004 and published in the Official Gazette on April 2, 2004. Panel
composed of Lisa B. Kotteen, Cynthia C. Lichtenstein, Ruperto Patio Manffer, Jorge Alberto Silva Silva, Eduardo
Magalln Gmez (President).
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Natividad Martnez
The exceptional circumstances leading to the request for extension resulted from the
fact that the administrative record of the antidumping investigation of the final decision
under review had accumulated the largest amount of information in the history of
antidumping investigations in Mexico, the dossier is conformed by 573 volumes15, i.e.
138 corresponding to the non-confidential version and 435 to confidential version, which
according to paragraph 41 (1) (c) of the Rules of Procedure, the dossier was delivered in
duplicate, and consequently the number of volumes amounted to 1146 volumes, which
involved many hours.
Although the same arbitrational group considered unsuitable another extension
motion, as it explained in its final decision:
4.12. On September 11 2002, the Panel ruled as defective the motion submitted by the
National Production requesting an extension to celebrate the Oral Hearing held on 29
and 30 August of that year.
Not in all cases, in these types of proceedings, the claims of the participants, including
the investigating authority are considered as appropriated by the binational Panels; in fact
there may be diverse positions from one Panel to another, since their decisions are not
binding.16
C. R ule 21. C ounsel
of record
The Counsel of Record motion is quite simple since it occurs when one of the participants
in the review changes its counsel, this change must meet certain formalitieswhich imply that
the new agent shall notify of the modification to the Secretariat, the former counsel and other
participants.
This type of incident occurred in the case of beef, about various requests that arose during
the procedure; the binational panel expressed its opinion on the dates and terms summarized
in its Final Decision as follows:17
4.13. On September 11, 2002; October 23 and 31, 2002; and January 10, 2003, the Panel
issued orders that required Attorney Jos Othn Ramrez Gutirrez continue to serve as Legal
Counsel for the National Production until the Panel received a notification of change of legal
counsel in accordance with paragraph 2 of Rule 21 of the Rules of Procedure.
15
Later investigations accumulating a greater amount of information, but without being reviewed by a
binational panel have arisen.
16
17
Article 1904.9 of NAFTA.
Op. Cit. MEX-USA-00-1904-02.
273

4.14. On October 23, 2002, the Panel issued an order holding: a) that the companies Sukarne,
AMEG, Vizur, SK, Confederacin, Carne de Engorda y Romar, had failed to comply with
Rule 21(2) of the Rules of Procedure, as a result of which Jos Othn Ramrez Gutirrez
continued to represent those companies before the Panel; and b) that with respect to the two
pleadings presented by the Confederacin to withdraw from the review proceedings, those
pleadings were treated as not presented for failure to comply with the Rules of Procedure.
4.16. On February 6, 2003, the Panel issued an order with respect to the pleading presented
by Sukarne, Vizur and SK, acknowledging that the Panel had received proper notification of
the change of Legal Counsel in favor of Benjamn Seplveda Lugo; and on the same day, the
Panel acknowledged the withdrawal of these companies from the review proceedings.
4.18. On February 14, 2003, the Panel issued an order acknowledging the proper notification
of change of Legal Counsel for AMEG in favor of Rosa Anel Garca
Espinosa; and on the same day, the Panel acknowledged the withdrawal of AMEG from the
review proceedings.
of change of Legal Counsel for the companies Romar and Carne de Engorda in favor of
Enrique Lpez Lpez; and on the same day, the Panel acknowledged the withdrawal of these
companies from the review proceedings before this Panel.
of change of Legal Counsel for Confederacin Nacional Ganadera in favor of Heriberto
Crdenas Galvn; and on the same day, the Panel acknowledged the withdrawal of this
company from the review proceedings.
In this case, and for each motion, the provisions set forth in the Rules of Procedure were
duly fulfilled in order to consider as valid the change of accredited Counsel of Record.
The items met by the new Counsel of Record were:
a. Submit documentation establishing its legal character;
b. Submit a notification, duly signed, to the Mexican Section of the Secretariat of the
Free Trade Agreements, from the former Counsel and the other participants, and
c. Meet the formal requirements laid down in paragraph 55 of the Rules of Procedure.
D. R ule 39. C omplaint
Another type of Motion Notice that might be promoted during a procedure for the
binational panel review is where complainants submit an application to present a modified
version of the complaint, which must go along with the preliminary motion.
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Natividad Martnez
In the case of pork legs U.S. domestic production provided an amended complaint
without covering the requirements of time and manner prescribed in the Rules of
Procedure, in which the binational panel18 ruled as follows:
On March 10, 2006, the Consejo Mexicano de Porcicultura, A.C. filed an amended
Request, without first obtaining permission to do so by this Panel, as required by Rule
39.5 and 6 of the Rules of Procedure of Article 1904 of NAFTA.
For an amended complaint to proceed it is also necessary a motivated and justified

motion, that shall be presented five days before the deadline for filing the notice of
appearance. In the event of non-compliance, the complainant promoting this motion
creates a disadvantage for the performance of the parties and breaches the right to defend
them, this is clear since the Rules of Procedure establish that Panels must rule on the
motions promoted under this topic twenty days before the expiration of the time period
for filing briefs, if there is no statement, the request is deemed to be denied.
E. R ule 49. P roprietary
information access orders
The NAFTA Parties reserved as an attribution of the investigating authorities to grant

access to confidential information on the review procedures by a binational panel. Thus,
they may grant or deny the access to the information contained in the confidential version
of the administrative records of research on antidumping or countervailing duty subject
to review as well as confidential information generated during the proceedings before a
binational Panel.
The investigating authorities from the three countries might grant access to
confidential information to Panelists, NAFTA Secretariat staff, participants, translators
and technicians, the later in order to participate in the public hearing, sometimes deny or
limit access to information, whether it is confidential or privileged.19
Due to this fact, when the investigating authority refuses to issue a Proprietary
Information Access Order to a counsel of record or to a professional retained by, or under
the control or direction of, a counsel of record, or issues it but in terms unacceptable to
the counsel of record, this counsel may file with the responsible Secretariat a Notice of
Motion in terms of Section 49 of the Rules of Procedure.
18
19
Op. Cit. MEX-USA-2006-1904-01.
In the case of the Mexican investigating authority access to the information on the basis of various provisions
is granted or denied, primarily in Articles 80, 93 Section VI of the Foreign Trade Act, 149, 159 Sections I, VII, VIII,
160 sections I and II of the Rules of the Trade Act, 1904.1, 1904.2, 1904.6, 1904.7, 1904.14, 1904.15 b), 1907.3 d)
and f), 1908.1, 1908.2, 1901.2 Annex, paragraphs 7 and 8 of the NAFTA and numerals 3 , 13, 14, 26, 47 and 48 of
the Rules of Procedure.
275

If the Panel considers it appropriate the request of the counsel, it may order the
representative of the investigating authority to issue the permit or to modify it; accordingly,
the Panel is not authorized to grant access to confidential information contained in the
files.20
In several binational panel procedures arisen in Mexico, pronouncements of different
types have been made, such as the case of flat steel,21 in which the charge of the review
panel determined on April 19, 1995:
In connection with the public hearing to be held on April 20 and 21, 1995 in the Seminars
Unit Dr. Ignacio Chavez, of the Universidad Nacional Autnoma de Mxico and for the
sole purpose of that it can grow properly, this panel orders, as well as people who have
an Authorization for Access to confidential Information, issued by the IA, people listed
below should also have access to confidential information that may arise during the Oral
Hearing
This order from the panel is based on the provisions set forth on Rule 69 (b) of the Rules
of Procedure for Article 1904 of NAFTA in North America (Rules of Procedure), in
connection with regulations 14 (1) and 48 of those Rules of Procedure, in accordance
with the reasoning below:
The binational panel for the review of the final determination of flat steel, motivated
the determination by arguing that as investigating authorities did not granted access to
technicians and translators and, evidence presentation in the oral hearing was close, the
authorization was issued, although the authority had 30 days to grant the approval and
the application was presented on April 17. It can be considered that the Panel by that time,
exceeded its powers, since it could have waited for the authority to grant the appropriate
access prior the commencement of the public hearing or not unclosing confidential
information during its course and if necessary, to reschedule a session in camera where
confidential information issues will be attended. It could be argued that even when it was
the first panel review determination applied in Mexico, it solved an imminent problem.
20
There is an exception to Rule 49, provided in subsection (3): Where the final determination was made in
the United States and the investigating authority fails to comply with the notification referred to in subrule (2), the
panel may issue such orders as are just in the circumstances, including an order refusing to permit the investigating
authority to make certain arguments in support of its case or striking certain arguments from its pleadings.
21
Review of the final determination of the antidumping investigation on imports of coated flat steel products
originating in and coming from the United States of America, number of file MEX-94-1904-01. Final Decision
issued on September 27, 1996 and published in the Official Gazette on November 8, 1996. Panel composed of
David A. Gantz, Eduardo Magalln, Michael D. Sandler, Jos Luis Soberanes Fernndez y Gustavo Vega Cnovas
(President).
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Natividad Martnez
Other cases have arisen where the Mexican investigating authority has denied access to
confidential information and binational panels considering incorrect its presentation have
ordered the issuance of the referred access authorization, after meeting the requirements
established in the Mexican legislation i.e. the provisions in the Ley de Comercio Exterior
along with its regulation. A case in this regard, is the order raised by the binational panel
for the Review of the final determination of rolled plate which reads as follows:
MEX-96-1904-02. Order of the review panel of the final determination of the
antidumping investigation on imports of rolled steel plate originating from Canada from
April 1, 1997.
ORDER
...
15. Indeed, it is clear that access to confidential information constitutes a limited
emergency situation. Given the potential harm that may arise from improper disclosure
to any party, such access should be surrounded by requirements and guarantees to prevent
such disclosure or sanction.
16. Since the request for access to confidential information is made to the investigating
authority, which must always act in compliance with Mexican law, and given that the
Rules do not contain the requirements that must be met to be granted such access, the
Panel concludes that such requirements are, in principle, set out in the Trade Act and
particularly in Articles 159 and 160 of Regulation.
25. The Panel finds support not only in the legal reasoning already expressed and in the
particular circumstances of the case, but most especially in the goal of achieving a fair,
speedy and inexpensive review. Taking also into account that the counsel of a lawyer
is subjected to a strict code of professional ethics and to both financial and criminal
penalties established by Mexican law for offenders of the obligation to protect confidential
information and avoid conflicts of interest in this type of review.
In the panel review proceedings, it has particular relevance that the accredited legal
representative have access to confidential information, since in the case that of motions
of this kind arise, every person with access grants, besides of being able to review the
confidential version of the administrative record and the panel review, may obtain copies
of this information upon payment and must notified in a sealed envelope, such as provided
in paragraph 51 (b) of the Rules Procedure.
F. R ule 52. P rivileged
information
The Rules of Procedure have their own classification of information, some of the
different types of information herein are confidential, governmental and privileged, that
for purposes of review procedures in Mexico binational panel is understood as:
277

Definitions and Interpretation

3. In these rules,
...
Privileged information means:
(b) with respect to a Panel Review of a final determination made in Mexico
(i) information of the investigating authority that is subject to attorney-client privilege
under the laws of Mexico, or
(ii) internal communications between officials of the Secretara de Economia in
charge of antidumping and countervailing duty , investigations or communications
between those officials and other governments officials, where those communications
constitute part of the deliberative process with respect to the final determination, and
(c) ...;
A logical question would be, how do participants know from the existence of privileged
information? The investigating authority shall present, along with the duplicate of the
public version (non-confidential) and confidential administrative record, an index with all
documentation conforming it, indicating the documents containing confidential, privileged
or governmental information, however privileged information shall not be presented to
the Secretariat, unless the investigating authority voluntarily submit information losing
then the privileged classification or submitting the information to fulfill a panels order.22
The information classified by the investigating authority as privileged is very delicate,
in this sense, paragraph 52 of the Rules of Procedure provides a detailed mechanism to
develope incidental disclosure of privileged information, namely:
a. Presentation of the Notice of Motion stating the points of law and reasons why
disclosure of the document is necessary to the case.
b. The investigating authority response in order to object the disclosure has to be
done within 10 days after the application, it must contain reasons to justify and
must be annexed by ... an affidavit of an official of the investigating authority
stating that, since the filing of the Notice of Motion, the official has examined
the document and has determined that disclosure of the document would
constitute disclosure of privileged information;
c. After having reviewed the above, the Panel may order that the document
shall not be disclosed or that the investigating authority file two copies of the
document under seal with the responsible Secretariat.
d. In the event that the Panel has issued an order for the production of information,
the Panel shall select two panelists, one of whom shall be a lawyer who is a
citizen of the country of one involved Party and the other of whom shall be a
22
Paragraph 41 of the Rules of Procedures.
278

Natividad Martnez
lawyer who is a citizen of the country of the other involved party; and they
will examine the document in camera and if any, communicate their decision
to the panel; the latter course shall be considered by the panel.
e. In the event that the two panelists selected fail to come to a decision, the entire
panel shall examine the document in camera and issue an order with respect to
the disclosure of the document. ,
f. If it is decided not to disclose information, the responsible Secretary shall return
all copies of the document to the investigating authority by service under seal.
In relation to the disclosure of privileged information two Panel reviews can be
mentioned:
The first was the roll plate in Canada, a procedure in which the Bi-national Panel
in charge with reviewing commanded the investigating authority the filing of privileged
information, without any request of any participant, ie not fulfill what provided in
paragraph 52 of the Rules of Procedure. The investigating authority in opposition to an
order issued on September 17, 1997 filed a notice of motion, to which the Bi-national
Panel ruled as follows:
MEX-96-1904-02. Order of the review panel of the final determination of
the antidumping investigation on imports of rolled steel plate originating
from Canada. October 17, 1997
SUBJECT: Resolution of the Motion filed by the Mexican Section of the Secretariat of
the Free Trade by virtue of which the Investigating authority seeks reversal of the first
point of the Order issued by the panel on September 17, 1997.
ORDER
First. - The incident is discarded as irrelevant and unfounded, and the first point of the
order dated September 17, 1997 is confirmed, so that a time limit of 24 hours counted
from the day following the effective date of the notification of this, is made available on
this panel information classified as privileged and included in the list annexed to the said
order.
Second.- It perceives the investigating authority that in the case of failing to comply with
what is stated in the point above, this panel will issue its final decision taking into account
available information and issue an order it deems fair according to the circumstances.
Finally, the investigating authority filed insider information required by the Bi-national
Panel.
The second case is the high fructose corn syrup,23 actions that are described in detail by
the Bi-national Panel in its first Final Decision, now we will transcribe only the essentials:
23
Final decision of the review of the final determination of the antidumping investigation on imports of high-
279

107. I.3.2.2. Privileged Information.

108. On August 21, 1998, SECOFI submitted privileged information arguing that it
was part of AR, listed under numbers 1101, 1358 and 1912 of the index of the record,
which had been filed to the Secretariat on April 21, 1998. This information corresponded
to Working Documents which were used by the Injury and Safeguards Adjunct General
Office of the IA for its analysis during the administrative investigation related to the threat
of injury and causality. SECOFI stated that these documents were limited to circulation
amongst the Panelists and were not for the review of the parties.
109. On August 28, 1998 the CRA inquired whether the IA submitted confidential
information, as well as the privileged information.
110. On August 31, 1998, the Complainants CRA, Almex and Staley filed preliminary
motions requesting that SECOFI identifies the documents that it considered privileged
informationand to tell the parties where in the records such documents were listed. ADM
supported the motion of the CRA through its filing dated September 11, 1998.
111. On September 10, 1998, the IA filed its response to the motion of the Complainants
Almex, Staley, and CRA referred to in the paragraph above. The Sugar Chamberfiled a
response in support of the brief of the IA on 21 September, 2000.
112.
117. On March 28, 2000, the Panel issued an Order granting the IA a 10-day period to
waive the privilege it claimed with regard to some or all of the documents that were filed
with the Secretariat. In case that the IA would not renounce such privilege, the Panel
would order that some or all of the documents be divulged to all parties and not just the
Panel.
118. On April 7, 2000, the IA filed a declaration waiving the privilege over the documents,
but only partially and limited in favor of members of the Panel.
119. On April 17, 2000, the Complainants CRA, Almex, Cerestar and ADM filed
motions requesting that the Secretariat be instructed to return the documents containing
privileged information to the IA.
120. On April 25, 2000 the Panel issued an Order, requesting the Secretariat to retain
documents related to this motion until at least May 4, 2000, with the indication that if
by that date any of the participants requested the disclosure of any or all the documents,
then the Secretariat should retain them for 10 days after the date on which the Panel
determine the legality of any motion filed in this respect.
121. On May 15, 2000 in view of there being no request by any of the parties for the
disclosure of the privileged information, the Panel instructed the Secretariat to return the
documents containing the privileged information submitted by the IA.
122. On September 13, 2000, the IA filed with the Panel the working documents
contained in the so called MEXICO-13, and those that supported the sense of
determination contained in the annexes of the request for initiation of the anti-dumping
investigation. The SECOFI authorized, in the document, that the parties with access to
the confidential information could review the privileged information.
fructose corn syrup from the United States of America, case MEX-USA-98-1904-01, issued on August 3, 2001 and
published in the Official Gazette on October 10, 2001. Panel composed ofVctor Blanco Fornieles, Hctor Cuadra
y Moreno, Howard N. Fenton, Saul L. Sherman y Gustavo Vega Cnovas (President).
280

Natividad Martnez
123. On September 22, 2000 the Secretariat received a motion of the CRA requesting
that the Panel reject the privileged information...
127. On March 2, 2000, the Panel rejected the motion of the IA the acceptance of the
documents known as MEXICO-13 as part of the AR.
In one of the proceedings, the Binational Panel ordered the submission of privileged
information and in the other, the Arbitration Panel ordered the return of the privileged
information submitted for internal use, so it can be shown that binational panels not
always pronounce in the same direction.
G. R ule 54. V iolation
or orders .
of proprietary information access applications
The motion procedure applicable for the implementation of sanctions by a Binational

Panel due to violations on access to confidential information, which can be promoted
by a person or the investigating authority, so far have not been activated in Mexico. The
Rules of Procedure do not establish additional requirements for its request, this the ones
provided in the Rules 3, 55 and 61.
H. R ule 68. S upervening
legal precedents
This motion also has a specific procedure and the requirements listed are:
a. Existence of a new legal precedent relevant to the review.
b. Presentation of a Memorial
c. It should be submitted, preferably before the end of the public hearing. In
the event that it is subsequent to the audience, the precedent must be issued
after the meeting, or prior authorization of the Panel, since the accredited legal
representative had acknowledge of it after the hearing and before the final
decision issuance.
d. A written request shall be presented ... specifying the rule of law, the memorial
page to which it relates and a concise explanation page on the relevance of the
precedent.
e. Shall be issued prompt, after it was invoked.
281

f. In the event that any participant may want to reply, it shall be done within 5
days after the request in a concrete one page reply.
During the panel review process on high fructose corn syrup there all types of motions
were presented, some of them related with supervening legal precedents as described in
its Final Decision, which were promoted by the parties, exporters, importers and the IA
162. I.3.2.7. Supervening Legal Precedents
163.
176. On March 2, 2001 the Panel issued an Order in which it accepted the motions of
the Complainants CRA, Almex and Staleyof July 31, 2000; the CRAs motion of August
11, 2000; the motions of the Complainants CRA, Almex and Staley of October 31 and
November 1, 2000, respectively; the motions of the CRA of January 23, 20001; and the
IAs motion of February 20, 2001.
It is a major procedural advantage to allow the presentation of supervening legal

precedents in the Binational Panel review.
I. R ule 71. D ismissal
of a panel review
The dismissal and withdrawal of the panel review procedure is presented in the form of
a motion procedure. The requirements that must be met and the steps to be followed are:
a. For the dismissal, a participant in the review must requests it in writing and the
Panel will determine the procedure.
b. In the event of withdrawal, if any party presents a motion for termination of
the review shall be consented by all participants and an affidavit to that effect,
or where all participants file two Notices of Motion requesting the termination,
the panel review is terminated and, if a panel has been appointed, the panelists
are discharged.
Under the second sentence several panel reviews have been made in Mexico. This will
be discussed below:
a. The Review of the final determination of antidumping investigation on
imports of seamless commercial steel tube from the United States of America,
Case Number MEX-95-1904-01. Withdrawal notice published in the Mexican
Official Gazette on December 15, 1995. In this case the application was
282

Natividad Martnez
withdrawn by the complainant on December 8, 1995. Without presenting any

claim or notices, neither the Panel was conformed.
b. The Review of anti-dumping investigation on imports of cold-rolled carbon
steel from Canada, Case Number MEX-96-1904-01. The withdrawal notice
was published in the Mexican Official Gazette on May 9, 1996. The application
was presented by the complainant on April 1, 1996; and all participants in
the review filed separate preliminary motions requesting for the proceeding
termination.
c. The Panel review of the Final Resolution of the review to the final decision by
which the antidumping duty was imposed on imports of hydrogen peroxide from
the United States of America. File number MEX-97-1904-01. Termination
notice published in January 19, 1998. As in the records the testimony of
concurrence of all participants, with the Motion for Termination presented
by the complainant of Review by Electro Chemical Mexicana, SA de CV, on
November 24, 1997, requesting the proceeding termination.
d. The binational panel review for the resolution declaring inadmissible the
analysis of the application for the review of countervailing duty imposed on
imports from Sun Land Beef Company, Inc., by its final decision on imports of
Bovine Carcasses and Half Carcasses, Fresh or Chilled Originating in the
United States of America, with file number USA-MEX-2002-1904-01. The
withdrawal notice was published in Mexican Official Gazette on November 27,
2002. In this case it was declared inadmissible analyzing the request to initiate
review of the antidumping duties on the ground that was withdrawn by the
complainant on October 31, 2002. By the date of the Notice issuance any claim
or notice of hearing was issued and the Panel was not conformed.
e. Panel Review on the Final Determination issued by the Ministry of Economy
regarding the anti-dumping investigation on imports of Fresh Red Delicious
and Golden Delicious Apples, Originating from the United States of America,
currently classified as item 0808.10.01 of the Tarifa de la Ley de los Impuestos
Generales de Importacin y de Exportacin, originating in the United States
of America, regardless of its country of origin, issued on October 21, 2003,
file number MEX-USA-2003-1904-02. Termination notice was published in
the Mexican Official Gazette on May 11, 2007. By establishing the concurrent
testimony of the participants, with the Motion for Termination of Review
submitted by the Domex Marketing, Inc., L & M Companies Inc., Nuchief
Sales, Inc., Oneonta Trading Corporation, PAC International Marketing, LLC.
, Rainier Fruit Company and Sage Marketing LLC., (the Complainants) on
April 18, 2007 and the IA on April 25, 2007. Therefore, review proceedings
were concluded by May 14, 2007.
283

f. The Panel Review of the final determination of the review of countervailing

duties imposed on imports of hydrogen peroxide originating in the United
States of America, from Evonik Degussa Corporation, issued by the Ministry
of Economy, file number MEX-USA-2009-1904-01. Termination notice
published in the Mexican Official Gazette on May 27, 2009. On January 16,
2009, Evonik Degussa Corporation (formerly Degussa Corporation) withdrew
its request for review and all participants concurred with the motion, Panel was
not conformed.24
J. R ules 75
and
76. R e - examination
of orders and decisions
In the panel review procedures there may be issued a variety of orders, as it can be seen
throughout this paper, and such orders are not free of typos resulting in an accidental
oversight or inaccuracy or omission. It is easy to point out that the errors could consist
on misquotes or invoke a rule or item for another, even to omit any action promoted and
related to the order.
The second assumption contained in these Rules occurs when a Panel issues a Final
Decision and should be promoted in the next 10 days, for that, a motion has to be filed
requesting the correction of some oversight, inaccuracy or omission, describing it along
with the petitioner pretention and concurring participants.
This request may only be based on a disagreement between the decision and its reasons
or some matter that has been accidentally overlooked, stated inaccurately or omitted by
the Panel:
a. It should not set out any argument already made in the panel review.
b. There will be no oral argument in support.
c. The other participants will not submit a response, unless the Panel indicated
otherwise.
d. The Panel shall issue a decision ruling on the motion or issue an order
identifying further action to be taken concerning the motion within seven days
after the filing of a Notice of Motion and this decision may be made with the
concurrence of the panelists (three panelists).
24
Any information relating to records conformed by the Bi-national Panel Review, under Article 1904
of NAFTA can be consulted directly with the Mexican Section of the Secretariat of the Free Trade, located at
Boulevard Adolfo Lopez Mateos 3025, Floor 2, Col. Heroes de Padierna Mexico, DF.
284

Natividad Martnez
K. I ncidental
requests that ended the procedure
Finally, it is needed to discuss two cases in which the procedure was terminated as a result
of motion requests, which are:
a. Caustic soda in the United States, with file number MEX-USA-2003-1904-01.
This award was decided by a majority and not by the entire panel, the issue involved the
validity of a review by a binational panel of the resolutions issued on the due to the five-year
reviews, the investigating authority initially promoted the petition on the basis of NAFTA
Article 1911 and Annex 1911, the Panel ordered the dismissal of a motion hearing to verify
the position of the participants in this regard, a majority eventually ruled as follows:
We note again our view that sunset reviews are not listed in the treaty among Mexicos
definition of the final determinations subject to binational panel review. We find no
ambiguity, obscurity, or absurdity in this plain reading of the literal language of the treaty.
The three actions listed are clear, and each is substantially different from a sunset review.
This language is controlling.
VII. BINATIONAL PANEL DECISION.
Based on NAFTA Article 1904, Annex 1911 and Articles 59, 68, 70, 89, 89 (A), 89 (B), 89
(D) and 89 (F) of the FTA and In light of the reasons stated above this binational panel
decides that it lacks competence to review the final determination of the examination
to determine the consequences of revocation of the final antidumping duties imposed
on imports of liquid caustic soda originated from the United States of America,
notwithstanding its country of origin, in accordance with Article 1904 of NAFTA.
This decision solves the competence issue regarding the present Binational Panel, and
since this panel has declared its incompetence to review the sunset review determination
challenged by CANAJAD, the present decision concludes this binational panels task.
Consequently, this decision is final and definitive.
b. Pork legs from the United States, with file number MEX-USA-2006-1904-01.
This decision was issued unanimously by the Panel. The motion stated that the Consejo
Mexicano de Porcicultura, A.C., lacked of legitimacy to request the review by a binational
panel, a motion hearing was verified, in which all participants defended their positions
and opinions before the binational Panel. After analyzing all the actions of the revision
procedure its Final Decision was issued as follows:
IV. DETERMINATION AND ORDER OF THE PANEL
In light of this Panels finding that CMP lacks the standing necessary to file its Complaint,
this Panel need not analyze the issues raised by that Complaint. For the reasons stated
285

above, this Binational Panel terminates this Review without addressing the merits of the
Final Resolution.
Date of issuance: December 5, 2008.
This determination makes clear the relevance that motions may have in the Panel
Review Procedures under NAFTA Article 1904.
IV. C onclusion
The analysis of motion that might be promoted in procedures for binational panel review
has been limited, it is simply mentioned the possibility of its presentation, but as it has been
studied, they acquire a transcendent importance in the decisions of binational panels, the
fact that nominated motion procedures exist, does not prevent parties from presenting all
those that are directly related to the procedure, they allow instead, participants to defend
their positions and interests.
In the reviews regarding high fructose corn syrup and beef, the incidental presence
was extensive, but not needless. We could consider then, that sometimes incidents were
inappropriate, but it is valid that participants defend their position.
It may be necessary to study in detail the various orders issued by Binational Panels in
cases such as those aforementioned, it is convenient create a more specified research in a
case by case basis, from motions and its respective orders as they constitute and invaluable
source of knowledge.
286
C ase -L aw R eviews
balancing act : the clove cigarettes dispute
Ishita Das*
Abstract. The recent decision rendered by the WTO, in the Clove Cigarettes case, very unambiguously brings out
the conflict between the public health-motivated measure devised by the US and the national treatment concerns of
Indonesia. The WTO Panel and the Appellate Body attempt to address the two conflicting interests, in the context
of the WTO rules and the regulatory objectives guiding the operation of the measure at issue. In the past, the WTO
has rendered certain decisions which either show exceeding deference to public health measures or to trade concerns.
This decision is a remarkable example of how the WTO seeks to balance the trade interests with the non-trade
interests so that one is not accorded primacy over the other.
Keywords. Youth smoking, public health, national treatment principle, clove cigarettes, FSPTCA.
* B.B.A. (Hons.), LL.B. (Business Law Hons.) Candidate 2014, National Law University, Jodhpur, INDIA.
I. I ntroduction
the trade versus health debate has been the focus of much deliberation at the WTO. The
1
WTO, through its rulings, has tried to clarify the misunderstandings, which stem from the
linkage between trade and health. A recent dispute, the Clove Cigarettes case,2 involving the
prohibition on the production or sale of clove cigarettes, pursuant to growing concerns of
smoking among youth, is a remarkable example of how the WTO attempts to address the
twin concerns of trade and health, without letting one trump the other.
The purpose of this paper is to highlight the balancing approach adopted by the WTO
to attend to the trade-public health conflict. To set the stage for the analysis, contained
1
See Panel Report, Thailand-Restrictions on Importation of and Internal Taxes on Cigarettes, DS10/R-37S200 (adopted
Nov. 7, 1990); Appellate Body Report, Brazil-Retreaded Tyres, WT/DS332/AB/R (adopted Dec. 17, 2007) (hereinafter
Brazil-Retreaded Tyres Appellate Body Report); Appellate Body Report, European Communities- Measures Affecting Asbestos and
Asbestos-Containing Products, WT/DS135/AB/R (adopted Apr. 5, 2001) (hereinafter EC-Asbestos Appellate Body Report).
2
Panel Report, United States-Measures affecting the Production and Sale of Clove Cigarettes, WT/DS406/R
(Sep. 2, 2011) (hereinafter US-Clove Cigarettes Panel Report); Appellate Body Report, United States-Measures
affecting the Production and Sale of Clove Cigarettes, WTR/DS406/AB/R (adopted Apr. 24, 2012) (hereinafter
US-Clove Cigarettes Appellate Body Report).
287

in Part IV, it is imperative to provide a brief background profile of the case (Part II)
and a summary of the WTO Panel and Appellate Body findings (Part III). Finally, the
concluding remarks have been provided under Part V.
I i . F actual
A. T he US
background
legislative position
Initially, during the first part of the 20th century, there was no strict regulation regarding
the marketing and selling of tobacco products. Subsequently, when the harmful effects
of tobacco smoking were brought to light, the US enacted its first major legislation for
tobacco products: the Federal Cigarette Labeling and Advertising Act, 1965, which
mandated the inclusion of a health warning label on cigarettes.
During the early 21st century, several companies began to market and sell new varieties
of cigarettes with characterizing flavours, such as vanilla, chocolate, mint, lime, spice,
toffee and liquor. A bill containing a ban on cigarettes with characterizing flavours other
than tobacco or menthol was introduced for consideration in the U.S. Senate and House
of Representatives in 2004. Finally, in 2009, the Family Smoking Prevention and Tobacco
Control Act (FSPTCA) was enacted with a view to protect public health by providing
the FDA with authority to regulate tobacco products.
Section 907(a)(1)(A) of the FSPTCA is the essential cause of the dispute between
the two parties. It bans the production and sale of cigarettes with certain characterizing
flavours, inclusive of clove, inter alia. However, menthol as a flavour is excluded from the
ambit of the prohibition.
B. I ndonesia s
claims
Indonesia contended that Section 907 of the FSPTCA was inconsistent with Article 2.1 of
the Agreement on Technical Barriers to Trade (TBT Agreement) and alternatively, Article
III of the GATT, 1994 as it accorded treatment that was less favourable to imported clove
cigarettes than that accorded to a like domestic products, menthol cigarettes. Article 2.1
of the TBT Agreement provides that in respect of technical regulations, imported products
should be accorded treatment no less favourable than that accorded to like products of national
origin. This provision echoes Article III: 4 of the General Agreement on Tariffs and Trade,
1994 (GATT) which enshrines the national treatment principle on a general basis. Further,
it was argued that the impugned provision was inconsistent with Article 2.2 of the TBT
Agreement because it was more trade-restrictive than necessary to fulfil a legitimate objective.
288
Clove Cigarettes Dispute

I. Das
III. T he WTO
A. T he WTO
dispute
panel findings
1. Contravention of the National Treatment Principle

First, the Panel had to ensure that the US measure at issue, Section 907(a)(1)(A) of the
FSPTCA met the threshold of technical regulation for Indonesias claims to qualify
under the TBT Agreement. The Panel sought to determine the same by adopting a threepronged approach, propounded in the EC-Asbestos case.3 First, it found that Section
907(a)(1)(A) applied to an identifiable product or group of products as it explicitly
identified the products it covered: cigarettes and any of their component parts. Second,
it observed that the test of product characteristics was satisfied as Section 907(a)(1)(A)
lay down product characteristics in the negative form, whereby it prohibited the sale of
those cigarettes which had certain characterizing flavours. The Panel also found that the
third criterion, regarding the mandatory compliance with the product characteristics,
was fulfilled from the use of the phrase, shall not, in order to prohibit the manufacture
and sale of certain cigarettes.
Second, the Panel after satisfying itself of the threshold criteria, sought to determine
whether Section 907(a)(1)(A) was inconsistent with Article 2.1 of the TBT Agreement. For
the sake of simplicity, the approach of the Panel, in order to determine if the measure was
inconsistent with Article 2.1 of the TBT Agreement, can be fashioned thus: first, they
strove to determine if clove cigarettes and menthol cigarettes were like products for the
purpose of Article 2.1 of the TBT Agreement; second, they sought to ascertain whether
the imported clove cigarettes were accorded less favourable treatment than that accorded
to like products of national origin.
In order to fulfill the first rung of the analysis, the Panel took into account various
factors such as the physically similar characteristics of the two cigarettes, the fact that both
contained additives which provided them with characterizing flavours, and the fact that
both these cigarettes shared the same end-use of smoking. The Panel further observed
that the prevailing perception of the consumers, including the young smokers, was that
flavoured cigarettes were similar for the purpose of starting to smoke. To wind up the first
leg of the analysis, the Panel emphasized that the similarities between the two cigarettes,
in relation to the public health objective of Section 907(a)(1)(A), i.e., to reduce youth
smoking, were highly relevant to the like product analysis. Therefore, considering all the
above-mentioned factors, the Panel drew the conclusion that clove cigarettes and menthol
cigarettes were like products for the purpose of Article 2.1 of the TBT Agreement.
3
EC-Asbestos Appellate Body Report (n. 1) [59]-[77].
289

To determine the second rung of the analysis, the Panel adopted a four-pronged
approach. First, it sought to ascertain which products should be compared for the purpose
of the analysis of less favourable treatment. It found that imported clove cigarettes
and the domestically produced menthol cigarettes should be compared for the analysis
of the less favourable treatment. Second, it sought to examine whether the imported
clove cigarettes were accorded less favourable treatment than that accorded to domestic
menthol cigarettes. It noted that the two were treated differently in a fundamental manner
as clove cigarettes were banned while menthol cigarettes were expressly excluded from
the ban. Third, it engaged in the determination of whether the different treatment was
detrimental to the imported products, and relying on the Korea-Various Measures on Beef
case,4 it found that the different treatment did modify the conditions of competition to
the detriment of the imported products as clove cigarettes were completely banned while
the menthol cigarettes were allowed to stay in the market. Fourth, the Panel had to
examine whether the imported and domestic products had been treated differently based
on national origin. It observed that the US had engaged in discriminatory treatment by
disallowing the application of the measure at issue to its domestic products while allowing
the same to be applicable to the imported products from Indonesia.
Therefore, the Panel held, with respect to the less favourable treatment issue, that
Section 907(a)(1)(A) accorded the imported clove cigarettes less favourable treatment
than that it accorded to domestic menthol cigarettes, by banning clove cigarettes while
exempting menthol cigarettes from the ban. Finally, the Panel came to the conclusion
that Section 907(a)(1)(A) of the FSPTCA was inconsistent with Article 2.1 of the TBT
Agreement and therefore, did not consider it necessary to hear the alternative submissions
of Indonesia with respect to Article III of the GATT.
2. The measure was necessary to fulfil a legitimate objective
The Panel had to decide whether the ban on clove cigarettes was more trade-restrictive
than necessary to fulfil a legitimate objective. It essentially undertook a two-step analysis
to determine whether the US measure was inconsistent with Article 2.2 of the TBT
Agreement. First, it had to determine whether the ban on clove cigarettes pursued a
legitimate objective. Second, it had to consider whether the ban on clove cigarettes
was more trade restrictive than necessary to fulfill the legitimate objective of reducing
youth smoking.
In relation to the first step of the analysis, the Panel found that the ban on clove
cigarettes pursued a legitimate objective within the meaning of Article 2.2 of the TBT
Agreement as Indonesia had demonstrated that the objective of the ban on clove cigarettes
was to reduce youth smoking among individuals who were under 18 years of age. Further,
4
Appellate Body Report, Korea-Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R,
WT/DS169/AB/R (adopted Jan. 10, 2001) [137].
290

I. Das
the objective of the ban on clove cigarettes was legitimate as the main objective of the
ban was to reduce youth smoking and was thus aimed at protecting human health.
With respect to the second step, the Panel observed that Indonesia had failed to show
that there were less-trade restrictive alternative measures which would make an equivalent
contribution to the achievement of the objective at the level of protection sought by the
US. Thus, the Panel concluded that Indonesia had failed to demonstrate that the ban on
clove cigarettes was more trade restrictive than necessary to fulfil its legitimate objective,
taking into account the risks that non-fulfillment would create.
Therefore, the Panel found that Indonesia had failed to demonstrate that Section
907(a)(1)(A) was inconsistent with Article 2.2 of the TBT Agreement.
Thus, overall, the Panel found that one, the US violated the national treatment
principle, enshrined in Article 2.1 of the TBT Agreement, by discriminating against the
imported clove cigarettes and two, Indonesia had failed to show how the ban on the clove
cigarettes was more trade-restrictive than necessary to fulfil a legitimate objective.
B. T he WTO
appellate body findings
1. Clove cigarettes and menthol cigarettes are like products

The Appellate Body concurred with the findings of the Panel, regarding the likeness
of the clove cigarettes and the menthol cigarettes, albeit for different reasons. It disagreed
with the Panels approach of having recourse to the regulatory purpose of the measure at
issue to ascertain the likeness of the two products in question. According to the Appellate
Body, the determination of whether products were like, within the meaning of Article
2.1 of the TBTAgreement, involved the determination about the competitive relationship
between the products. It considered that the regulatory concerns underlying a measure,
such as the health risks associated with a product, might be relevant to the determination
of likeness to the extent that they have an impact on the competitive relationship
between the products.
2. Less favourable treatment was accorded to imported clove cigarettes
The Appellate Body concluded that less favourable treatment was accorded by the US,
as even though Section 907(a)(1)(A) did not expressly distinguish between treatment
accorded to the imported and domestic like products, it operated in a manner that reflected
discrimination against the like products imported from Indonesia. It based its analysis
on the design, architecture, operation, and application of Section 907(a)(1)(A). Even with
respect to this issue, the Appellate Body had certain reservations about the brevity of the
Panels analysis. It agreed with the US that the Panel did not clearly articulate its reasons
291

for concluding that the effect of banning cigarettes with characterizing flavours other than
menthol was to impose costs on producers in other Member countries, notably producers
in Indonesia, while at the same time imposing no costs on any US entity.
Hence, overall, the Appellate Tribunal found that one, clove cigarettes and menthol
cigarettes were like products for the purpose of Article 2.1 of the TBT Agreement, and
two, the US had accorded less favourable treatment to the imported clove cigarettes than
that accorded to the domestic menthol cigarettes.
IV. C ritical
analysis
The Panel, in this case, emphasized that, measures to protect public health are of the
utmost importance, and that the WTO Agreements fully recognize and respect the
sovereign right of Members to regulate in response to legitimate public health concerns.5
It noted the importance of international efforts to curb smoking in the context of the
WHO FCTC and its WHO Partial Guidelines.6 It observed that the WTO provides a
large measure of autonomy to its Members, which is only circumscribed by the need to
ensure that the means chosen for realizing those policies are consistent with WTO rules.7
The sixth preambular recital of the TBT Agreement mirrors the chapeau requirements
of Article XX of the GATT, whereby it provides that no country shall be prevented from
adopting measures necessary for the protection of human, animal or plant life or health,
of the environment, inter alia, as long as these measures are in accordance with the WTO
rules.
The Panel stated that Members can adopt measures to regulate products for public
health purposes, such as prevention of smoking, provided that they respect the boundaries
set forth in the WTO Agreements.8 The object and purpose of Article 2.1 of the TBT
Agreement was to prohibit discrimination between imported products and like domestic
products with respect to technical regulations and in the Panels view, such purpose would
stand defeated if Members were allowed to remove their domestic products from the
application of those same regulations.9 The Appellate Body, after rendering its decision
with respect to Article 2.1 of the TBT Agreement, in concurrence with the Panels
findings, sought to clarify the implications of such a decision. Taking particular note of
the case at hand, it said that, we are not saying that the United States cannot ban clove
US-Clove Cigarettes Panel Report (n. 2) [7.2].
6
7
Ibid [7.5].
Ibid [7.3].
8
9
Ibid [7.290].
Ibid [7.291].
292

I. Das
cigarettes: however, if it chooses to do so, this has to be done consistently with the TBT
Agreement.10
Therefore, the essential reason why the WTO ruled in favour of Indonesia and against
the US, is because even though the US measure had the legitimate objective of reducing
youth smoking by banning certain cigarettes, it did so in a manner that was clearly in
contravention of the national treatment obligation enshrined in the TBT Agreement, as
a result of the exemption of menthol cigarettes from the ban.
V. C onclusion
The WTO, by its ruling in the Clove Cigarettes case, has fuelled the trade-public health
conflict. The US Trade Representatives Office has expressed that the ban on certain
cigarettes was a step undertaken in furtherance of combating the public health crisis caused
by tobacco products.11 The decision obviously has serious public health implications12
for the US efforts to curb youth smoking. However, the WTO seems to have treaded
the middle path of balancing the trade and public health concerns through its emphasis
on the fact that Members can impose such measures keeping the WTO framework of
rules in mind. In the EC-Asbestos case, it might have gone overboard with its concern
for public health issues,13 while in the Brazil-Retreaded Tyres case it made it very clear that
deference towards trade rules assumes primacy over heath concerns.14 Therefore, this
case is a remarkable example of how the WTO has tried to address the trade concerns of
Indonesia, considering the public heath objectives of the US. This balanced approach
adopted by the WTO reflects the maturity of the WTO dispute resolution system with
respect to handling the two often conflicting concerns and reinforces the prominence of
the role played by WTO in maintaining global economic order among nations.
10
US-Clove Cigarettes Appellate Body Report (n. 2) [133].
11
Tom Miles & Doug Palmer, WTO Dents U.S. Ban on Clove Cigarettes Reuters (Geneva/Washington, 4
April, 2012) <http://www.reuters.com/article/2012/04/04/us-wto-usa-indonesia-idUSBRE8330Y720120404>,
accessed 31 July, 2013.
12
Ibid.
13
EC-Asbestos Appellate Body Report (n.1) [172] (The Appellate Body acknowledged that the objective of
preserving human life and health is both vital and important in the highest degree).
14
Brazil-Retreaded Tyres Appellate Body Report (n. 1) [144] (The Appellate Body acknowledged that few
interests are more vital and important than protecting human beings from health risks).
293
B ook R eviews
I nvestment L aw W ithin I nternational L aw I ntegrationist P erspectives

Jos Caiado and Luis Montilla*
FREYA BAETENS (ed.), Cambridge: University Press, 2013. ISBN 9781107038882, 562 pp.
* Jos Guilherme Moreno Caiado and Luis Toms Montilla Fernndez are doctoral candidates of the program
The Economics of the Internationalisation of the Law of the DFG Graduate School in Law and Economics of the
University of Hamburg, Germany, and Marie Curie Fellows of the DISSETTLE program at the University of St.
Gallen, Swizerland. They are also members of the PEPA Network of the Society of International Economic Law
(PEPA/SIEL). E-mail for contact: <jose.caiado@ile-graduateschool.de> and <luis.montilla@ile-graduateschool.de>.
could it be assumed that the function of establishing a relationship between Foreign
Investment Law and, for example, Human Rights is mainly political and of contractual
character? Could an international arbitral tribunal consider or be obliged to decide
taking into account the existing jurisdictional plurality in public international law? Will
there exist in the future an international court of appeals to address issues related to
foreign investment?
These are some of the core questions of the book Investment Law Within
International Law Integrationist Perspectives that has been edited thanks to the effort
of bringing together the authors and their contributions carried out by Freya Baetens,
Associate Professor at the University of Leiden in the Netherlands. The work is divided
into six parts covering e.g. the relationship between foreign investment law and different
areas of law such as the law governing armed conflict, Human Rights, Sustainable
Development Law, Commercial Law, and the special legal conditions of developing
countries and less developed countries. It also includes regional legal systems, as the
European Union; and current topics that most likely will shape the future of foreign
investment law.
The questions raised in this book constitute a response to contemporary problems
of high legal and economic relevance. The authors contributing to the realization of
this book are recognized experts and law practitioners from international organizations
and international tribunals. The established names of International Economic Law
are present in this book. Such is the case of Christoph Schreuer, Ursula Kriebaum
and Mary E. Footer. This book includes contributions that analyze in depth, strive and
295

achieve a better understanding not only of the current state of foreign investment law,
but also of the socio-historical aspects of this legal area. This undoubtedly contributes
in providing answers to the problems faced by law enforcement actors and by policy
makers in charge of investment policies. This methodological versatility helps to identify
and solve specific problems as well as to propose solutions that certainly influence the
current legal thinking.
Some of the topics covered in this book are classical topics in investment law, and have
already been explored by the doctrine and the bodies responsible for resolving conflicts.
Such is the case of the relationship between foreign investment law and Human Rights
or Sustainable Development Law. In a scenario that may already seem overcrowded
by doctrine, the work edited by Professor Baetens certainly adds to theory by correctly
identifying and discussing relevant questions of the latest case law in several subject
areas, such as expropriation and constitutional considerations in treaty interpretation. It
also innovates by employing different analytical methods. The use of multidisciplinary
tools have allowed the authors to penetrate the necessary legal doctrine in search of
historical and sociological explanations to clarify questions such as the alleged bias of
the arbitral tribunals pro-foreign investor. Also, the book covers issues that received little
attention so far by legal scholars, such as the implementation of foreign investment law
in situations of armed conflict. Such exploratory research path is certainly valuable for
it raises new questions and sets the basis for further research.
There are several articles that are of particular interest to the Latin American reader.
The contribution by Ursula Kriebaum and the one by Maria Gritsenko discuss the
use, by arbitral tribunals, of arguments based on the level of development of the host
country. Furthermore, Judith Levine focuses on the conflicts in which indigenous peoples
rights collide with the interests of foreign investors. And, Leonie Timmers analyzes the
results and consequences of the main cases dealing with expropriations in Venezuela.
Other questions discussed in the book also have the potential to generate interest in
professionals from other fields of law. With the rise of Latin American investment
abroad, particularly in Africa, criminologists may be interested in the contribution by
Philipp Ambach on international criminal responsibility of investors in countries in
armed conflict and possible prosecution against companies representatives that have
some connection with the conflict. For legal sociology scholars, Moshe Hirsch examines
whether socio-cultural differences between the various communities of international
law can affect the decision whether to apply the rules of another community.
Although the work proves to be an effort by the editor to cover different points of
view, the question that remains open is whether the contribution does not reflect a merely
European look at the problem. This is coupled with the absence of any contribution
that provides further understanding of the relationship between foreign investment law
and domestic law, as well as the influence of the former on the latter in the development
of jurisprudence.
296
Investment Law Within International Law - Integrationist Perspectives

Caiado & Luis Montilla
With no doubt, this book offers contemporary starting points for further analysis,
as well as solid contributions in different topics of international investment law. This
will foster discussions and that can be used to support or oppose ideas and arguments
put forward in our own papers and research in this area. Altogether, this is an essential
reading for all students, researchers, practitioners and scholars who face questions about
the relationship between foreign investment law and other areas of international law.
297
R educing the G ap B etween I nternational

I nvestment L aw and H uman R ights L aw in
I nternational I nvestment A rbitration ?
Attila Tanzi*
Abstract. This article addresses the slowly emerging interpretative criteria detectable in recent international
investment arbitration case law that may conduce to reducing the gap between the international investment law
and international human rights law. Against that background and in light of the increasing number of international
instruments related to human rights and environmental protection germane to the matter in hand, further potentials
are considered for the interpretation and application of international investment law that may enhance a balanced
relationship between the private interest of foreign investors with the public interest concerns of host States.
Key words. International Investment Arbitrations, Public Services, Human Rights, Public Interests.
* Professor of International Law at the University of Bologna.
I. I ntroductory
remarks
concerns about disputes over the management of public services involving public interest
have been significantly increasing since the surge of direct foreign investment in this sector
after massive privatization policies in the 90s, especially in Latin America and Eastern
Europe.1 In turn, the relevance to such disputes of areas of international law beyond
purely investment law - such as environmental and human rights law is also increasing,
hence involving problems of coordination between rules belonging to different bodies of
international law.2
1
See, Cameron, International Energy Investment Law, Oxford, 2010, pp. 20 ff.
See, amongst others, Peterson and Grey, International Human Rights in Bilateral Investment Treaties and
in Investment Treaty Arbitration, International Institute for Sustainable Development, 2003, p. 22 ff.; Reisman
and Arsanjani, The Question of Unilateral Governmental Statements as Applicable Law in Investment Disputes,
ICSID Review, vol. 19, 2004, p. 328 ff.; Schreuer, Travelling the BIT Route of Waiting Periods, Umbrella Clauses
and Forks in the Road, Journ. World Invest. and Trade, Vol 5, No. 2, 2004, pp. 231 ff.; Franck, The Legitimacy
Crisis in Investment Treaty Arbitration: Privatizing Public International Law Through Inconsistent Decisions,
Fordham Law Review, Vol 73.2004 to 2005, p. 1521 ss.; Solanes and Jouravlev, Revisiting Privatization, Foreign
Investment, International Arbitration, and Water, Economic Commission for Latin America and the Caribbean
(ECLAC), Natural Resources and Infrastructure Series, No. 129, LC/L2827-P, Santiago de Chile, 2007, p. 15 ff.,
299

A need for coordination may emerge also in relation to different international fora
that may supposedly adopt different approaches to the same kind of interests. This is
particularly the case between the family of international investment arbitration fora
such as the International Chamber of Commerce (ICC), the Centre for Settlement
of Investment Disputes (ICSID), the Permanent Tribunal of Arbitration (PCA) and
the United Nations Commission for the Unification of International Trade Law
(UNCITRAL), or even panels of the World Trade Organization (WTO) on the one hand,
and human rights tribunals such as the European Tribunal of Human Rights (ECHR),
or the Inter-American Tribunal of Human Rights (IACHR), on the other. Since these
different jurisdictions apply with different priority diverse substantive law regimes, this
paper seeks to highlight the interpretative standards that might allow for the compatibility
encounter between such regimes in light of the recent case law and the general principles
of treaty interpretation as codified in the Vienna Convention on the Law of Treaties of
1969, whose customary effectiveness and relevance on the issue under consideration was
endorsed by the International Law Commission (ILC) in its work on the fragmentation of
international law concluded in 2006.3
II. O n
the tensions between international jurisdictions
While, on the one hand, the prevailing law applicable by investment tribunals derives
from international investment treaties (IITs), mostly of a bilateral nature (BITs), on the
other, international human rights tribunals (mainly IACHR and ECHR) prevailingly, if
not exclusively, apply the international human rights conventions which provide for their
Van Harten, Public-Private Distinction in the International Arbitration of Individual Claims Against the State,
Intl Comp. Law Quart., Vol 56, 2007, p. 371 ff.; Choudhury, Recapturing Public Power: Is Investment Arbitrations
Engagement of the Public Interest Contributing to the Democratic Deficit? Vanderbilt Journ. Transl Law, Vol
41, 2008, p. 775, Kaushal, Revisiting History: How the Past Matters for the Present Backlash Against the Foreign
Investment Regime, Harvard Law Intl Journ, Vol 50, No. 2, 2009, pp. 491 ff.; Simma and Kill, Harmonizing
Investment Protection and International Human Rights. First Step Towards a Methodology, in Binder, Kriebaum,
Reinisch and Wittich (eds.) International Investment Law for the 21st Century, Oxford, 2009, p. 678 ff.; Peterson,
Human Rights and Bilateral Investment Treaties, International Centre for Human Rights and Democratic
Development, Rights & Democracy, Montreal, 2009, pp. 21 ff.; Sattar, National Tribunals and International
Arbitration: a Double-Edge Sword?, Jour. Intl Arbitration, Vol 27, No. 1, 2010, pp. 51 ff.; Schill, International
Investment Law and Comparative Public Law - An Introduction, in Schill (ed.), International Investment Law and
Comparative Public Law, Oxford, 2010, p. 3 ss. See also the relative contributions to the subject of this analysis
Dupuy, Francioni and Petermann (eds.), Human Rights in International Investment Law and Arbitration, Oxford,
2009 and recently Simma, Foreign Investment Arbitration. A Place for Human Rights, Intl Comp. Law Quart.,
Vol 60, 2011, p. 573 ff.; Tanzi, On Balancing Foreign Investment Interests with Public Interests in Recent Arbitration
Case Law in the Public Utilities Sector, Law and Practice Intl Tribunals and Tribunals, 2012, vol. 11, pp. 52 ff.
3
Report of the Study Group of the International Law Commission on Fragmentation of international law:
difficulties arising from the diversification and expansion of international law, UN Doc A/CN./L.702 dated July 18,
2006, paragraph 11.
300
The Gap Between International Investment Law and Human Rights Law
Tanzi
establishment. It is notable how under both sceneries it is the host State, as the formal
addressee of international legal obligations, which would find itself in the position of the
defendant. Indeed, the host State is required at one and the same time to give protection
to the foreign investor in charge of a public service and to the basic human rights of
members of the population who are the beneficiaries of such services. This is particularly
the case regard to the protection of the environment, public health and of the other basic
rights making up the right to an adequate standard of living, especially to minorities
and disadvantaged groups, as the indigenous people may be.
While, on the basis of the existing case law of both of the aforementioned types of
fora, a significant gap emerges between them, one may also focus on the potentials of
compatibility which, if consolidated by future practice, could contribute to the building
of a bridge between the two regimes, providing consistent and harmonized solutions,
particularly from the perspective of the principles of equity and proportionality.
III.
On
the
international
tension
between
law
applicable
different
by
bodies
of
international
investment tribunals
There is denying that the case law of investment tribunals, based on BITs as well as on
the North American Free Trade Agreement (NAFTA), has favored the economic rights
of foreign investors as opposed to the sovereignty exercise of host States in pursuit of
the general interests of its people. However, over the last few decades a growing number
of international instruments, addressing both host States and foreign investors, provide
elements that may be useful with a view to find a balance between the protection of
economic activities and the protection of human rights. One may emphasize the relevance
of those conventional provisions requiring investors to be more sensitive to the impact of
their activities on the social environment in the host State and giving the host State the
power to adopt appropriate measures in this regard.
As for the instruments for the promotion of human rights relevant to economic activities
including public utilities, one may signal the General Comments of the Committee on
Economic, Social and Cultural Rights (CESCR), established by the 1966 International
Covenant on Economic, Social and Cultural Rights (ICESCR); the Additional Protocol
to the American Convention on Human Rights in the Area of Economic, Social and
Cultural Rights (Protocol of San Salvador); the UN Global Compact;4 the Report of
the Special Rapporteur, Hadji Guiss, on the guidelines for the realization of the right
to drinking water supply and sanitation;5 the Principles for Private Sector Participation
4
Announced by the then Secretary-General Kofi Annan at the Economic Global Forum of Davos on 31
January 1999 and officially launched in New York on 26 July 2000 <http://un.org/>.
5
UN Doc. ONU E/CN.4/Sub.2/2005/25 (11 July 2005).
301

in Infrastructure of the Organisation for Economic Co-operation and Development (OECD);6

and the Report of the Special Representative of the Secretary-General, John Ruggie, on
the issue of human rights and transnational corporations and other business enterprises,
Principles for responsible contracts: integrating the management of human rights risks
into State-investor contract negotiations: guidance for negotiators.7
From the above instruments one may draw important regulatory terms of reference
allowing for a case-by-case balanced interpretation and application of the international
obligations of host States in relation to the principles of corporate responsibility with
respect to all the cases involving activities that may affect human rights, particularly in their
effective enjoyment provided by public services. The equilibrium point seems to lie in the
translation into legal terms of the principle of ethical, social and political accountability
of all the stakeholders involved in public services. The emerging trend seems to be one
of a gradual definition of the standards of conduct of all the parties involved, in terms
of due diligence,8 on a case by case basis. It is to be hoped that in the future arbitration
panels will pay more attention to the definition of the thresholds of due diligence for host
States also in relation to the conduct of foreign enterprises in the light of the principle of
proportionality, as one of the main factors for assessing the legality of regulatory measures
adopted by host States vis--vis foreign investors in the field of public services.
IV. I ndications
A. I mplied
from arbitral case law
indications
Among the reasons for the paucity of references to human rights law in investment
arbitration, one may consider the fact that very seldom, until recently, have the
respondent States supported their defense invoking human rights arguments. This may
be due to the understandable fear of undermining their position before national or
human rights tribunals as exhibited in the Biwater Gauff Tanzania Ltd. v. United Republic of
Tanzania, 2008 ICSID award.9
Indeed, the absence of any mention of its human rights obligations by the respondent
State could explain why the ICSID Tribunal made no reference to human rights in its
6
OECD (2007) Principles for Private Sector Participation in Infrastructure. <http://www.oecd.org/

dataoecd/41/33/38309896.pdf>..
7
UN Doc. A/HRC/17/31 (21 March 2011).
See, generally, Barnidge, The Due Diligence Principle Under International Law, Intl Community Law
Review, Vol 8, 2006, pp. 81 ff.
9
Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award of July 24,
2008, in <http://icsid.worldbank.org>. In this sense see Peterson,
, p. 31.
302
Tanzi
ratio decidendi. However, it is notable how, by way of an obiter dictum, the Tribunal felt
the need to emphasize that [w]ater and sanitation services are vitally important.10 It
seems reasonable to believe that considerations related to the human rights obligations
of the host State implicitly contributed to the award of a lesser compensation than the
one requested. This reasoning has been followed in legal literature11 in the commenting
upon investment arbitration case law bearing on water services, such as in Azurix v.
Argentina (2006)12 in which the Tribunal awarded 165 million US dollars for the claimant
instead of the 570 originally claimed, and Aconquija Water Company v. Argentina (2007)13
in which Argentina was condemned to pay 99 million US Dollars instead of the 380
claimed.
The same reasoning applied all the more to Glamis (2009)14 within the NAFTA
context. There, all the claims put forward by a Canadian investor in the US made
by the petitioner namely, of expropriation and breach of the fair and equitable
treatment obligations against a series of governmental measures taken on the
basis of environmental protection reasons. In particular, the unlawfulness of certain
requirements imposed by the State of California for a proposed mining project
following considerations related to environmental protection in a nearby area sacred
places for certain Native American peoples were to be found. While the award focused
on the financial proportionality of the measures required for the implementation of
the mining project in relation to the fair and equitable treatment rule, the Tribunal
recognized the lawfulness of all the measures that imposed a significant burden on the
foreign enterprise also taking into account environmental law considerations and the
rights of the indigenous people involved.15
10
Biwater Gauff (Tanzania) Limited, cit., Paragraph 434.
11
Thielbrger, The Human Right to Water Versus Investor Rights: Double-Dilemma or Pseudo Conflict?, in
Dupuy, Francioni y Petersman (eds.), op. cit., pp. 487 ss. at 498.
12
Azurix Corp. v. The Republic of Argentina, ICSID Case No. ARB/01/12, Award of July 14, 2006, ICSID Reports,
Volume 14 (2009), p. 367 ff. For the purposes of this analysis, it should be noted that while the ruling did not
explicitly mention the issue of human rights, however, the Tribunal determined that the measures taken by the host
Government constituted an unlawful expropriation by referring to the reasoning in precedent of the ECHR as an
authoritative reference (case James and others v. Britain, case No. 8793/79 of February, 21 1986, Reports of Judgments
and Decisions, Series a, No. 98). It should be emphasized that in James the lawfulness of a governmental measure
would depend on the proportionality between the benefit for the public interest and the detriment to the foreign
investors. Similar reasoning was followed in investment arbitration in 2006 in LG & E Energy Corp., LG & E Capital
Corp. and LG & E International Corp.v. Republic of Argentina (ICSID Case No. ARB/02/1, Decision on Liability of
October 3th, 2006, ICSID Review, Vol 21, 2006, p. 269 ff.).
13
Compaa de Aguas del Aconquija S.A. y Vivendi Universal S.A. v. Republic of Argentina, ICSID Case No. ARB/97/3,
Award of August 20, 2007, in <http://icsid.worldbank.org>.
14
See Glamis Gold Ltd v. United States of America, UNCITRAL Case, Award of June 8, 2009, in <http://www.
state.gov/documents/organization/125798.pdf>.
15
See, especially, ibidem, pp. 4 and 329-353.
303

B. O n
more explicit case law
elements
1. SPP v. Egypt
The ICSID award in SPP v. Egypt, 199216 is worthy of mention for having manifestly
considered the obligations arising from a source other than the applicable BIT. Such
case concerned the annulment of a concession for the touristic development of an area
adjacent to a cultural site protected by the Convention concerning the Protection of the
World Cultural and Natural Heritage (UNESCO Convention), but not yet in force for
Egypt at the time of the cancellation of the contract. Accordingly, the arbitrators did
not consider such annulment action to be justified by the UNESCO Convention for the
period of time it was not in force. In fact, the Tribunal applied the UNESCO Convention
only since after its entry into force, therefore, not calculating compensation for loss of
earnings as from that date.
One may feel tempted to argue that in the case at issue the Tribunal found that there
was a relationship of conflict between the international rules on the protection of
foreign investment and those on the protection of public interests of a cultural nature
according to the terminology of the ILC concerning the fragmentation of international
law17 - and gave priority to the latter. However, an investment Tribunal, while being the
competent forum for investment disputes, should interpret and apply the relevant BIT rules
taking into account all pertinent rules which are applicable between the host State and
that of the nationality of the claimant under Art. 31. 3. c, including the general principles
of good faith, equity, reciprocity and due diligence, as a yardstick for assessing the legality
of the host States conduct towards the foreign investor. Accordingly, this Award may
be said to have provided an example of interpretation and application of a BIT and
the UNESCO Convention according to a relation of interpretation and not to one of
conflict between each other, still following the ILC reasoning and terminology.
2. The Suez Case, Sociedad General de Aguas de Barcelona SA and Vivendi Universal SA v. Argentina
(Suez)
The ICSID Award of 30 July 2010 in the Suez, Sociedad General de Aguas de Barcelona SA
and Vivendi Universal SA v. Argentina (Suez)18 may be said to have taken a step forward in
16
Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, CIADI case N ARB/84/3, Award dated
May 20, 1992, International Legal Materials, Vol. 32, 1993, pp. 1470 ff.
17
Report of the Study Group of the International Law Commission on Fragmentation of international law:
difficulties arising from the diversification and expansion of international law, cit., p. 8.
18
Suez, Sociedad General de Aguas de Barcelona S.A., y Vivendi Universal S.A. v. Repblica Argentina, ICSID Case No.
ARB/03/19, Decision on Liability of July 30, 2010, in <http://icsid.worldbank.org>.
304
Tanzi
the discourse under consideration in the direction of finding legal tools for balancing
the private economic interests of foreign investors with public interests concerns of host
States. Indeed, the Tribunal could not elude human rights considerations since they were
brought both by Argentina and by five non-governmental organizations (NGOs), admitted
to the proceedings as amicus curiae.19 Basically, the claimants complained for expropriation,
breach of the obligation to provide protection and security to their investments, and of
the obligation of fair and equitable treatment. The conduct complained of basically
consisted of the freezing of tariffs by the Argentine authorities against the attempted
increase by claimants as a response to the devaluation of the peso and the termination of
the concession contract by the Argentine government in March, 2006.
3. Human rights obligations as a necessity defence
The Tribunal found itself to address the relevance of human rights law in relation
to the necessity defence put forward by Argentina and the amicus curiae. According to
this argument, even if Argentina was found to have infringed upon its investment law
obligations, the wrongfulness of such breaches would be precluded under the state of
necessity rule insofar as such conduct would be required in order for the defendant State
to comply with its human rights obligations. While arbitral case law is contradictory on
the matter, particularly in relation to disputes related to the 2001 Argentine crisis, the
prevailing tendency is restrictive and the award under consideration is a confirmation of
this approach. Indeed, the Tribunal dismissed the Argentine argument stating that the
measures taken, which were at variance with the relevant BITs were not the only means
to pursue the public interests of the country to the benefit of its population,20 while the
economic crisis could be considered, at least in part, as a consequence of the conduct of
the host government.21 Putting forward the relevance of its human rights obligations with
the framework of the necessity defence was far from conducive to an interpretation of
international investment law that would be contextual and harmonious with the former
body of law and was clearly counterproductive for Argentina. It only lead the Tribunal to
emphasize the obligations of due diligence of the host State towards the foreign investor
and its population at the same time.22 Indeed, the Tribunal affirmed that:
19
As to the role of NGOs in the arbitration proceedings relating to investments it reveal the recent changes
to the ICSID Arbitration Rules in effect admit (under Rule 37 (2), as amended on April 10, 2006), their possible
participation in arbitration proceedings when released for public issues, such as the case note management utility. On
this issue, see, Levine, Amicus Curiae in International Investment Arbitration. The Implications of an Increase in
Third-Party Participation, Berkeley J. Intl L., Vol. 29, 2011, pp. 200 ff.
20
Suez, Sociedad General de Aguas de Barcelona S.A., y Vivendi Universal S.A., cit., paragraph 264 and 265.
21
Ivi.
22
Ibidem, para. 262.
305

[...] Argentinas obligations in respect of human rights and to impose investment treaties
are not mutually inconsistent, contradictory or exclusive. So [...] Argentina could have
respected both types of obligations. 23
4. Human rights and the assessment of the compliance with substantive investment obligations in the case
in point
Regardless of necessity as a circumstance precluding wrongfulness, the Tribunal took into
consideration human rights law in its ratio decidendi together with the importance of public
interest for the development of States parties of BITs in relation to the alleged violation
of the obligation of fair and equitable treatment. The Award appears to have delved into
the hermeneutical methods necessary to achieve a balanced interpretation between the
different regulatory complexes involved. Appropriately, the arbitrators referred initially
to the first paragraph of article 31 of the Vienna Convention on the Law of Treaties,
according to which the provisions of a treaty must be interpreted in the light of its object
and purpose. In this regard, the decision emphasized how the purpose of the three BITs
relevant to the case was not limited to the protection of foreign investments only, but also
encompassed the pursuit by the Contracting States of the broader goals of heightened
economic cooperation between the two States concerned with a view toward achieving
increased economic prosperity or development.24 In the same direction, the Tribunal
stated with considerable emphasis that the [...] he must strike a balance between the
legitimate and reasonable expectations of the applicants and the right of Argentina to
regulate the provision of vital public services.25 Nonetheless, the arbitrators ruled that
the measures taken by Argentina infringed upon the obligation of fair and equitable
treatment.26
It is regrettable that in its interpretation of the applicable investment rules the
Tribunal fell short, no reference in the case law at issue has been made to Art. 31.3.c
VCLT, according to which the provisions of a treaty should be interpreted also taking into
account any relevant rules of international law applicable in the relations between the
parties.27 Such an interpretative approach would have shifted the focus from the mere
compatibility and separation of the two bodies of law in hand, placing obligations on the
host states only, to a more integrated application of investment obligations in relation to
those stemming from the relevant human rights rules.
23
Ivi.
24
Ibidem, paragraph 218.
25
26
27
Suez, Sociedad General de Aguas de Barcelona S.A., y Vivendi Universal S.A., cit., paragraph 238.
Such an interpretative approach is increasingly being proposed in legal literature. See, amongst others, Luke
E. Peterson, Human Rights and Bilateral Investment Treaties, Montreal, Quebec: Rights & Democracy, 2009,
p. 22, B. Simma, Foreign Investment Arbitration. A Place for Human Rights?, International and Comparative Law
Quarterly, 2011, vol. 60, 584 and Tanzi, op.cit., pp. 58, 63.
306
Tanzi
At the same time, one is to note that the Tribunal found that Argentina itself had not
taken the appropriate measures to find a balance between its international obligations
arising from the relevant BITs, on one hand, and those stemming from human rights
treaties, on the other. In connection to the adoption in 2002 of the governmental measures
which abolished the annual tariff adjustments as per international price rates, canceling
the tariff regime and establishing a mandatory renegotiation process, the Tribunal noted
that:
If Argentinas concern was to protect the poor from rising rates, it could have approved
rate increases for other consumers and simultaneously have applied a social tariff or a
subsidy provided to the poor [...].28
The expropriation claim was considered by the arbitrators with few overt references to
public interests aspects, ruling that the measures complained of by the claimants29 did not
constitute any form of expropriation. To that end, the Tribunal ruled that, even though
the measures complained of30 entailed a decrease in the value of the investment, this did
not constitute qua talis expropriation.31 The latter reasoning is in keeping with a significant
trend in the investment arbitration case law on gas supply cases, such as CME, 2001;32
CMS, 2003;33 and LG & E, 2006.34
The Tribunal found that not even the termination of the concession contract by
Argentina amounted to expropriation. To that end, the arbitrators followed the Siemens AG,
2007,35 in the sense that a breach of contract by a State may constitute an internationally
wrongful act only when the State acts in exercise of its sovereign powers.36 Paradoxically,
the award found for the respondent State that the termination of the contract pertained
purely to contractual claims that are not normally covered by an investment treaty.37
Consequently, the Tribunal ruled that it had no jurisdiction whatsoever over disputes
relating to the contract.
28
29
30
Ivi.
31
Ivi.
32
CME Czech Republic B.V. v. Czech Republic, UNCITRAL case, Partial Award of September 13, 2001, ICSID Reports,
Volume 9, 2006, p. 121 ff.
33
CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/08, Award of May 12, 2005,
International Legal Materials, Vol 44, 2005, p. 1205 ff.
34
LG&E Energy Corp., LG&E Capital Corp. y LG&E International Corp., cit.
35
Siemens A.G. v. Argentine Republic, ICSID Case No. ARB/02/8, Award of 6 February 2007, ICSID Reports,
Volume 14, 2009, p. 518 ff., paragraph 248.
36
37
Suez, Sociedad General de Aguas de Barcelona S.A.,cit., paragraph 153.
Ivi.
307

Nonetheless, the Tribunal did not refrain from considering whether the unilateral
termination of the concession contract could amount to a violation of the BIT in a way
which is relevant from a human rights and environmental protection standpoint. To
that end, the arbitrators considered Argentinas argument according to which it had a
responsibility to ensure the continued provision of a public service vital to the health and
welfare of its people38 against the intention of the foreign investors (AASA shareholders) to
withdraw the concession contract as stated six months prior to the rescission conducted by
the defendant. The award held that the application of AASA to terminate the concession
may have contributed to bring Argentina, months later, the decision to terminate suddenly
the grant itself .39 So, it was stressed that, holding Argentina definitively the responsibility
of providing vital water and wastewater services to the population of Buenos Aires,40
Argentinas initial rejection of the request to terminate the concession contract expressed
by the claimants was justified.41
It should also be noted that the Tribunal took into consideration the water pollution
argument claimed by Argentina among the reasons to excuse the termination of the
concession contract to resolve whether Argentina, by means of such measures, breached
the contract in such way as to simultaneously violate the standards of fair and equitable
treatment required by applicable BITs. The arbitrators concluded that such a violation
did not occur and to that the award noted that [although] the presence of high nitrate
levels in the water may have been an unjustified pretext [...], the record shows evidence
that these high levels may have existed.42 Eventually, Argentinas conduct was found
lawful on the point at issue also taking into account environmental and health protection
concerns.
Three main tendencies appear to emerge from the Suez award equally directed towards
balancing the private interests of foreign investors with the public interest of the host
State.
Firstly, this award enhances the reasoning based on the search for proportionality
between the adverse effect on foreign investors and the benefits for the public interest
deriving from the governmental measures complained of as a precondition for the
lawfulness of the latter.43 This is in line with a rather consistent case law, such as in Tecmed
38
39
40
Ivi.
41
Ivi.
42
Ivi.
43
Another example of this trend is in the 2004 model BIT of the United States [Article 8, paragraph 3 3
(c) (Treaty Between the Government of the United States of America and the Government of [Country] Concerning the Encouragement
and Reciprocal Protection Investment. Available on <http://www.state.gov/documents/organization/117601.pdf>). See
also, Vandevelde, A Comparison of the 2004 and 1994 U.S. Model BITs: Rebalancing Investor and Host Country
Interests, The Yearbook on Intl Invest. Law, 2008-2009, pp. 283 ff.
308
Tanzi
S.A. v. Mexico, 2003,44 Azurix Corp. v. Argentina, 2006,45 LG & E Energy v. Argentina, 2006,46
Glamis Ltd. v. United States, 2009,47 as well as, previously, in Sea-Land v. Iran, 1984, by the
Iran-U.S. Claims Tribunal.48
Secondly, it is arguable that, although the issue of human rights in the Suez case was
most explicitly considered in connection with the necessity of defence, concerns over
the basic rights of the host States population affected by the management of public
services had some relevance in the Tribunals assessment of the Argentine governmental
conduct. This applies to the dismissal of the claim over Argentinas alleged liability for
expropriation, as well as to the mitigated interpretation of the facts found to be in
breach of the obligation of fair and equitable treatment. This may have a significant
impact on a future award of compensation.
Finally, it is noteworthy that the Tribunal addressed the human right to water ignoring
some controversial attitudes concerning its contents,49 hence furthering the enunciation of
the right in question as a basic human right under General Assembly Resolution 64/292.
5. The follow up to Suez: the Saur Award
In 2012, two years after the Suez award, another ICSID Tribunal rendered a decision
on a case bearing on a most similar factual background, namely, in Saur International v.
Argentine.50 Against a similar factual background, the two decisions under consideration
did not reach the same conclusions. While both of them rejected the claim that the
host State had denied full protection and security to the foreign investment and both
found for the claimant on the claim of breach of fair and equitable treatment, in Saur
the Tribunal found for the claimant also on the claim of expropriation, while Suez did
not. Most importantly, while echoing the general statements on the point at issue in Suez51
plainly declared that it had to take into account human rights in general and the right to
water in particular insofar as they belong to the general principles of international law.52
44
Tcnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB (AF) / 00/2, Award of
May 29, 2003, ICSID Review, Vol 19, 2004, p. 158 ff.
45
Azurix Corp., cit..
46
47
LG&E Energy Corp., LG&E Capital Corp. y LG&E International Corp., cit..
Glamis Gold Ltd, cit.
48
Sea Land Services Inc. v. Iran, Award No. 135-33-1 of June 22, 1984, Iran-US Claims Tribunal Reports, Vol
6, 1984, p. 149 ff. In that same sense also ruled the European Tribunal of Human Rights, 1982 in Case Sporrong and
Lnnroth against Sweden, Appl. N 7151/75 and 7152/75, Award dated September 23, 1982, Reports of Judgments
and Decisions, Series 52, and James and others v. UK case., cit .
49
Thielbrger P. 2009, p. 491.
50
ICSID case No. ARB/04/4, Decision on Jurisdiction and Liability, 6 June 2012.
51
See supra, footnote 24, recalled in Saur, para. 470.
52
Saur Decision on Jurisdiction and Liability, para. 330.
309

Nonetheless, the impact of human rights considerations on the decision in hand remains
a matter for speculation.
It seems as if while focusing on the shear compatibility between the two bodies of law
at issue the Saur award has diverted the attention from the more substantive question of the
impact of human rights obligations on the interpretation and application of investment
rules. In the following concluding paragraph a conceptual and legal framework will be
considered in order to promote a more balanced approach to the issue without reversing
the actual imbalance shifting an excessive burden from the host State onto the foreign
investor.
V. C oncluding
remarks and a proposal
It has become a near commonplace that international arbitral awards interpret and
apply IITs in a way which is favorable to foreign investors and constrains the regulatory
power of host States with regard to public services. Recent arbitration case law offers
legal reasoning capable of bringing about a more balanced judicial approach. Since such
potentials have not yet been fully deployed in case law, tentative proposals have been put
forward that may provide concrete substance to the conceptual framework emerging from
the case law just referred.53
While the protection of foreign investment appears as the primary purpose of IITs,
according to the full rationale of the latter, such a goal should be pursued in harmony with
the promotion of economic development cooperation of host States. The 1965 ICSID
Convention itself emphasizes in its preamble the need for international cooperation for
economic development.54 Conduct by foreign investors which contrasts with the basic
rights of the population of the host State runs counter to the principle of development
cooperation, hence it would not deserve the full protection of the applicable BIT. It would
not be for arbitration tribunals to determine the liability of foreign investors, but the
investors conduct in relation to relevant international standards would be an essential
yardstick for assessing the legality of the measures adopted by the host State to assure
essential public services.
On the other hand, an obligation of due diligence arises for the host State both under
BITs and international treaties on human rights.55 In order to avoid incurring liability
53
See, in particular Judge Simma (op. cit., pp. 592 ff.). See also Tanzi, op. cit.., pp. 67-73.
54
Para. 1.
55
In the Suez case the Tribunal affirmed Argentinas responsibility to guarantee public services to its
population (Suez case, para 245). This is confirmed also by the Inter-American Court of Human Rights (Comunidad
Indgena Sawhoyamaxa vs. Paraguay, Judgment (29 March 2006). Reports of Judgments and Decisions Serie C 146, para
140. <www.echr.coe.int>. Accessed 12 October 2011) and by the ECHR (Bosphorus Airways v. Ireland, Application
45036/98, Judgment (30 June 2005). <www.echr.coe.int>. Accessed 12 October 2011; Al-Saadoon y Mufdhi v. the
United Kingdom, Application 61498/08, Judgment (2 March 2010). <www.echr.coe.int>. Accessed 12 October 2011).
310
Tanzi
before international jurisdictions, let alone the domestic courts, host States should act in
a preventive fashion in line with appropriate due diligence standards. Elements to that end
are emerging in the international treaty and soft-law instruments referred to above,56 as
well as in domestic regulatory, legislative and contractual practice that provide guidance
for State compliance with foreign investment protection and human rights obligations
alike, as well as for foreign investors to adopt conduct that may not justify restrictive
measures by the host State.
If human rights concerns come into play as relevant standards in the reasoning of
investment tribunals in the terms just indicated, it is arguable that this will draw the
attention of the actors involved to the importance of abiding by such standards at the
pre-contractual and contractual levels enhancing dispute prevention and the degree of
perception of legitimacy of international investment law.
56
See supra, para. 3.
311
C ould
awards
on
inefficiencies of
remand
ICSID
tackle
annulments ?
the
Manuel Conthe* and Antonio Delgado**

Abstract. The use of procedures of remand is a common feature of civil procedure systems which is seldom used
in arbitration, even though remand of an arbitral award achieves greater economic efficiency than its annulment.
This is especially true in respect of the high value and complex disputes that are arbitrated under the auspices of
ICSID. In this paper, the authors argue that procedures of remand could correct some of the inefficiencies created by
the ICSID annulment system by preserving the validity of costly and time consuming awards that would otherwise
be annulled. While acknowledging the difficulties involved in modifying the ICSID framework, the authors propose
ways in which remand could be introduced in ICSID arbitration, in order to avoid the resubmission of proceedings
in certain cases, achieve greater efficiency in the disputes resolution and increase the parties satisfaction.
Keywords. Remand of awards, ICSID arbitration, awards annulment.
* Of Counsel, Bird & Bird LLP (Madrid), arbitrator, lawyer and economist. Former Director of the Treasury,
Deputy Minister of Economy and Chairman of the Securities and Exchange Commission (CNMV) in Spain, and
former Vice-President for Finance at the World Bank (email: manuel.conthe@twobirds.com).
** Associate, Bird & Bird LLP (London), Abogado, L.L.B. (U. Carlos III de Madrid), L.L.M. (McGill University)
(email: antonio.delgado@twobirds.com).
I. I ntroduction
following the annulment of ICSIDs award on Sempra v Argentina, a general counsel from
1
the Sempra Energy Group, when asked if he would like to see any changes to the way
international arbitration works, replied:
The arbitration against Argentina took almost 10 years and now we have to start over.
An annulment decision that reverses any of the original panels findings should just be
referred back to the panel like in most court systems as opposed to forcing the
parties to start again from the beginning (emphasis added).2
1
Sempra Energy International v Argentina, Decision on Argentinas Application for Annulment of the Award, ICSID
Case No ARB/02/16, 10 June 2010.
2
Global Arbitration Review, In-house Counsel Interview: W Davis Smith, <http://www.
313

Sempras concern for having to re-arbitrate the case is a valid one: remission (i.e.
empowering the Annulment Committee to remit or remand the case to the Arbitral
Tribunal to reconsider its award) could temper the drastic consequences of an annulment
decision.3 This article will specifically argue that:
1. Remission is a common feature of court proceedings in both common law
and civil law jurisdictions, is consistent with the UNCITRAL Model Law on
International Commercial Arbitration (the UNCITRAL Model Law) and is
envisaged in national arbitration laws.
2. From an economic perspective, remission promotes efficiency and reduces
waste by avoiding, in appropriate cases, the need to resubmit disputes and start
from scratch. In addition, remission is unlikely to impair the fundamental right
to an impartial and unbiased tribunal.
3. ICSID arbitrations are extremely expensive and time consuming and, therefore,
likely to benefit from the greater efficiencies afforded by remission. Annulment
Committees should have the possibility to order remission when the Tribunals
award was annullable on some of the grounds envisaged in Article 52(1) of the
ICSID Convention, namely:

in some instances, when the Tribunal manifestly exceeded its powers

(paragraph (b));
when the Tribunal seriously departed from a fundamental rule of procedure

(paragraph (d)); and
when the award failed to state the reasons on which it was based
(paragraph (e)).
These three paragraphs of Article 52(1) are, in practice, particularly relevant since, to
date, the great majority of annulment decisions have been based on them.4
globalarbitrationreview.com/journal/article/29289/in-house-counsel-interview-w-davis-smith/>, 2 March 2011.

3
While the noun remission and verb remit are used by the English courts and in international arbitration
generally, the terms remand and remanding are commonly used in US jurisdictions, where remission is more
associated with forgiveness (e.g. remission of debts). For purposes of this article, remission and remand should
be considered synonymous and are used interchangeably.
4
See infra, 16-17. For a recent and comprehensive analysis of the ICSID Annulment process, see C. V. Wobeser,
Estndar de aplicacin de la causal de anulacin contenida en el artculo 52(1)(b) del convenio CIADI, tratndose
de la extralimitacin de facultades en la aplicacin de la ley in C. A. Soto (ed), Sistema de Anulacin de los Laudos
CIADI (2011) 1 Anuario Latinoamericano de Arbitraje, 265-279.
314
The remand of ICSID annulments

Conthe & Delgado
II.
R emission
A. R emission
in
national
court
proceedings
and
arbitration laws
in respect of court decisions
The use of procedures of remission is a common feature of court proceedings in both

common law and civil law jurisdictions. Subject to specific particularities, many appellate
systems include rules that grant appellate courts the power to remit a matter to lower courts.
In England, under Section 31(5) of the Senior Courts Act 1981, the High Court can remit
a matter to a lower court for reconsideration, after quashing a decision on an application
for judicial review:
If, on an application for judicial review, the High Court quashes the decision to which the
application relates, it may in addition (a) remit the matter to the court, tribunal or authority
which made the decision, with a direction to reconsider the matter and reach a decision in
accordance with the findings of the High Court, or (b) substitute its own decision for the
decision in question.
In Spain, under Article 476(2) of the Civil Procedure Act 2000, a regional High Court
of Justice can quash a Provincial Courts decision on grounds of due process and remit the
matter, ordering the Provincial Court to cure the breach and resume proceedings from that
point:
In all other circumstances, if the appeal is allowed based on all or any of the alleged
breaches or violations, the Court will nullify the decision appealed and will order that the
proceedings are reinstated to the phase and time when the incident and violation occurred.5
B. R emission
in respect of arbitral awards
1. UNCITRAL Model Law

The procedural technique of remission, whereby a higher court returns a case to a lower
court in the context of a vertical relationship, can be used in arbitration as an element of the
5
Authors Translation. The original wording states:
En los dems casos, de estimarse el recurso por todas o alguna de las infracciones o vulneraciones alegadas,
la Sala anular la resolucin recurrida y ordenar que se repongan las actuaciones al estado y momento en que se
hubiere incurrido en la infraccin o vulneracin.
315

annulment procedure of arbitral awards, as envisaged in Article 34(4) of the UNCITRAL

Model Law:
The court, when asked to set aside an award, may, where appropriate and so requested by a
party, suspend the setting aside proceedings for a period of time determined by it in order to
give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such
other action as in the Arbitral Tribunals opinion will eliminate the grounds for setting aside.
The remission procedure contemplated on Article 34(4) of the UNCITRAL Model Law
is devised as a procedural step that takes place before the court decides to set aside the award.
Its purpose is to enable the Arbitral Tribunal to cure any defects and, thereby, save the award
from being annulled. The procedure is initiated with the request from one of the parties and
requires a decision from the court as to the appropriateness of remission, after giving due
consideration to all particular circumstances.
Remission procedures remain, however, an uncommon feature of annulment in
arbitration law. A number of states that have adopted the Model Law have omitted Article
34(4).6 Indeed, the provision has been characterised as unusual by a leading commentator.7
This may explain why few arbitration rules deal with the issue of remission to the Arbitral
Tribunal.8
Nonetheless, different types of procedures of remission can be found in the annulment
provisions of arbitration acts of important jurisdictions such as Germany, the US, England
or Canada.
2. Germany
6
G. Born, International Commercial Arbitration (Kluwer Law International, The Netherlands 2011) Vol.
II, 2546.
The author cites as examples of arbitration laws that have omitted Article 34(4) the Egyptian Arbitration Law,
the Peruvian Arbitration Law, the Russian Federation Law on International Commercial Arbitration, the Tunisian
Arbitration Code and the Ukraine Law on International Commercial Arbitration.
7
Ibid.
See T. Webster, Functus Officio and Remand in International Arbitration (2009) 27 ASA Bulletin, Issue 3,
441-465. The author notes that [i]n practice, national courts do remand cases to Arbitral Tribunals, as illustrated
in the cases discussed below. The procedural particularity of these remands is that very few rules of arbitration deal
with the issues of remands to Arbitral Tribunal. As a result, arbitral institutions and tribunals are left to work out for
themselves various issues that arise with respect to remands to arbitral tribunals.
The ICC has sought to address this lacuna with the inclusion in its Rules of Arbitration of a new Article 35
relating to the remission by the court to an ICC tribunal. Article 35 of the Rules of Arbitration of the International
Chamber of Commerce provides that:
Where a court remits an award to the Arbitral Tribunals, the provisions of Article 31, 33, 34 and this Article
35 shall apply mutatis mutandis to any addendum or award made pursuant to the terms of such remission. The Court
may take steps as may be necessary to enable the Arbitral Tribunal to comply with the terms of such remission
and may fix an advance to cover any additional fees and expenses of the Arbitral Tribunal and any additional ICC
administrative expenses.
316

Conthe & Delgado
Section 1059(4) of the German Code of Civil Procedure differs from Article 34(4) of the
UNCITRAL Model Law in that it empowers the court to remit (i) on its own motion and
(ii) after setting aside the award:
The court, when asked to set aside an award, may, where appropriate, set aside the award
and remit the case to the Arbitral Tribunal.9
3. United States
In the US, Section 10(b) of the Federal Arbitration Act provides that the court may remit
ex officio, and after the award is vacated, so long as the time agreed to make the award has
not expired:
If an award is vacated and the time within which the agreement required the award
to be made has not expired, the court may, in its discretion, direct a rehearing by the
arbitrators.
4. England
In England, the principle that the court must remit to the Arbitral Tribunal as a general
rule, unless it would be inappropriate, has applied since the 1950s.10 This principle
has been codified in Section 68(3) of the 1996 Arbitration Act,11 which has important
differences with Article 34(4) of the UNCITRAL Model Law.
Under Section 68(3) of the English Arbitration Act,12 if there is shown to be a serious
irregularity affecting the Tribunal, the proceedings or the award, the court may:
(a) remit the award to the Tribunal, in whole or in part, for reconsideration;
9
An unofficial English translation of the 1oth Book of the German Code of Civil Procedure
(Zivilprozessordung) by the German Institute of Arbitration (DIS) and the German Federal Ministry of Justice is
available online <http://www.trans-lex.org/600550>.
10
See R. Merkin & L. Flannery, Arbitration Act 1996 (Informa, London 2008) 162. The authors state that
[t]he proviso to section 68(3) codifies the principle developed under the 1950 Act that, faced with a choice of
remitting or setting aside the award, the court is to remit wherever it can and to set aside only where remission would
not be appropriate. (emphasis added)
11
Ibid.
12
Article 68(3) of the 1996 Arbitration Act states:

If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may: (a)
remit the award to the tribunal, in whole or in part, for reconsideration, (b) set the award aside in whole or in part,
or (c) declare the award to be of no effect, in whole or in part.
The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part,
unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.
317

(b) set the award aside in whole or in part; or

(c) declare the award to be of no effect, in whole or in part.
Section 68(3) provides that the court shall not exercise its power to set aside or to
declare an award to be of no effect, unless it is satisfied that it would be inappropriate to
remit the matters in question to the Tribunal for reconsideration. Thus, if the court finds
that the award is tainted by a serious irregularity, in principle, the court should consider
remission of the award to the Arbitral Tribunal before annulment. In practice, however,
the courts combine both powers with flexibility, sometimes directly remitting the award
for reconsideration or, alternatively, setting aside the award and remitting the matter to
be considered afresh.13
Section 68(3) does not define the conditions under which it would be inappropriate
for the court to remit the matter to the Arbitral Tribunal. These conditions are, therefore,
left to be determined by the courts. Case law demonstrates that remission may not be
appropriate for reasons of incompetence or bias on the part of the arbitrator, or where
irregularity is so severe that there has to be a full rehearing.14
In James Moore Earthmoving v Miller Construction Limited,15 the Court of Appeal held that the
question as to whether a matter should be remitted to an arbitrator in case of misconduct
would depend on the answer to the objective question of whether a reasonable person
would no longer have confidence in the arbitrators ability to come to a fair and balanced
conclusion on the issues if remitted.
In Pacol Ltd v Joint Stock Company Rossakhar,16 the Commercial Court deemed that it was
inappropriate to remit the matter to the Arbitral Tribunal because the entire arbitration
would have to be re-pleaded. The court found that it would be quite wrong for the
arbitrators to build anything on the structure of the award which they have already made
and decided to set aside the award without remission.17
13
For instance, in R.C. Pillar & AMP Sons v. Edwards, Case number: HT-00-288, 11 January 2011, the judge
ordered remission in respect of two awards issued by an arbitrator specifying that the arbitrator would have to
determine whether any further evidence or documents should be admitted into the proceedings. He suggested as
a starting point a timescale of 28 days for the arbitrator to reissue the award from the date of the remission order.
However, in Van Der Giessen-De-Noord Shipbuilding Division B.V. v Imtech Marine & Offshore B.V. [2008]
EWHC 2904 (Comm) the court decided to set aside and remit the matter back to the Tribunal consisting on a two
member panel relying in Ascot Commodities NV v Olam International Ltd. The court also appointed an umpire
to join the other two arbitrators and conditioned the remission of the matter on obtaining from the claimant an
undertaking that it would not seek to widen the points made in its challenge application.
14
Merkin & Flannery, 162.
15
James Moore Earthmoving v Miller Construction Limited [2001] EWCA Civ 654.
16
17
Pacol Ltd v Joint Stock Company Rossakhar [2000] C.L.C. 315, 15 October 1999.
However, there are cases in which the courts saw no problem in remitting a matter to the Arbitral Tribunal
after annulling the award in its entirety and ordering the subject matter of the arbitration to be considered afresh.
In OAO Northern Shipping Company v Remolcadores de Marin SL, the Commercial Court annulled the award on
318

Conthe & Delgado
5. Canada
The Canadian province of British Columbia has incorporated Article 34(4) of the
UNCITRAL Model Law in its International Commercial Arbitration Act with almost the
exact wording and same numbering.18 Interestingly, this provision was, precisely, applied
in the context of an application for the annulment of an ICSID award conducted under
the ICSID Additional Facility Rules.19
In Metalclad v Mexico,20 the Arbitral Tribunal awarded damages to Metalclad after
finding that Mexico had breached Articles 1105 and 1110 of the NAFTA. However,
Mexico filed a petition to challenge the award and the Supreme Court of British Columbia
partially set it aside, on grounds that two of the breaches declared by the Arbitral Tribunal
went beyond the scope of the submission to arbitration.21
Following his order to partially set aside, Mr Justice Tysoe considered the issue of
remission to the Arbitral Tribunal, under Article 34(4) of the International Commercial
Arbitration Act. In his Supplementary Reasons for Judgement,22 the judge observed that,
unlike some common law jurisdictions, the procedure of remission in the International
Commercial Arbitration Act is not conceived as a separate remedy but placed in the
framework of setting aside the proceedings. As a result, the judge considered inappropriate
to have followed the common law approach of partially setting aside the Award and
remitting the matter to the Tribunal. Instead, he said, he should have clarified whether
Metalclad was requesting to adjourn the proceedings under s. 34(4) and, if there were
grounds similar to those in Pacol, and remitted the case to the Tribunal for reconsideration. The claimant had entered
into a contract with the defendant for the sale of a vessel. Subsequently, it initiated arbitration proceedings claiming that
the defendant had misrepresented the total power of the vessels engine. The Arbitral Tribunal dismissed the claimants
case on the basis that the respondent had not made any representation. However, during the arbitration, the parties
never disputed that the seller had made a representation as to the vessels engine. As a result, the claimant applied to set
aside the award or have it remit to the Tribunal arguing that the arbitrators had dismissed its case on a ground which
had neither been raised nor disputed by the seller without inviting the claimant to address the issue.
18
Article 34(4) of the International Commercial Arbitration Act of British Columbia states:
When asked to set aside an arbitral award the court may, if it is appropriate and it is requested by a party,
adjourn the proceedings to set aside the arbitral award for a period of time determined by it in order to give the
arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral
tribunals opinion will eliminate the grounds for setting aside the arbitral award.
19
Awards rendered under ICSIDs Additional Facility Rules are subject to the control of the court of the place
of arbitration because the ICSID Convention, and therefore its provisions on annulment, does not apply to them.
See C. J. Tams, An Appealing Option? The Debate About an ICSID Appellate Structure, Essays in Transnational
Economic Law, No. 57, June 2006.
20
21
Metalclad Corp. v United Mexican States, ICSIDCase No. ARB(AF)/97/1, 40 ILM 36 (2001).
The United Mexican States v Metalclad Corporation (Reasons for Judgment) 2001 BCSC 664, 2 May 2001.
22
The United Mexican States v Metalclad Corporation (Supplementary Reasons for Judgment) 2001 BCSC 1529,
31 October 2001.
319

grounds to set aside the Award in whole or in part, adjourn the proceedings to give the
Tribunal an opportunity to deal further with the matter.23
Since Metalclad had applied for an order to adjourn,24 following the decision to partially
set aside, the judge varied the order pronounced on 2 May 2001 to give the Arbitral
Tribunal the opportunity to resume arbitral proceedings to determine whether there was
a breach of Articles 1105 or 1110 of NAFTA on grounds different to those partially
set aside by the Court. However, the matter was settled by the parties and the appeals
withdrawn.25 The Arbitral Tribunal never reconsidered the award and the opportunity
to have a precedent on the use of remission in the context of ICSID arbitration did not
materialise.
III. R emission
as an efficiency - enhancing tool
A well-established principle of the Law & Economics school claims that legal rules,
particularly in the common law world, have spontaneously developed over time so as to
maximize wealth, by promoting efficiency and reducing waste. One leading author in that
tradition, Richard A. Epstein, specifically claimed that in a world with transactions costs
as those arising from litigation legal rules should strive to minimize the sum of costs
to the parties. In his view, this can be best achieved if we imagine all the interests at stake
in a case having just one single owner, and ask this single owner how he would frame
the rules applicable to the case. This way we can easily represent the most cost effective
solution, since a single owner would take the interests of both parties just as seriously.26
In our case, if a single person was funding the legal costs of both parties, it would
certainly prefer the award to be remitted to the Arbitral Tribunal to correct any irregularities
rather than having it annulled and be obliged to fund an entire new arbitration. Remission
would reduce waste by enabling the Arbitral Tribunal to cure the awards defects, saving
23
Ibid.
24
Ibid. By Notice of Motion dated October 1, 2001, Metalclad made an application (i) for directions
respecting the reference to the Tribunal contemplated in paragraphs 135 and 136 of the Reasons for Judgment (ii) to
settle the form of Order flowing from the Reasons for Judgment and (iii) for an Order adjourning [the] proceedings
generally or to a specified date to provide the Tribunal opportunity to resume the arbitral proceedings in accordance
with the Reasons for Judgment and directions of [the] Court or to take such other action as in the Tribunals opinion
[would] eliminate the grounds upon which [the] Court [had] set aside the Award in part.
25
Notice of Abandonment of Cross Appeal, 30 October 2001.
26
See R. A. Epstein, Holdouts, Externalities, and the Single Owner: One More Salute to Ronald Coase
(1993) 36 Journal of Law and Economics, No. 1, 557. For additional analysis on the single owner approach, see W.
Fansworth, The Legal Analyst. A Toolkit for Thinking About the Law (The University of Chicago Press, USA
2007) 65.
320

Conthe & Delgado
it from annulment and limiting the situations in which the dispute would need to be
resubmitted to a new Tribunal.27
The single owner approach illustrates how remission can refine the balance between
the competing interests of the parties in the annulment process. The review process needs
to balance the legitimate interest of a party to seek redress for a serious irregularity in
the award and the interest of the other party in ending the uncertainty of litigation.
Annulment deals in absolutes because in order to redress the party aggrieved by a serious
irregularity it forces the parties to relitigate the same dispute, placing a very strong burden
entirely on the party resisting the challenge. The need to resubmit a dispute may have
particularly harsh consequences for the claimant, who is forced to undergo the ordeal of
committing new resources to relitigate a case for reasons for which it bore no fault.
This type of outcome has a potential to undermine the confidence of the parties in
the process.
Furthermore, requiring the parties to resubmit their claim may potentially weaken
their case. Some of the evidence may have deteriorated or may be no longer available.
This means that by the time a new hearing is scheduled, the facts that gave rise to the
dispute will be further away in time. As a result, witnesses may have greater difficulties
in recollecting what happened; or may simply not be available to be questioned by the
Tribunal if they have since deceased.
IV. R emission
and the right to an impartial
T ribunal
When the annulment court remits a matter to the Arbitral Tribunal, there is an issue
as to whether the arbitrators who have rendered an award may have become biased
to reconsider the same issues and evidence, since they may have already arrived at a
particular conclusion and perception of the case which may be difficult to change at this
late stage. Could remission to the same arbitrators constitute a threat to due process and
the right to an impartial tribunal?
In 1620, in his Novum Organum Scientiarum Sir Francis Bacon wrote that the human
understanding, when it has once adopted an opinion () draws all things else to support
and agree with it.28 Bacon was referring to what modern advocates of the so-called
Behavioural Law & Economics now call confirmation bias, belief perseverance
or, occasionally, tunnel vision.29 These terms refer to the human tendency to filter
27
Fansworth, 37.
28
29
F. Bacon, Novum Organum (1620) Book I, 109, point 46.
For a general view on confirmation bias, see R. S. Nickerson Confirmation Bias: A Ubiquitous
Phenomenon in Many Guises (1998) 2 Review of General Psychology, 175-220. For the relevance of the bias in criminal
investigations, see B. OBrien & P. C. Ellsworth Confirmation Bias in Criminal Investigations (September 19, 2006)
Michigan State University College of Law, and K. A. Findley & M. S. Scott, The Multiple Dimensions of Tunnel
Vision in Criminal Cases (2006) 291 Wisconsin Law Review, 309-316. On confirmation bias, belief perseverance and
321

selectively the information received, so that we unconsciously give more weight to the
evidence and arguments that confirm our initial views and attach less weight to other
pieces of information that contradict them. This kind of cognitive bias constitutes an
irrational inclination to search, interpret and remember data in a way that will confirm
our initial conceptions or hypothesis.30
The influence exerted by first impressions on human beings makes it particularly
challenging for judges, juries and arbitrators to maintain an open mind during the evidence
presentation phase of legal proceedings. As humans, we suffer a natural tendency to
construct a mental story of what happened as a case develops. However, once we have
constructed our story and reached a conclusion, we may be instinctively disinclined to
abandon it in the face of new evidence, which means that our initial perceptions strongly
influence how we interpret new information.
Legal systems try to fight cognitive bias through various devices. Our constitutional
right to be judged by an objectively impartial tribunal is one of them. Judges and arbitrators
have an obligation to remain impartial throughout the entire process in the sense that
they have to remain free of any prejudice or bias and be impartial from an objective
viewpoint.31 According to the European Court of Human Rights, the impartiality of
the adjudicator can be determined under a subjective test, which inquires about the
personal conviction and behaviour of a particular judge; and under an objective test, by
ascertaining whetherthe court or tribunal itself offered sufficient guarantees to exclude
any legitimate doubt in respect of its impartiality.32 In the Courts words, the objective test
mostly concerns hierarchical or other links between the judge and other actors in the
proceedings which objectively justify misgivings as to the impartiality of the tribunal ()
It must therefore be decided in each individual case whether the relationship in question
is of such a nature and degree as to indicate a lack of impartiality on the part of the
tribunal.33
priming, see K. M. Stanchi The Power of Priming in Legal Advocacy: Using the Science of First Impressions
to Persuade the Reader (2010) 89 Oregon Law Review, No. 1. Manuel Conthe, has discussed cognitive biases in
arbitration in Inside Arbitrators Mind, Global Arbitration Review (2001) <http://www.globalarbitrationreview.com/
journal/article/29051/inside-arbitrators-minds/>. For a broader view of cognitive biases in court decisions, see A.
Muoz- Aranguren, La Influencia de los Sesgos Cognitivos en las Decisiones Jurisdiccionales: el Factor Humano.
Una Aproximacin InDret. Revista para el Anlisis del Derecho, <http://www.indret.com/pdf/820_es.pdf>, April,
2011; and J. Alonso-Gallo, Las decisiones en condiciones de incertidumbre y el Derecho Penal InDret. Revista para
el Anlisis del Derecho, <http://www.indret.com/pdf/847.pdf>, October, 2011.
30
Thanks to the unstinting efforts of J. Astigarraga, confirmation bias (as well as other cognitive biases)
were extensively discussed in the panel on The Art & Science of Persuasion during the IBA Annual Meetings in
Vancouver (2010) and Dubai (2011).
31
Micallef v Malta, Judgement, 15 October 2009, at 93; Cooper v The United Kingdom, Judgement, 16 December
2003, at 104; Kleyn and others v The Netherlands, Judgement, 6 May 2003, at 191.
32
Micallef v Malta, Judgement, 15 October 2009, at 93.
33
Ibid, at 97.
322

Conthe & Delgado
A clear case is the relationship between the investigating magistrate and the defendant
in a criminal complaint. Objective impartiality requires that an investigating magistrate
does not hear the case against the defendant because there is an objective risk that during
his investigations he may have acquired a conviction over the defendants culpability.34 This
conviction, in itself, cannot be subject to criticism. However, the sole possibility that his
conclusions could induce any type of bias, if he subsequently tried the case, compromises
the defendants right to an impartial tribunal.35
Will the panel of arbitrators to which a case has been remitted fail to satisfy the
objective test of impartiality in relation to the party whose arguments were rejected in the
award? Might the conclusions reached by the panel of arbitrators during the arbitration
process compromise their ability to remain impartial and breach that partys right of due
process, if the annulment court remitted the case to the same Arbitral Tribunal? Did the
drafters of the ICSID Convention ignore the possibility of remanding of awards because
they doubted the ability of Tribunals to be completely impartial when reconsidering a
decision at the request of an annulment committee?
It is indeed an open question whether an adjudicator can reassess evidence and legal
arguments de novo.
Nevertheless, court decisions suggest that, in certain circumstances, a matter can
be considered afresh by the same adjudicator without impairing the parties rights of
due process. In Ringeisen v Austria, the European Court of Human Rights held that it
cannot be stated as a general rule resulting from the obligation to be impartial that a
superior court which sets aside an administrative or judicial decision is bound to send
the case back to a different jurisdictional authority or to a differently composed branch
of that authority.36 Based on Ringeisen, the Spanish Constitutional Court decided that
the remission of a matter to the same judge who found against the defendant in criminal
proceedings, for the purpose of correcting a breach of due process, does not violate the
defendants right to an objectively impartial tribunal.37 The Court distinguished between
the case of an investigating magistrate and a criminal judge to which a case is remitted for
breach of a fundamental rule of procedure. In the latter case, the Court found that the
defendants right is strictly limited to the reparation of the observed violations, by way
of remission of the proceedings, and to have the judge consider and ponder the effect
and repercussion of the new proceedings in the resolution of the dispute.38 The Court
held that the rights of the accused are preserved, in any event, by the reparation of the
34
Sentencia No. 157/1993, 6 May, Spanish Constitutional Court.
35
Ibid.
36
Ringeisen v Austria, Judgement, 16 July 1971, at 97.
37
Ibid, infra note 54.
38
Authors Translation. Ibid, supra note 52.
323

procedural breaches and their consideration by the judge in determining whether its first
decision, subsequently set aside, must remain unaltered or be modified.39
These decisions suggest that when a court remits a case to an Arbitral Tribunal in the
context of an annulment application, the parties right to an objectively impartial tribunal
might not be necessarily prejudiced.40 Further, these decisions were issued in the context
of criminal proceedings, which have potentially a stronger impact on individual freedom
than civil proceedings. Thus, a fortiori, the arguments expressed by the European Court
of Human Rights and the Spanish Constitutional Court are also valid for the arbitration
process.
Finally, we should bear in mind that remission is not a mandatory proceeding that
must take place before annulment. Normally an annulment committee would remit a case
to the Arbitral Tribunal after hearing the parties on the issue and making a judgement
on its appropriateness in view of any relevant circumstances. This means that the parties
and the court will have an opportunity to raise and consider the issue of bias on the
part of the Arbitral Tribunal before a decision on remission is adopted.41Were, however,
the annulment committee to misjudge, in practice, the Arbitral Tribunals capacity or
willingness to reconsider the matter afresh or in accordance with the remission order, it
would still have, as a last resort, the possibility to annul the re-issued award.42
V. T he
case for remission in
ICSID
arbitration
ICSID arbitration has traditionally been characterised by the size and complexity of
claims. According to ICSIDs case load statistics, they touch mainly on economic sectors
that require heavy investments, involve the utilisation of a states natural resources and
affect the provision of essential services to the population; such as the oil, gas and mining
industries, power generation and distribution, construction, transportation and water.43
39
Ibid.
40
See supra note 18. In OAO Northern Shipping Company v Remolcadores de Marin SL the Commercial Court remitted
a matter for reconsideration to the Arbitral Tribunal despite setting aside the award.
For arguments against see Muoz-Aranguren, supra note 47. According to this author, the right to a fair hearing
requires, indistinctively in criminal and civil proceedings, that when a matter is remitted on grounds of procedural
irregularity, a new tribunal should be appointed. Among other decisions, he cites a judgement of the Spanish
Supreme Court of 24 June 1991, which required remission of a decision issued in criminal proceedings, quashed on
grounds of procedural propriety, to a different tribunal. Similar considerations may have induced the Commercial
Court to refuse to remit in Pacol (cited above) on the basis that it would be quite wrong for the arbitrators to build
anything on the structure of the award which they have already made.
41
See Pacol, supra note 15.
42
orders.
Arguably, the threat of annulment is likely to make Arbitral Tribunals more compliant with remission
43
324
The ICSID Caseload Statistics, Issue 2011-2, p. 12, <http://icsid.worldbank.org/ICSID/

Conthe & Delgado
As one would expect of complex disputes affecting a states basic interests and
involving huge pecuniary claims, on average ICSID arbitrations tend to be very costly
and time consuming.44 If we add up the fees of counsel, arbitrators and the ICSID
Secretariat, we would find that, on average, ICSID proceedings will require the parties
to invest considerable amounts of money to obtain an award. The fact that third party
funding has become an increasingly popular source of finance for prospective claimants is
symptomatic of the huge economic effort that ICSID arbitration imposes on the parties.45
From that perspective, the annulment of ICSID awards by Annulment Committees,
under Article 52 of the ICSID Convention, creates an enormous economic waste, since
all the resources that are invested in the arbitrations leading to awards that are ultimately
annulled, are irremediably lost. The expenses incurred by the parties to obtain the original
award, rendered futile after annulment, may even compromise their capability to arbitrate
the dispute a second time.
The grounds of annulment established in paragraphs (b), (d) and (e) of Article 52(1)
of the Convention refer to irregularities that can be cured by the Arbitral Tribunal, if
the Annulment Committee were to remit the matter. Paragraph (b) (manifest excess of
powers) and (d) (serious departure from a fundamental rule of procedure) aim to protect
the integrity of the procedure, ensuring that the Arbitral Tribunal respects the boundaries
fixed by the ICSID Convention and the parties consent; does not exceed its powers as
far as its jurisdiction, applicable law and questions raised are concerned; and does not
commit a serious departure from a fundamental rule of procedure. Paragraph (e) (failure
to state reasons), on the other hand, protects the integrity of the award in the sense that the
reasoning presented in the award should be coherent and not contradictory.46
By contrast, the grounds established in paragraphs (a) and (c) cannot be cured, because
they require that a new Tribunal be appointed. It is worth recalling that paragraphs (b),
(d) and (e) have been invoked as a basis of annulment, even if paragraph (e) has rarely
succeeded.47
In our view, whenever an Annulment Committee found that an Arbitral Tribunal
manifestly exceeded its powers or failed to state reasons in its award, the proceedings
could be adjourned and the award remitted to give the Arbitral Tribunal the possibility to
correct those findings. If an Annulment Committee were of the opinion that the parties
FrontServlet?requestType=ICSIDDocRH&actionVal=CaseLoadStatistics>.
44
See N. Ulmer, The Cost Conundrum (2010) 26 Arbitration International, Issue 2, 221-250.
45
See B. Cremades, Third Party Funding in International Arbitration, available online <http://www.
cremades.com/publications.aspx>.
46
See Soufraki v United Arab Emirates, Decision on the Application for Annulment and Separate Opinion,
ICSID Case No ARB/02/7, 5 June 2007, at 23. The authors thank an anonymous peer reviewer for his/her helpful
reference to this award.
47
K. Yannaca-Small, Limited Scope But is There Potential? in K. Yannaca-Small (ed) Arbitration under
International Investment Agreements. A Guide to the Key Issues (OUP, USA 2010) 604 and 617. According to the author there
is no public information as to whether paragraphs (a) and (c) have ever been invoked.
325

should be given an opportunity to make fresh written or oral submissions, a remission

order with appropriate instructions to the Arbitral Tribunal would suffice. This would
avoid the loss of resources invested in the arbitration. Although remission would require
the parties to incur further costs as a result of the case being reopened, overall, they would
incur fewer costs than if they had to resubmit the dispute before a new Tribunal.
Let us consider, for instance, Sempra v Argentina48 and Enron v Argentina,49 two ICSID
arbitrations arising out of the pesification of tariffs by the Argentine government. In both
cases, the Annulment Committees decided to annul the awards challenged by Argentina
on grounds that the Arbitral Tribunal had manifestly exceeded its powers (in Sempra) and
had failed to state reasons (in Enron). The annulment awards generated controversy after
some scholars and practitioners argued that they were based on expansive interpretations
of Articles 52(1)(b) and (e) which exceeded the purpose of annulment.50
In Sempra, the Annulment Committee found that the Arbitral Tribunal had failed
to apply Article XI of the US-Argentina BIT, depriving Argentina of its procedurally
assured entitlement to have its right of preclusion laid down in Article XI of the BIT (...)
subjected to legal scrutiny.51 As a result, the Annulment Committee decided to annul the
entire award. In Enron, the Annulment Committee annulled the main parts of the award
on the basis that the Arbitral Tribunal had failed to state reasons for its decision that
Argentina did not satisfy the requirements of the doctrine of necessity and, therefore, was
precluded from relying on it as a defence.52
In both cases, the investor was left with no other alternative than to resubmit its case
and start again, after going through decade-long arbitration proceedings and expending
millions of dollars in legal costs.53 However, had the Annulment Committees been
empowered to remit the matters to the Arbitral Tribunals, the defects found in the awards
could have been cured. The use of a procedure of remission would have only revived
the proceedings for a limited amount of time. The amount of extra legal costs which the
parties would have been required to incur would have been derisory compared to the
amounts that had already been invested during the decade long arbitrations and that are
expected to be incurred now that both cases have been resubmitted.54
48
Supra note 24.
49
Enron Corporation and Ponderosa Assets LP v Argentina, Decision on Application for Annulment, ICSID Case No
ARB/01/3 (2010) 30 July 2010.
50
Global Arbitration Review, Is ICSID Loosing its Appeal Again? <http://www.globalarbitrationreview.
com/news/article/29354/is-icsid-losing-its-appeal-again/>, 29 March 2011. See also O. Garibaldi and others La
anulacin de los laudos en los casos Sempra y Enron (2011) Vol 1. Anuario Latinoamericano de Arbitraje, 62-78.
51
Sempra, at 222.
52
Enron, at 355-395.
53
Sempra registered its case on 6 December 2002 and Enron on 11 April 2001.
54
Sempra resubmitted its case on 12 November 2010 and Enron on 18 October 2010.
In addition, arguably, the annulment decisions would have remained less controversial.
The purpose of annulment is to function as an exceptional remedy against the most egregious violations, thus
326

Conthe & Delgado
The recent annulment decision in Vctor Pey Casado v Chile ICSIDS longest running
case provides another example.55 The claim was registered on 20 April 1998 and the
award was not rendered until 8 May 2008, exactly ten years after registration. On 5
September 2008, Chile filed an application for annulment and the proceedings were
extended a further four years, until the Annulment Committee issued its decision on 18
December 2012. The Annulment Committee found that Chile had been deprived of the
right to be heard during the quantum phase, violating a fundamental rule of procedure,
and annulled paragraph 4 of the dispositif of the award and the corresponding paragraphs
related to damages, which awarded US$10.132.690,18 to the claimant. The rest of the
dispositif was, however, declared res judicata.
As a result of the Annulment Committees decision, and after undergoing a fourteen
year long arbitration, the parties now have an award which offers no compensation despite
settling that the Tribunal had jurisdiction, that the Respondent violated its obligation to
provide fair and equitable treatment and that the claimant is entitled to compensation.
The case will, inevitably, have to be resubmitted and a new Tribunal appointed only to
quantify the amount of compensation. Remitting the question of quantum back to the
Arbitral Tribunal would probably have been a more efficient route to follow.
VI. I ntroducing
remission in
ICSID A rbitration R ules
Back in 2004, the ICSID Secretariat considered reforming ICSIDs annulment system through
the introduction of an Appeals Facility but found two obstacles which were eventually deemed
almost insurmountable.56 First, Article 53(1) of the Convention provides that awards shall not
respecting the finality of awards in most cases. As a result, it has been emphasized that the grounds of annulment
have to be interpreted narrowly and that Annulment Committees cannot, and should not, behave like appeal
tribunals by expressing their views on the substantive correctness of the awards subject to scrutiny. See C. Schreuer,
The ICSID Convention: A Commentary (Cambridge: Cambridge University Press, 2001) 894; Reed, Paulsson &
Blackaby, 162-163; Continental Casualty Company v Argentina, Decision on Application for Partial Annulment, ICSID
Case No ARB/03/9 (2011) at 82.
Since annulment constitutes an extraordinary exception to the finality of arbitral awards, annulment decisions
that are perceived to have exceeded the constraints on the Annulment Committees function derived from Article
52(1) will be more controversial. However, if annulment could lead to the remission of the award, the degree of
intrusiveness with the Arbitral Tribunals mission would be considerably reduced, moderating the dissatisfaction
generated by some annulment decisions.
55
Vctor Pey Casado and Foundation Presidente Allende v Republic of Chile, Decision on the Application for
Annulment of the Republic of Chile, ICSID Case No ARB/98/2 (2011), 18 December 2012.
Global Arbitration Review, Publishers award against Chile annulled in part <news/article/31060/publishersaward-against-chile-annulled-part/>, 2 January 2013.
56
Possible Improvements of the Framework for ICSID Arbitration, ICSID Secretariat Discussion Paper, 22
October 2004, (Discussion Paper), available online <http://icsid.worldbank.org/ICSID/FrontServlet?requestType
=ICSIDPublicationsRH&actionVal=ViewAnnouncePDF&AnnouncementType=archive&AnnounceNo=14_1.pdf>.
327

be subject to any appeal or to any other remedy except those provided for in this Convention.
Second, the ICSID Convention may be amended only if all Contracting States more than
150 unanimously ratify the amendment.57 Unsurprisingly, this has never happened before.58
In our view, however, the introduction of a mechanism of remission could be achieved,
without an amendment of the ICSID Convention, by inserting in Rule 52 of the ICSID
Arbitration Rules which under Article 6 of the Convention can be adopted by the
Administrative Council by a majority of two-thirds of its members a new paragraph (3), similar
to Article 34(4) of the UNCITRAL Model Law, empowering the Annulment Committee to
make a decision as to the appropriateness of adjourning the annulment proceedings to give
the Arbitral Tribunal an opportunity to eliminate the grounds of annulment.
The new Rule 52(3) would not conflict with Article 53(1), since the award would not be
subject to any appeal or to any other remedy except those provided for in [the Convention].
Neither would it conflict with Article 52(6) nor Rule 55(1), since the adjournment and remission
would just be an intermediate, purely procedural step within the annulment procedure, to take
place before the Committee adopts its decision on annulment. Article 52(6) would remain
fully applicable if the Annulment Committee considered inappropriate to adjourn or, after
granting the Tribunal that possibility, decided nonetheless to annul the award.
The new Rule 52(3) would require a slight amendment of Rule 51, so that the SecretaryGeneral requests the members of the original Tribunal to inform if they are willing to take
part in the reconsideration of the award.59 Furthermore, Rule 51 could also provide that the
unwillingness or impossibility of one of the arbitrators to take part would end the procedure
prematurely. Any dissenting opinions would then be taken into account by Committees in
considering whether it would be inappropriate to remit.
We recognise that an ideal, more flexible and effective remission procedure should, perhaps,
provide the Annulment Committee with powers to annul the award and subsequently decide
whether to remit the case to the Tribunal, just like Section 1059(4) of the German Civil Code.
The problem is that such procedure would conflict with paragraph (6) of Article 52 of the
Convention and probably require changing the wording of that paragraph, or simply deleting
it altogether.60 As previously mentioned, this would be a complicated task because Article 66(1)
of the Convention establishes the unanimity of signatory States as a condition precedent to
any modification.
Nonetheless, it is worth noting that the modification or elimination of paragraph (6) from
Article 52 would constitute a minor reform of the Convention and, as a result, achieving the
57
See Article 66(1) of the ICSID Convention and Discussion Paper, at 3.
58
59
Ibid.
Rule 51(1)(b) of the ICSID Arbitration Rules provides that upon registration of an application for the
interpretation or revision of an award, the Secretary-General shall request each member of the Tribunal to inform
him within a specified time limit whether that member is willing to take part in the consideration of the application.
60
Article 52(6) of the Convention states that [i]f the award is annulled the dispute shall, at the request of
either party, be submitted to a new Tribunal.
328

Conthe & Delgado
necessary consensus would probably be easier than in the case of a reform aimed at introducing
an Appeals Facility, which would entail an overhaul the ICSID annulment mechanism.
VII. C onclusion
Procedures of remission are widely used in court proceedings and are already employed
in the annulment framework set in the arbitration acts of important arbitration-friendly
jurisdictions.
The annulment process of arbitral awards, while essential to preserve the integrity
of the arbitral process, generates a waste of the significant economic resources already
employed in a typical arbitration procedure. It also has very harsh consequences on the
party resisting the challenge, since after annulment the only alternative will be to relitigate
the same dispute for a second time. This is particularly arduous in ICSID arbitrations,
which generally involve disputes of great complexity, requiring the parties, as a result, to
commit huge sums of money to cover the costs of the arbitration.
Thus, bearing particularly in mind the possibility of a future increase in the number
of ICSID arbitrations and awards set aside, there is a case to consider the insertion of a
remission procedure in the ICSID arbitration framework.
Ideally, remission could be introduced through a modification of the Convention.
However, given the impracticality of this approach, we suggest that remission could
alternatively be achieved, in those cases when annulment requests are based on paragraphs
(b), (d) and (e) of Article 52(1) of the ICSID Convention, by adding a small new paragraph
in Rule 52 of the Arbitration Rules which would allow Annulment Committees, where
appropriate and so requested by a party, to suspend the proceedings to give the Arbitral
Tribunal an opportunity to eliminate the grounds for annulment.
Purists may not like remission, claiming that it dents the res iudicata effect of ICSID
awards. Some may also harbour practical doubts about the impartiality of a Tribunal
when reconsidering its own award. Those concerns should not be dismissed lightly. We
also recognize that the proposal made here is a preliminary one. But it is a practical one,
and might be worth being explored and discussed further.
329

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REVISTA LATINOAMERICANA

DERECHO COMERCIAL INTERNACIONAL

LATIN AMERICAN JOURNAL

INTERNATIONAL TRADE LAW

1, NMERO 2, DICIEMBRE 2013

no nter dad iver l

V olume 1, I ssue 2, 2013

First Part. Spanish

Reasonableness in WTO Law

Jan Wouters, Bregt Natens &

EU-Brazil Relations at the World Trade

WTO Market and Non-Market Economies: the

Motions in the Procedures of a Bi-national Panels

b . case - law reviews

Balancing Act: The Clove Cigarettes Dispute

Investment Law Within International Law Integrationist Perspectives

Jos Caiado & Luis Montilla

Reducing the Gap Between International

Manuel Conthe &Antonio Delgado

Could awards on remand tackle the inefficiencies

Latin American Journal of International Trade Law

Reasonableness in WTO Law

GATT 1994: Articles V:4 (reasonable charges and regulations),

Latin American Journal of International Trade Law

(all reasonable efforts), XXIII:2 (reasonable time), XXIV:5(c)

Reasonableness in WTO Law

(reasonable period), 52 (reasonable period), 53.1 (unreasonably

Latin American Journal of International Trade Law

Agreement on Rules of Origin: Articles 2(e) (administered in a

Full title: Decision on Proposed Understanding on WTO-ISO Standards Information System

Reasonableness in WTO Law

as a written legal test in particular

See Article 3.2 of the DSU.

Latin American Journal of International Trade Law

Panel Report,US-COOL, paras. 7.850-7.851.

Reasonableness in WTO Law

Panel Report, US-COOL, footnote 1080.

Latin American Journal of International Trade Law

Appellate Body Report, US Hot-Rolled Steel, paras. 84-85.

Reasonableness in WTO Law

As a third and final example of a provision that requires WTO adjudicators to

Appellate Body Report, Japan Agricultural Products II, para. 93.

Latin American Journal of International Trade Law

terms and conditions

In an accompanying footnote, the Panel recalled the Appellate Bodys interpretation

measures to secure compliance

(footnote original) Merriam Webster Online Dictionary; <http://www.webster.com/cgi-bin/dictionary>.

Panel Report, Mexico Telecoms, para. 7.328. Internal footnote omitted.

Panel Report, Mexico Telecoms, footnote 1029.

Reasonableness in WTO Law

Panel Report, Canada Gold Coins, para. 69.

Latin American Journal of International Trade Law

respect of particular issues

Panel Report, US Tuna II (Mexico), para. 7.277.

Reasonableness in WTO Law

on B, whether A is related to B, or whether A is for the purpose of B, and so

See e.g. Appellate Body Report, EC Hormones, paras. 193-194.

Appellate Body Report, EC Hormones, para. 193.

Latin American Journal of International Trade Law

in the review of unregulated procedural issues

Appellate Body Report, EC Hormones, footnote 138.

Appellate Body Report, EC Hormones, para.152.

Reasonableness in WTO Law

Appellate Body Report, EC Sardines, para. 144.