International Economic Law and National Autonomy

I N T E R NAT IONA L ECONOM IC L AW A N D NAT IONA L AU TONOM Y

International commitments may sit uneasily with national pressures in the best of times. The current age of economic uncertainty brings these tensions into sharper relief. This volume draws together thirteen analyses of these competing interests in a wide array of contexts, including each of the three main pillars of the World Trade Organization; international investment law and arbitration; and the international fi nancial institutions. The essays feature internationally recognised experts addressing topical examples of international economic law obligations clashing with domestic policy interests. For example, Professor Robert Howse of the New York University Law School, addresses issues of globalisation and whether international and national interests can in today’s world be considered separate, while Ko-Yung Tung, former Director-General of the World Bank, looks at trends in investment treaty arbitration and considers what the future may hold in light of the recent financial crisis, the rise of China as an economic powerhouse, and other factors. m e r e d i t h ko l s k y l e w i s is a Senior Lecturer at the Victoria University of Wellington Faculty of Law and Co-Director of the New Zealand Centre of International Economic Law (NZCIEL). She has previously worked as a senior associate practising litigation and international trade with Shearman & Sterling LLP in Washington, DC, and Tokyo. s u s y f r a n k e l is a Professor at the Victoria University of Wellington Faculty of Law and Co-Director of the New Zealand Centre of International Economic Law (NZCIEL). In addition to her academic position, Susy is Chair of the Copyright Tribunal (NZ) and an Independent Hearings Officer for the Intellectual Property Office of New Zealand.

I N T ER NAT IONA L ECONOM IC L AW A N D NAT IONA L AU TONOM Y Edited by M E R E DI T H KOL SK Y L EW IS SUSY FR A N K E L

c a m br i d g e u n i v e r s i t y p r e s s Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo, Delhi, Dubai, Tokyo, Mexico City Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521114608 © Cambridge University Press 2010 Th is publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2010 Printed in the United Kingdom at the University Press, Cambridge A catalogue record for this publication is available from the British Library Library of Congress Cataloguing in Publication data International economic law and national autonomy / [edited by] Meredith Kolsky Lewis, Susy Frankel. p. cm. Includes index. ISBN 978-0-521-11460-8 (hardback) 1. Foreign trade regulation. 2. Investments, Foreign–Law and legislation. 3. Arbitration and award, International. 4. Commercial treaties. 5. International and municipal law. I. Lewis, Meredith Kolsky. II. Frankel, Susy. III. Title. K3943.I558 2010 382′.92–dc22 2010024613 ISBN 978-0-521-11460-8 Hardback The publisher has used its best endeavours to ensure that the URLs for external websites referred to in this book are correct and active at the time of going to press. However, the publisher has no responsibility for the websites and can make no guarantee that a site will remain live or that the content is or will remain appropriate.

CONTENTS

Notes on contributors page vii Acknowledgements xiii Introduction

1

pa rt i International economic law: conceptions of convergence and divergence 1

5

The end of the globalization debate: continued 7 robert howse

2

Global economic institutions and the autonomy of development policy: a pluralist approach 22 yuka fukunaga

3

Fragmentation, openness and hegemony: adjudication and the WTO 44 jason beckett

pa rt i i WTO treaty interpretation: implications and consequences 71 4

Demanding perfection: private food standards and the SPS Agreement 73 tracey epps

5

Eroding national autonomy from the TRIPS Agreement 99 susy frankel

6

The WTO and RTAs: a ‘bottom-up’ interpretation of RTAs’ autonomy over WTO law 116 alberta fabbricotti

v

vi

Contents

7

‘Gambling’ with sovereignty: complying with international obligations or upholding national autonomy 141 henning grosse ruse-khan

pa rt i i i Responding to international economic law commitments 8

167

Safety standards and indigenous products: what role for traditional knowledge? 169 meredith kolsky lewis

9

The GATS and temporary migration policy 193 rafael leal-arcas

10

A different approach to the external trade requirement of GATT Article XXIV: assessing ‘other regulations of commerce’ in the context of EU enlargement and its heightened regulatory standards 216 pinar artiran

pa rt i v Transformations in international economic law 241 11

Foreign investors vs sovereign states: towards a global framework, BIT by BIT 243 ko-yung tung

12

How ‘trade in services’ transforms the regulation of temporary migration for remittances in poor countries jane kelsey

13

Reconceptualising international investment law: bringing the public interest into private business 295 kate miles

Index

320

269

CONTRIBUTORS

p i na r a rt i r a n is currently a lecturer in European & International Economic Law at Istanbul Bilgi University Faculty of Law and European Institute. She graduated from Ankara University Faculty of Law and practised as an attorney-at-law in Ankara in the field of international arbitration. She then completed master’s studies on European Law at the College of Europe in Bruges. She was also awarded the Jean Monnet Scholarship by the European Commission to undertake further postgraduate studies in Europe. Th is was followed by doctoral studies at the European University Institute (EUI) in Florence where she completed her PhD on regional trade agreements and the interpretation of GATT Article XXIV. Pinar has worked for the Academy of European Law at the EUI and has spent periods as a visiting research scholar at the University of Michigan Law School, as a trainee at the European Commission in Brussels, and as an intern at the Appellate Body Secretariat of the WTO in Geneva. She also acts as a consultant to the WTO. Her research interests lie in the fields of International and European Economic law and development. jason beck et t studied at the University of Dundee and the University of Glasgow, and now lectures at the University of Leicester. His research and teaching interests lie predominantly in the areas of legal and political theory, with a particular focus on Critical Legal Theory; Fragmentation in International Law; and the (Im)Possibility of Justice, Universality, or Humanity. A reformed Legal Positivist, who has lost his faith in the eschatological escape of the (International) Community (Interest), and thus the possibility of success in the pursuit of justice, Jason’s recent publications and conference papers have struggled with the question of how to proceed, politically, in the face of the absence of universality, neutrality, or justice (The Death of God). These works are based in a series of contrasts and continuities between the works of Michel Foucault, Martti Koskenniemi, Gillian Rose, and Carl Schmitt. vii

viii

Notes on contributors

t r ac e y e p p s is a Senior Trade Law Advisor at the New Zealand Ministry of Foreign Affairs and Trade. She has an LLM and an SJD from the University of Toronto. She was previously a lecturer in the Faculty of Law at the University of Otago where she taught international trade regulation and international investment law. She remains associated with the University of Otago through teaching a summer school programme in international trade regulation. In 2008, she published International Trade and Health Protection: A Critical Analysis of the WTO’s Sanitary and Phytosanitary Agreement. Together with Professor Andrew Green of the University of Toronto, she is currently working on a book examining the complex and important linkages between the international climate change regime and international trade rules. She has also recently written on issues relating to import product safety regulation, private product standards, and standard of review under the SPS Agreement. a l be rta fa bbr ic o t t i is Researcher in International and European Law at La Sapienza University, Rome. She is a Member of the Teaching Staff Council of La Sapienza University for the doctorate in International Law and European Law. Alberta teaches International Trade Law at the University of Camerino, Italy. Alberta holds a PhD in Public International Law from La Sapienza University (1996). She is the author of many articles and other essays in the fields of international economic law, international protection of human rights, immigration and refugee law. In 2009 she published a book on the WTO-RTA legal relationship (in Italian). Her most recent publication is a commentary on GATT Articles XXVI to XXVIIIbis, in Max Planck Commentaries on World Trade Law, Volume 5 – Trade in Goods (forthcoming). susy fr a n k e l is Professor of Law at Victoria University of Wellington and is a Co-Director of the New Zealand Centre of International Economic Law. Susy’s main research and teaching interests are in intellectual property law and international trade law. Susy has practised law in New Zealand and London. Susy holds an LLM in Intellectual Property from the University of London. She is a member of the Editorial Board of the Journal of World Intellectual Property Law. In addition to her position at the university, Susy is the Chair of the New Zealand Copyright Tribunal and an Assistant Commissioner of Trade Marks, Patents and Designs for the Intellectual Property Office of

Notes on contributors

ix

New Zealand. Susy is consultant expert to the Waitangi Tribunal on the WAI 262 flora, fauna and cultural intellectual property claim. y u k a f u k u nag a is an Associate Professor at Waseda University. She publishes in the field of international economic law. Her interests include trade remedies and the WTO dispute settlement system. She holds an LLM from the University of Tokyo and an LLM from the University of California, Berkeley. She previously served as an intern at the WTO Appellate Body Secretariat. h en n i ng gros se ruse-k h a n is a research fellow at the Max Planck Institute for Intellectual Property, Competition and Tax Law in Munich (Germany). He previously worked as a Lecturer in International Trade Law at the University of Leicester (United Kingdom). His research and teaching focuses on international intellectual property protection and development issues, law and organisation of the WTO as well as other issues of international economic law. In addition to a monograph on international intellectual property for databases, Henning has published widely in peer-reviewed international academic journals, NGO policy papers and research handbooks. He teaches at the Ludwig Maximilian University of Munich (LMU), the International Max Planck Research School for Competition and Innovation (IMPRS CI), and at the Centre for International Intellectual Property Studies (CEIPI, Strasbourg). He is executive Editor of the International Review of Intellectual Property and Competition Law (IIC) for the Commonwealth region. Henning has also acted as a visiting scholar on WTO, International Trade and Intellectual Property Law at the International Islamic University in Islamabad, Pakistan (2004–2005) and at the University of Frankfurt, Frankfurt am Main, Germany (2007). robe rt howse is the Lloyd C. Nelson Professor of International Law at NYU School of Law. Professor Howse received his BA in philosophy and political science with high distinction, as well as an LLB, with honours, from the University of Toronto, where he was co-editor in chief of the Law Review. He also holds an LLM from Harvard Law School. He has been a visiting professor at Harvard Law School, Tel Aviv University, Hebrew University of Jerusalem, the University of Paris 1 (Pantheon-Sorbonne), Tsinghua University, and Osgoode Hall Law School in Canada and has taught in the Academy of European Law, European University Institute, Florence. Since 2000, Professor

x

Notes on contributors

Howse has been a member of the faculty of the World Trade Institute, Berne, Masters in International Law and Economics Programme. He is a frequent consultant or adviser to government agencies and international organisations such as the OECD, the World Bank, UNCTAD, the Inter-American Development Bank, the Law Commission of Canada and the UN Office of the High Commissioner for Human Rights. He is a contributor to the American Law Institute project on WTO Law. He has acted as a consultant to the investor’s counsel in several NAFTA investor-state arbitrations. He is a core team member of the Renewable Energy and International Law (REIL) project, a private/public partnership that includes, among others, Yale University, the law firm of Baker & McKenzie and the investment bank Climate Change Capital. Professor Howse serves on the editorial advisory boards of the European Journal of International Law and Legal Issues in Economic Integration. He is sub-series editor for the series Commentaries on the WTO treaties. He is the author, co-author, or co-editor of six books: Trade and Transitions; Economic Union, Social Justice, and Constitutional Reform; The Regulation of International Trade; Yugoslavia, the Former and Future; The World Trading System; and The Federal Vision: Legitimacy and Levels of Governance in the EU and the U.S. ja n e k e l se y is Professor of Law at the University of Auckland. She specialises in the political economy of law and policy, including international economic regulation. Her most recent book Serving Whose Interests? The Political Economy of Trade in Services Agreements was published in 2008. She has a PhD in Law from the University of Auckland. r a fa e l l e a l -a rc a s is Senior Lecturer in International Economic Law and European Union Law at Queen Mary University of London (Centre for Commercial Law Studies, School of Law). Rafael completed his graduate legal education at Stanford Law School, Columbia Law School, the London School of Economics, and the European University Institute. Rafael has authored more than 50 scholarly publications on international trade and WTO law, international environmental law, EU law, international investment law, and the interaction among them, including the books International Trade and Investment Law: Multilateral, Regional and Bilateral Governance (2010) and Theory and Practice of EC External Trade Law

Notes on contributors

xi

and Policy (2008). Rafael is a qualified attorney in Madrid. He has previously taught at the Academy of WTO Law and Policy of Georgetown University Law Center (Washington, DC), acted as a consultant to the World Trade Organization’s legal affairs division, served in the United States Court of International Trade, and clerked at the European Court of Justice of the European Communities. m e r e di t h kol s k y l e w i s is a Senior Lecturer in the Victoria University of Wellington Law Faculty and is Co-Director of the New Zealand Centre of International Economic Law (NZCIEL). She received her BA from Northwestern University and her Juris Doctor and Masters of Science degrees from Georgetown University. Prior to joining Victoria University of Wellington, Meredith was a senior associate practising litigation and international trade with Shearman & Sterling LLP in Washington DC and Tokyo. Meredith is the New Zealand alternate member of the International Trade Law Committee of the International Law Association; a Founding Executive Committee member and currently Executive Vice President of the Society of International Economic Law; and a member of the Asian WTO Research Network. She has provided trade-related technical assistance in both Vietnam and Indonesia, and has provided training on various WTO issues for the New Zealand Ministry of Foreign Affairs and Trade. She is a past Editor-in-Chief of the New Zealand Journal of Public and International Law. Meredith has published articles and chapters on a wide range of international economic law subjects. In addition, she is co-author of the textbook International Business Law. Meredith will be a visiting Professor at Georgetown Law for the 2010–2011 academic year. k at e m i l e s is a Lecturer in International Law at the Faculty of Law, University of Sydney, specialising in international investment law and international environmental law. She has an LLM in Environmental Law (Hons I) from the University of Auckland, New Zealand, and an LLM in International Legal Studies from NYU School of Law. She is a Legal Research Fellow with the Centre for International Sustainable Development Law, Montreal, Canada, and a participant in the Geneva-based UNCTAD Expert Group on International Investment Agreements. She is a member of the International Law AssociationAustralian Branch and serves on the ILA Study Group on the Role of Soft Law Instruments in International Investment Law. She has also

xii

Notes on contributors

practised in leading commercial law firms in Auckland and Sydney, including at Allens Arthur Robinson in Sydney. ko -y u ng t u ng is Senior Counselor resident in Morrison & Foerster’s New York office. He counsels sovereign governments as well as multinational corporations. In addition, he is a Visiting Lecturer at Yale Law School. Mr Tung served as Vice President and General Counsel of the World Bank (1999–2003) and as Secretary General of the International Centre for the Settlement of Investment Disputes (ICSID) (2000– 2003). Mr Tung has also held a number of other high-level appointments, including as a member of the Presidential Commission on United States Pacific Trade and Investment Policy and the East-West Center Board of Governors, of which he was Chairman. Mr Tung currently serves as a board member of non-governmental organisations and academic centers, including The Morin Center for Banking and Financial Law at Boston University Law School; The London Forum of Economic Law and Development of the University of London; Human Rights Watch-Asia; and Asian American Legal Defense and Education Fund. He is also a member of the Council on Foreign Relations and the American Law Institute. He has also been a member of the Trilateral Commission, and on the board of the International Development Law Organization in Rome and Transparency International-USA. Mr Tung was born in Beijing, China, and raised in Tokyo, Japan. Graduating Phi Beta Kappa, Mr Tung received his BA, magna cum laude, from Harvard University in 1969, and his JD from Harvard Law School in 1973. He was also a Fellow at the Faculty of Law, University of Tokyo. Mr Tung is admitted to practise law in New York and before the United States Supreme Court.

AC K NOW L E D GE M E N T S

As Co-Directors of the New Zealand Centre of International Economic Law (NZCIEL), we were delighted with the success of our inaugural conference. In order to facilitate additional events of this calibre, we have pledged to donate all royalties from this publication to the research activities of the NZCIEL. We are grateful to Jessica Lai and Michelle Limenta for their editorial assistance.

xiii

" Introduction

The multiplicity of commitments resulting from the World Trade Organization (WTO), free trade agreements (FTAs), bilateral investment treaties and other agreements has increasingly complicated the nature of national obligations. The World Bank and IMF further impinge on national autonomy by imposing a variety of conditions on loans and other forms of funding. All of these treaty obligations impact on governments’ ability to exercise complete autonomy in the establishing and administering of national policy objectives. In particular, the rules and decisions arising from these international agreements and financial institutions result in limitations on countries’ ability to make a wide range of regulatory decisions, including those relating to health, environment, immigration and other issues of national importance. Until relatively recently, these types of regulatory matters were regarded as policies almost exclusively to be determined by sovereign nations. At the same time that international agreements pose constraints on national regulatory autonomy, there remains considerable national autonomy in relation to how to comply with the variety of obligations the agreements impose. Th is tension between international cooperation and autonomy to act in the national interest is the core theme running through this collection. The complex interplay between international economic law and national autonomy presents such a variety of interesting legal issues that we decided to make this the theme of the inaugural conference of the New Zealand Centre of International Economic Law (NZCIEL). The conference, held in December 2007 in Wellington, New Zealand, featured presentations addressing the theme through a wide range of international economic law lenses, including but not limited to international trade, intellectual property, international investment and international development. The chapters comprising this volume are based on the papers and presentations delivered at that conference. Reflecting the diverse nature of the conference, our contributors hail from institutions based in eight countries and on four continents. The contributions reflect not only 1

2

Introduction

the diversity of view that comes from different cultural backgrounds, but a wide range of substantive expertise. The thirteen chapters delve into the theme of international economic law and national autonomy from different substantive and philosophical perspectives. Coverage ranges from the WTO to the World Bank to international investment law. Within the WTO, submissions address topics that span across the goods, services and intellectual property pillars of the organisation, and approaches ranging from theoretical critique to detailed treaty interpretation. The contributions featured here are organized into four parts: International economic law: conceptions of convergence and divergence; WTO treaty interpretation: implications and consequences; Responding to international economic law commitments; and Transformations in international economic law. In the opening part, Professor Robert Howse builds on his keynote address to the conference by exploring ‘The end of the globalization debate: continued’. The core theme in this chapter is that even the antiglobalists have gone global and that the debate is not so much about globalization as a good or evil, but rather how countries have worked with globalization to achieve their national interests. Professor Howse’s chapter brings together many of the themes running through the rest of the volume, as he explores concepts of integration and fragmentation, and ultimately responds to the national autonomy question posed by the conference, by determining that the answer is neither convergence nor divergence. Associate Professor Yuka Fukunaga examines the theoretical bases behind proposals to reduce the ‘democratic deficit’ and ‘economic bias’ associated with global economic institutions (GEIs) such as the WTO, World Bank and IMF in ‘Global economic institutions and the autonomy of development policy: a pluralist approach’. Associate Professor Fukunaga critiques these assumptions, and goes on to propose an alternate, pluralist approach to the global legal order. Lastly, Dr Jason Beckett provides a theoretical challenge to recent scholarship in his contribution, ‘Fragmentation, openness and hegemony: adjudication and the WTO’, critiquing the assumptions and theoretical underpinnings of much of the contemporary writing on fragmentation and coherence. In Part II, the authors address diverse aspects of WTO treaty interpretation and the resulting implications for national autonomy. In ‘Demanding perfection: private food standards and the SPS Agreement’, Dr Tracey Epps focuses on the interplay between WTO rules on the one hand and the setting of food and other product standards by private entities on the other. She cautions that private food safety standards have the potential

Introduction

3

to undermine the SPS Agreement’s trade liberalization and transparency objectives, among other concerns. Professor Susy Frankel discusses the structure and objectives of the TRIPS Agreement that require Members of the WTO to enact minimum standards of intellectual property protection into their domestic law in her chapter, ‘Eroding national autonomy from the TRIPS Agreement’. She argues that national autonomy is a structural feature of the TRIPS Agreement, and of many other international intellectual property agreements, but that the parties to the TRIPS Agreement choose to reduce that autonomy by negotiating more detailed intellectual property protection in other international fora. In ‘The WTO and RTAs: a “bottom-up” interpretation of RTAs’ autonomy over WTO law’, Dr Alberta Fabbricotti proffers a novel, bottom-up approach to interpreting Article XXIV of the General Agreement on Tariffs and Trade (GATT), contending that RTAs could be argued to have autonomy over WTO law in the form of tacit acceptance of an international custom, instead of simply as non-compliant behaviour in the context of the WTO legal regime. Part II concludes with Dr Henning Grosse Ruse-Khan’s chapter ‘“Gambling” with sovereignty: complying with international obligations or upholding national autonomy’, which uses the dispute between the United States and Antigua over the supply of online gambling services to explore the apparent conflict between complying with recommendations of the WTO Dispute Settlement Body and maintaining national autonomy over local regulations. The chapter uses the gambling case to analyse the efficiency of the dispute settlement system through examination of compliance issues implicated by the dispute. Part III highlights how countries have responded to or should respond to certain international economic law obligations and frameworks, and the effects and implications of these responses. Meredith Kolsky Lewis’s chapter, ‘Safety standards and indigenous products: what role for traditional knowledge?’, addresses whether the SPS Agreement provides WTO Members with too much regulatory autonomy in the context of restrictions on trade in indigenous products with a long history of traditional use. She suggests that the concept of traditional knowledge could be extended from its usual intellectual property context to assist in developing a more balanced framework for assessing the safety of indigenous products. Dr Rafael Leal-Arcas examines the issue of immigration policy in the context of the General Agreement on Trade in Services in his chapter, ‘The GATS and temporary migration policy’. He discusses the dichotomy whereby Mode 4 (temporary migration) of the GATS is currently subject to strict domestic regulations and limitations within the

4

Introduction

European Union, yet it is simultaneously widely recognized within the EU that immigration is a necessary element to enhancing competitiveness in a knowledge-based society. Finally, Dr Pinar Artiran’s chapter, ‘A different approach to the external trade requirement of GATT Article XXIV: assessing “other regulations of commerce” in the context of EU enlargement and its heightened regulatory standards’, identifies interpretive difficulties within GATT Article XXIV and the tensions these introduce into the relationship between multilateralism and regional integration. The book concludes in Part IV with three authors who identify transformative patterns in international economic law. Ko-Yung Tung utilizes his expertise as former Vice President and General Counsel of the World Bank to assess the ways in which globalization has fundamentally transformed foreign investments, and to demonstrate the tension between international norms and domestic regulatory issues, in ‘Foreign investors vs sovereign states: towards a global framework, BIT by BIT’. Professor Jane Kelsey delivers the type of critique for which she is best known, in her chapter ‘How “trade in services” transforms the regulation of temporary migration for remittances in poor countries’. Professor Kelsey argues that the WTO General Agreement on Trade in Services (GATS) has effected a regulatory transformation whereby services have been transformed from their previous – primarily social – dimension, into a form of commodity that is exchanged in international markets, with negative effects for temporary migrant workers. Last but not least, in ‘Reconceptualising international investment law: bringing the public interest into private business’, Kate Miles argues that international investment law is out of step with other areas of international law in that it has been far slower to incorporate societal considerations such as the public interest, and proposes procedural and substantive steps to rectify this disconnect.

PA RT I International economic law: conceptions of convergence and divergence

1 The end of the globalization debate: continued Robert Howse

I

Introduction

This brief essay pursues a line of argument that I deployed in a review article in the Harvard Law Review,1 discussing several important recent books about globalization.2 The thesis is that there is no longer a meaningful or important debate for or against globalization because the antiglobalizers have themselves gone global. In various sites of global law and policy-making, including those at the interstices of the global and local (as will be explained), the anti-globalizers actually found processes and institutions where, unlike the case with the ‘state’ in many instances, they could air their criticisms of policies and express their values as global values. Despite the continuing rhetoric and polemics regarding the promotion of globalization, there is no longer an anti-globalization ‘side’ in the debate, coherently representing the position that the territorial nation-state is and should remain the locus of control over economic activity and that it should retain a monopoly on legitimate governance. Today the protesters who march against ‘globalization’ are not marching in favor of the ‘state’. Instead, they are, mostly, advocating a set of values and causes that transcend state boundaries and that require global action. Anthony Giddens anticipated, at the beginning of this century, that the debate would re-focus as a debate about globalization, rather than whether globalization should take place (as I learned after writing

1

2

R. Howse, ‘The End of the Globalization Debate: A Review Essay’, Harvard Law Review, 121 (2008) 1528. These are R. Abdelal, Capital Rules: The Construction of Global Finance (Harvard University Press, 2007); J. Bhagwati, In Defense of Globalization, 2nd edn (Oxford University Press, 2007); J. Frieden, Global Capitalism: Its Fall and Rise in the Twentieth Century (New York, W. W. Norton & Company, 2006); S. Sassen, Territory, Authority, Rights: From Medieval to Global Assemblages (Princeton University Press, 2006); J. Stiglitz, Making Globalization Work (New York, W. W. Norton & Company, 2006).

7

8

Robert Howse

my Harvard essay). In an interview in 2000, he suggested that the second globalization debate would be: about what globalization is, what its consequences are, and what kind of framework we can develop for the world to accommodate it. It’s plainly had a lot of positive developments in producing a more interdependent world. We have to learn to harness those things, and we have to shift away from the kinds of political positions that were dominant for the last few years, and we have to produce a politics which allows us to create an inclusive society locally, nationally, and globally, and to harness these processes for the betterment of human beings.3

II The origins of the anti-globalization movement and the original globalization debate A wide range of meanings of globalization is reflected in a recent definition by the philosopher Jurgen Habermas: ‘by “globalization” is meant the cumulative processes of a worldwide expansion of trade and production, commodity and financial markets, fashions, the media and computer programs, news and communications networks, transportation systems and flows of migration, the risks generated by large-scale technology, environmental damage and epidemics, as well as organized crime and terrorism.’4 (However, Habermas leaves out of his definition the globalization of law: this reflects the general assumption, quite likely incorrect, or at least too simplistic, that the law’s role is to react to globalization as a given force and that law has not itself been an element in that force.)5 In much popular discourse, globalization is considerably more than something that explains and begs to be explained at the same time: it is a magnet for a range of deeply felt hopes and fears, and still produces intense polemics ‘for’ and ‘against’. Many of us, though, can feel both a sense of loss and disorientation from the collapse or erosion of familiar structures, fixed within the territorial nation-state model of human organization, and exhilaration at the new possibilities of connectedness and human flourishing. This complex or ambivalent reaction may be a good starting point for a more reflective take on globalization, one that does not try simply to 3

4 5

‘The Second Globalization Debate: A Talk With Anthony Giddens’, Edge, (30 January 2000), available at www.edge.org/3rd_culture/giddens/giddens_index.html (accessed 11 August 2009). J. Habermas, The Divided West (Cambridge, Polity Press, 2006), p. 175. For a complex and subtle view on the relation of globalization to law, see S. Cassesse, ‘The Globalization of Law’, New York Journal of International Law and Politics, 37 (2005) 973.

The end of the globalization debate: continued

9

soar above the passions and the polemics, rather to see, in Tocqueville’s image, not differently than the parties in the debate, but farther. At least a decade before the end of the Cold War, the old struggle between right and left over the governance of the economy and the redistribution of wealth within the advanced liberal democracies had, significantly, yielded to a new attitude: the center-left, especially its elite elements, embraced many of the center-right critiques of the post-war regulatory and welfare state as inefficient, wasteful and dependency-inducing. As well, the center-left shifted away from support for trade protectionism and capital controls as instruments of progressive governance that ensured the state’s ability to maintain a stable and fair social contract with business, labor and the disadvantaged.6 The center-left sought to pursue traditional progressive values through a more economically liberal (in the sense of pro-free-market) approach to governance of the economy.7 The regulatory reforms of the Carter administration in the United States, the agenda of New Labour under Tony Blair in the United Kingdom and the restructurings of the welfare state in the Netherlands and Denmark are examples of cases where a basically progressive political movement or national political culture turned towards the market as understood by the economic right, but claimed to hold to progressive values all the same.8 The End of the Cold War – often referred to as the death of communism – seemed to consecrate the notion that the ideological struggle about the relationship between state and market was over: both domestically and globally, market liberalism had triumphed. Of course, the regulatory and welfare state remained, but debate about its future direction could no longer be inspired by sources or approaches at odds with the idea of a large sphere of (mostly) free play for markets, domestic and global. The most explicit, and some would say simplistic, articulation of this triumph of market liberalism was Francis Fukuyama’s ‘end of history’ idea, which suggested that, after the Cold War, states were left with no rationally defensive alternative to (what was largely) the American variant of global capitalism.9 As is well summarized by 6

7

8

9

See generally R. Howse, J. Robert, S. Prichard and M. J. Trebilcock, ‘Smaller or Smarter Government?’, University of Toronto Law Journal, 40 (1990) 305. See, for example, the various contributions in J. LeGrand and P. Robinson (eds.), Privatization and the Welfare State (London, Allen and Unwin, 1984), especially, D. Donnison, ‘The Progressive Potential of Privatization’, p. 45. See R. Howse, ‘From Politics to Technocracy – and Back Again: The Fate of the Multilateral Trading Regime’, American Journal of International Law, 96 (2002) 94, pp. 101–2. F. Fukuyama, ‘The End of History?’, The National Interest (Summer 1989).

10

Robert Howse

Frieden in Global Capitalism, there was an extraordinary new consensus in favor of economic liberalization and open markets: Between 1979 and 1985 the advanced industrial countries turned from the conflict and confusion of the 1970s to financial orthodoxy and economic integration. Starting around 1985, the developing countries left fi ft y years of import substitution behind and moved aggressively to export, open their markets, privatize, and deregulate. The socialist economies (other than China and Vietnam) came last, after 1990, but they gave up central planning and moved to war capitalism at speeds varying from rapid to breakneck.10

Frieden rightly emphasizes that domestic economic liberalism was inextricably intertwined with openness to globalization. The complex domestic and global forces that led to a shift within the political center, and indeed the center-left , towards market liberalism were such as to elude a single ‘site’ or institutional or party setting, in which a movement could unite those discontented with or skeptical of such a shift. In these circumstances, the discontents had to coalesce as a new counterculture, inspired by and adapted from that of the 60s protest movements.11 Since the center-left that betrayed them at least claimed to share their progressive values, the discontents could not make the center-left governments and their advisers and political base the explicit target; plunging into the complexity of the domestic debates over the redesign of the regulatory and welfare state did not work for the discontents; they found that they were alienated – part of an older progressive culture (even if some were younger in years) at odds with the newer technocratic, pragmatic policy culture of the center-left, the latter being more internationalist than nationalist, more inspired by sophisticated managerial and economic ideas than by traditions of worker solidarity and civil protest, more awed and impressed than worried by technology and the increasing velocity, mobility and mutability of modern life. The discontents were deprived of a clear enemy ‘within’ against which to unite; and, as suggested, they were awkward in inserting themselves into complex and technical debates about governance of the modern economy. Being at odds with the ascendant center-left policy culture, it

10 11

Frieden, supra, note 2, p. 378. E. Yuen, ‘Introduction’ in E. Yuen, G. Katsiaficas and D. B. Rose (eds.), The Battle of Seattle: The New Challenge to Capitalist Globalization (New York, Soft Skull Press, 2001), p. 7.

The end of the globalization debate: continued

11

is understandable that they chose ‘globalization’ as the target. It could be seen as an impersonal and distant force (allowing one to forget the origins of many of the discontents in confl icts within the progressive movement and center-left parties themselves) and at another level a set of choices by a technocratic elite within secretive and clubbish networks, public and private – an elite with a supposedly coherent marketliberal ideology and an indifference to, if not contempt for, democracy as grassroots politics.12 The anti-globalization movement understood itself as defending the traditional (progressive regulatory and social welfare) state against ‘globalization’.13 And there, thus, arose a great and intense debate about whether ‘globalization’ was good or bad, inevitable or resistible in relation to the ideal of the progressive democratic state. This debate (which was both fueled and frustrated at the same time by the deep ambiguity about what globalization was – a kind of diabolical external force or a set of contestable choices by detestable people) is now, for better or worse, over.

Why the globalization debate is over (or, at least, the first globalization debate)14 There are at least six reasons why ‘globalization vs. anti-globalization’ turns out not to capture what is at stake. First of all, the state itself has been reshaped in important ways, partly due to globalization alone and partly for other reasons. Strengthening of the executive power in relation to the legislative is one dimension of this, but even within the executive there is a redistribution of power between different ministries. As Saskia Sassen observes, power has been redistributed within the state towards the executive and, within the executive, towards those agencies most congenial to economic liberal values and agendas (finance ministries) and away from those traditionally responsive to progressive constituencies such as labor ministries.15 As she

12

13

14 15

For a look at globalization from the more traditional anti-globalization perspective, see, for example, H. Veltmeyer (ed.), Globalization and Antiglobalization – Dynamics of Change in the New World Order (Burlington, VT, Ashgate Publishing Limited, 2004). For an anti-globalization perspective on the Seattle Protests, see Yuen et al., supra, note 11. For a clear illustration of such an understanding, see, for example, M. Barlow and B. Campbell, Take Back the Nation (Toronto, Key Porter Books, 1992). See Howse, ‘The End of the Globalization Debate: A Review Essay’, supra, note 1. Sassen, supra, note 2, p. 168ff.

12

Robert Howse

suggests, the globalization debate tended to focus on whether the state was weakened or weakening itself by globalizing. Instead, the real issue is how the state has been remade and reordered, and the resulting degree of tractability of the new or emerging state and its institutions to the underlying normative agenda of the anti-globalizers. According to Sassen, ‘the increased complexity and technicality of the economy, whether national or global, is a key factor in the internal state redistribution of power’.16 The state in many respects does not appear to retain its character as a secure repository of values such as democracy and distributive justice.17 In consequence, at least if it is taken for progressive motivations, the classic or original anti-globalization position that the state should not cede power to global market forces, or that it should take back that power, makes little sense. Indeed, as just explained, in some respects the anti-globalization movement arose from disappointment from what was done to the state by the new center and center-left political elite, and frustration in the face of efforts of the discontents to insert themselves effectively in the new domestic politics. Second, some of the most pressing problems of concern today to people who still identify themselves with the anti-globalization movement are problems that could not have been solved by strong individual nation-states’ uncoordinated exercise of sovereignty. The most obvious and obviously serious is climate change; another example is biodiversity.18 A national interest model of sovereign regulation, where the state is free to regulate to satisfy the balance of diverse constituencies within its borders without regard to external effects, is unable to yield a solution to these global commons problems. While economic globalization has arguably exacerbated the problems by driving rapid industrial growth in the developing world, this very same growth has indisputably taken millions of people out of poverty, even if it has increased inequality and created new social tensions in some countries. In these circumstances, only a fair global governance system to address climate change, which establishes principles to determine the just contribution of each national 16 17

18

Ibid., p. 171. I wish to emphasize that I do not here mean to subscribe to the fatalistic position of, for instance, Thomas Friedman (The Earth is Flat [New York, Farrar, Straus & Giroux, 2005]), that the state simply has no choice but to yield to globalization; the state can remain an effective actor, and agent of progressive values, but only by itself working alongside global actors, including non-state actors and in important ways at the global level. See generally, C. Bail, R. Falkner and H. Marquard (eds.), The Cartagena Protocol on Biosafety: Reconciling Trade in Biotechnology with Environment & Development? (London, Earthscan Publishing and Royal Institute of International Affairs, 2002).

The end of the globalization debate: continued

13

community to the problem, can vindicate the underlying balance of relevant values.19 Th ird, the demands that those associated with an ‘anti-globalization’ position are placing on the state often now have less to do with the classic role for the state in the protection of its own citizens and internal wealth redistribution, and instead relate to the projection of the power of the state outside its boundaries, often to pressure or discipline other states that are unwilling to have their own policies reflect the values in question. Th is is nowhere more evident than in how the debate concerning the relationship between environmental and labor standards and globalization has evolved.20 Traditionally, the ‘anti-globalization’ position was strongly focused on the problem of a ‘race to the bottom’ – with mobility of goods, services and capital globally, the ability of the state to maintain strong domestic environmental and labor standards was thought to be threatened by the capacity to move production to jurisdictions with lower standards, or those prepared to lower their standards in order to attract investment and make their goods and services more competitive in global markets.21 Within this frame, the concern of the anti-globalizers with other countries’ standards was directly related to the concern about the loss of capacity of the state to protect domestic interests in the face of global competition and the purported race to the bottom. The emphasis has now shifted towards a concern to vindicating environmental protection and labor rights as global values in the presence of regimes that appear not to care about them; major campaigns have led to the use of economic sanctions against, for instance, regimes such as Burma, where the concern is evidently not any competitivenessbased threat to domestic standards in the sanctioning countries. Once one recognizes the shift in question, one realizes that economic globalization is a premise of, not a threat to, the kind of action that the supposed ‘anti-globalizers’ are demanding of the state: for without high degrees of global economic interdependence, the use of trade or other economic sanctions to pressure countries to conform to global values would be much less plausible. 19

20

21

See International Task Force on Global Public Goods, ‘Meeting Global Challenges: International Cooperation in the National Interest’, Final Report, (2006), pp. 39–42. See R. Howse and M. J. Trebilcock, ‘The Free Trade-Fair Trade Debate: Trade, Labor and the Environment’ in A. O. Sykes and J. S. Bhandari (eds.), Economic Dimensions in International Law (Cambridge University Press, 1995), p. 186. R. Howse, ‘From Politics to Technocracy – and Back Again’, supra, note 8, p. 103.

14

Robert Howse

Fourth, as is illustrated by this last observation, there is a growing awareness of the complex effects of globalization on the realization of the values of those constituencies identified or self-identified as antiglobalizers. We are faced with fundamental indeterminacy and, arguably, the impossibility of creating a comprehensive ledger or balance sheet, a kind of futility in making a general claim that ‘globalization’ is overall good or bad, benign or malign, in relation to the relevant values or goals. It also seems like such an accounting would be premature. The fift h point has precisely to do with the very phenomenon of ‘global values’. The classic debate between globalization and anti-globalization largely assumed that the nation-state was the repository of legitimacy. Thus, the question was whether economic globalization threatened or unduly constrained the legitimate, democratic choices made in and by the nation-state. Yet, while the democratic deficit remains an important sub-theme in discussions about globalization, the legitimacy of the claims of the purported ‘anti-globalizers’ increasingly sounds not in the democratic self-determination of national communities, but in values and norms thought to belong to or inhere in the global ‘community’ itself, often reflected in multilateral regimes of international law, whether environmental treaties such as Kyoto,22 biodiversity regimes such as Rio and Cartagena, 23 the ILO declaration on core labor rights24 or the UN covenants on human rights.25 The invocation of such norms depends, at least implicitly, on a shift in the scale or scope of moral concern beyond the boundaries of the territorial nation-state. In these circumstances, a defense of state sovereignty against globalization makes little sense. Often, what one ends up defending is the capacity of the state to advance global values and, as already suggested, this may include its capacity to affect or influence decisions of other states that would traditionally have been understood as ‘sovereign’ choices. And here, as noted, globalization in important ways may enhance capacity in this last sense. Sixth and lastly, and perhaps this flows logically from the idea of global values, the purported ‘anti-globalization’ movement has constituted 22

23

24

25

Kyoto Protocol to the United Nations Framework Convention on Climate Change (UN Doc. FCCC/CP/1997/7/Add.1, 1997); (1998) 37 ILM 22 (10 December 1997). Rio Convention on Biological Diversity, 1760 UNTS 79 (5 June 2002); and Cartagena Protocol on Biosafety to the Convention on Biological Diversity (2000) 39 ILM 1027 (29 January 2000). ILO Declaration on Fundamental Principles and Rights at Work (1998) 37 ILM 1237 (19 June 1998). Universal Declaration of Human Rights (UN Doc. A/810 at 71, 1948), GA Res. 217A (III) (10 December 1948).

The end of the globalization debate: continued

15

itself on a global scale and has learned to operate in global sites of power, whether the WTO in Geneva or the World Bank in Washington, DC. Yet, the original method of organizing resistance to ‘globalization’ entailed mobilizing nationalistic sentiment and internal constituencies, such as unionized workers in particularly vulnerable industries and locales or recipients of social assistance or cultural subsidies, in other words, groups traditionally dependent upon state protection. This has given way to the formation of global networks of activists who intervene in struggles surrounding the terms of economic and social life in communities throughout the world, engaging and linking constituencies in different locales, even if there remain elements of cultural nationalism and communitarian rhetoric in some anti-globalization quarters.

III The end of the globalization debate thesis reconsidered: new or revived challenges to globalization The above claims have been tested both by some private responses to my Harvard essay as well as by events and tendencies remarked on by many commentators. One set of responses suggested that I ignored the various incarnations of localism as a challenge to globalization as such, not merely to the modalities and values of particular versions of globalization.26 The main philosophies of localism, such as those of Serge LaTouche and Vandana Shiva, stress local self-sufficiency in agricultural (and perhaps industrial) production as an alternative to global economic integration. According to Shiva, ‘localization of economies is a social and ecological imperative. Only goods and services that cannot be produced locally – using local resources and local knowledge – should be produced nonlocally and traded long distance.’27 Further, ‘Earth Democracy is based on local democracy, with local communities – organized on principles of inclusion, diversity, and ecological and social responsibility having the highest authority on decisions related to the environment and natural resources and to the sustenance and livelihoods of people. Authority is delegated to more distant levels of governments on the principle of subsidiarity.’28 26 27

28

These were personal responses by people in emails, not published responses. V. Shiva, Earth Democracy: Justice, Sustainability, and Peace (Cambridge, MA, South End Press, 2005), p. 10. Ibid., pp. 10–11.

16

Robert Howse

A careful examination of these principles and their practical implications suggests that in fact Shiva’s Earth Democracy presupposes globalization – indeed, an advanced stage of globalization. First of all, at the normative level, Shiva’s localism is in fact derived, not from a closed tradition or a particular indigenous cultural heritage, or a Heideggerean rejection of the universal in favor of the soil, the roots, but is itself premised on ‘the ground of our common humanity’ and a set of rights for everyone. Democracy itself is not the will of a particular people or culture but is relativized by the universal and universalizing notions of diversity and, above all, inclusion. The global circulation of ideas and values is crucial to Shiva’s project: ‘Earth Democracy globalizes compassion, justice and sustainability.’29 At the empirical level, it is important to remember that localism was, historically, undermined in the first instance not by globalization but by the project of the modern nation-state.30 To the extent, as suggested above, that globalization has gone hand in hand with the weakening of the nation-state’s claim as the supreme or even exclusive source of legitimate governance or rule, and its capacity to stake this claim, arguably globalization has actually assisted in opening up new spaces for the local. Indeed, technologies whose current form and dissemination is largely unthinkable outside the framework of advanced globalization – the Internet/email, internationally interconnected cell phones – have loosened the real capacities of the nation-state to control or suppress local discourse and political and cultural diversity. Two examples illustrate the way in which localism works with, not against, globalization. In certain Asian states, as in other developing countries, replacing imported oil with locally and sustainably produced energy sources has depended on technology transfer and the emergence of international and regional standards, which allow fuels produced in ways that make sense locally to be used in vehicles produced elsewhere.31 In the case of agricultural self-sufficiency, Shiva notes the threat to localism from the ‘piracy’ of traditional knowledge by multinationals. However, as she also seems aware, even if the WTO TRIPS Agreement,32 a justifiable 29 30 31

32

Ibid., p. 11. See, generally, A. de Tocqueville, L’ancien Regime et la Revolution en France (1856). See N. Jansen, ‘Sustainable Biofuels and the Need for Applicable Standards’, presented at The RSB Consultation: South-East Asia Stakeholder Consultation (Kuala Lumpur, 26–7 March 2009). Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, (1994) 33 ILM 1197, 1869 UNTS 299 (15 April 1994).

The end of the globalization debate: continued

17

target of anti-globalists for various reasons, did not exist, these practices would remain a problem; addressing them requires a new global deal on intellectual property and related matters, not simply tearing up the existing deal and reverting to a status quo ante where multinationals aggressively use domestic intellectual property rules.

The financial and economic crisis On some readings, the recent financial and economic crisis represents a fundamental reversal of the momentum in the direction of globalization. It has been states that have taken the lead, visibly and undeniably, in responding with new regulations, bailouts for financial institutions and with industrial and social policy measures, as well as trade protectionism. The apparent resurgence of the state is especially evident in that, even in the highly integrated European Union, the individual member states have been the key actors in response to the crisis. To my mind these phenomena are uncontestable, and are a powerful reminder of what globalization is and is not about: globalization is not the transfer of governance or authority from the state to global institutions or a global authority (the global constitutionalist or world government reading). Indeed, as Joseph Stiglitz has noted: In effect, economic globalization has outpaced political globalization. We have a chaotic, uncoordinated system of global governance without global government, an array of institutions and agreements dealing with a series of problems, from global warming to international trade and capital flows. Finance ministers discuss global financial matters at the IMF, paying little heed to how their decisions affect the environment or global health. Environment ministers may call for something to be done about global warming but they lack the resources to back up those calls.33

The question is rather whether the state, in exercising its legitimate governance capacities, re-conquers its traditional role as the sovereign – the definitive voice of legitimate public norms, able to control or determine outcomes without recourse to values and consideration of interests beyond its borders, working, if need be, against global markets and curbing them to the extent that they are an impediment to its sovereignty. The answer here I think is, clearly, no. First of all, it is a measure of the extent to which the rhetoric of the globalization debate has already been reshaped along the lines argued 33

Stiglitz, supra, note 2.

18

Robert Howse

above that the regulatory or deregulatory choices to which the crisis can, in part, be attributed have not widely been blamed on impersonal forces or demonic forces of globalization. Part of the national response to the crisis reflects recognition that the problems were national in significant measure. Second, to the extent that global forces have been involved, the response has not been to walk away from the liberalization of movement of capital (a modification of globalization that even some pro-globalization thinkers have strongly argued for, at least in the case of short-term flows; for example, Jagdish Bhagwati),34 but to strengthen global regulation, enhancing the rules of the Basle Committee and giving an expanded role to the Financial Stability Forum in its new incarnation as the expanded Financial Stability Board.35 Third, the crisis has illustrated the complexity of assessing the costs and benefits of global interdependence. On the one hand, there have been justified fears that the developing world’s hopes for growth would be dashed by a crisis manufactured in the developed West. On the other hand, recent evidence suggests at least partial delinkage, and the resurgence of demand in Asia, and elsewhere in the developing world, has in fact now started to lessen the crisis in the developed world, especially the United States, beginning to compensate to some extent for the collapse of domestic demand, and resulting in strong recent US export figures. Interdependence has arguably also prevented recklessly nationalistic responses; for example, China’s extensive risk exposure in US debt as well as dependence on the US market has led to close cooperation and consultation between Chinese and US officials throughout the crisis. With respect to protectionism, the fear of an unraveling of free trade in a protectionist freefall reminiscent of the 1930s has not materialized. Careful studies of protectionism in the wake of the crisis attribute sharp short-term declines in trade to dramatic falls in real demand as well as the choking of trade finance due to the financial side of the crisis, and only to a limited degree to protectionism. It is notable that such protectionist responses as we have seen have largely taken place within the framework of the rules of the WTO, negotiated at the height of global economic liberalism, the Uruguay Round (for example, anti-dumping duties or procurement measures permitted under carve-outs or reservations in the WTO 34 35

Bhagwati, supra, note 2. See the Financial Stability Forum, ‘Principles for Cross-Border Cooperation on Crisis Management’, Financial Stability Board (FSB) (2 April 2009).

The end of the globalization debate: continued

19

Government Procurement Agreement,36 or because the states in question have not signed that Agreement at all).37 Looking at recent polling of the American public on trade policy, Edward Gressner notes that, to the broader public, the risks of confrontational trade policy apparently seem much higher than they did a year ago, and support for more cooperative relationships with foreign governments is unusually high.38

IV

A resurgence of strong sovereignty and nationalism as counter-perspectives to globalization?

Writing in the Wall Street Journal, Bob Davis suggested a new rise of nationalism as a fundamentally anti-globalization force, pointing to phenomena as varied as sovereign wealth funds, national restrictions on the Internet, backlashes against immigration and ‘petro-nationalism’ in countries such as Russia. The state, according to Davis, has come back with a vengeance.39 I believe we must first distinguish between nationalism as an ideology or force in politics and economics on the one hand and assertive state sovereignty on the other. Davis tends to confuse these things, as do many other commentators who are economic liberals. They identify nationalism with strong government intervention. Yet, the latter could easily be in the service of global or universal values (social and economic rights, for instance), not on behalf of some idea or ideal of the nation. Historically, nationalism, the idea of a nation, a people, a volk, as an organic unity was a powerful tool for consolidating the power and legitimacy of the state as the sole or supreme legitimate source of governance, of rule – the nation-state.40 Today, the state is as likely to be fractured by nationalism as consolidated by it. Th is is an important theme in Ruti Teitel’s forthcoming book, Humanity’s Law.41 She notes that civil 36

37

38

39

40 41

Agreement on Government Procurement, Marrakesh Agreement Establishing the World Trade Organization, Annex 4(b), 1915 UNTS 103 (15 April 1994). See, for example, S. J. Evenett, B. M. Hoekman and O. Cattaneo (eds.), The Fateful Allure of Protectionism: Taking Stock for the G8 (London, World Bank Centre for Economic Policy Research [CEPR], 2009), especially Evenett’s discussion of the US stimulus package and how it has been designed and implemented to respect, at least arguably, WTO trade disciplines (pp. 39–42). E. Gresser, ‘The End of the Globalization Debate? Creeping Protectionism Lingers in the Shadows if Only for the Moment’, YaleGlobal (2 June 2009), p. A1. B. Davis, ‘The Rise of Nationalism Frays Global Ties’, Wall Street Journal (28 April 2008). See Lord Action, ‘Nationality’, The Home and Foreign Review (1862). R. Taitel, Humanity’s Law (Oxford University Press, forthcoming).

20

Robert Howse

wars, failed or weakened states, dislocations of peoples, enclaves and diasporas have all been generated by nationalism. The ‘state’ in its classic conception and capabilities now becomes more problematic, if anything, on account of nationality claims. It becomes even less capable of presenting itself as an alternative to globalization. One could say something similar about religious fundamentalism. The Jihad vs. McWorld formulation in the title of Benjamin Barber’s essay42 reflects the frequent misconception of religious fundamentalism as a force of resistance to globalization. The mistake here is the identification of globalization with economic liberalism, which is connected to the overall misconception at which this essay aims – a failure to conceive the debate as about what globalization is and should be, not whether it is or should be. As has become much more apparent since Barber wrote, religious fundamentalism operates through global networks and often has global ambitions to shape hearts and minds, even if it does not, as such, directly intend to. Religious fundamentalism, as deployed by various political interests and factions, has a destabilizing influence on a range of states and state-building enterprises, which is more than obvious in much of the Middle East. Now let us turn to sovereignty. I have already noted that globalization is misconceived when it is understood as the transfer of sovereignty to global institutions, to a supposed global sovereign authority or governance structure. Sometimes, institutions such as the WTO, the World Bank and the IMF are demonized or essentialized as the world government of the globalizers to which sovereignty has been transferred. But, as I have elaborated elsewhere, these kinds of institutions mostly operate as channels for the brokering and coordination of power, among states but also non-state actors increasingly, including multinationals, foundations and NGOs.43 Just as globalization does not mean the transfer of sovereignty to some global level of governance, it does not mean either, as an empirical matter, that states cannot exercise sovereignty effectively in the face of global forces. Rather, the weakening of the state, as Sassen argues, really means a rearrangement of sovereignty. The state can be strong, but strength comes from working with other actors, global actors, and can no longer be understood as a monopoly on legitimacy or the capacity to 42 43

B. Barber, ‘Jihad vs. McWorld’, The Atlantic (March 1992). R. Howse, ‘Sovereignty Lost and Found’ in W. Shan, P. Simons and D. Singh (eds.), Redefining Sovereignty in International Economic Law (Oxford, Hart Publishing, 2008), p. 61. What follows derives from that essay.

The end of the globalization debate: continued

21

determine or control outcomes autonomously from external or global actors or forces. An increasing body of evidence and scholarly research shows that some of the most dramatic economic success stories have occurred in states with governments that have pursued dirigiste economic policies, opposing and distorting global market forces where their objectives suggested such a course of action, ‘opening up’ to global markets only to the extent, again, that such opening up served their objectives. Here, one thinks of Brazil, India and China. High levels of dependence on trade and foreign investment and developing country status have not deterred countries such as these from attempting to control markets to achieve their economic and social objectives, with some considerable success.44 What counts here is that these governments have not rejected globalization, but rather worked with and through global markets effectively to achieve public objectives. Nor have they simply yielded to globalization as an irresistible external force. In other words, their policy calculus has already transcended the globalization debate. 44

D. Rodrik, ‘Rethinking Growth Policies in the Developing World’, presented as a Luca d’Agliano Lecture in Development Economics (Torino, Italy, 8 October 2004). On China, see M. Gallagher, ‘Reform and Openness: Why China’s Economic Reforms have Delayed Democracy’, World Politics, 54 (2002) 338.

2 Global economic institutions and the autonomy of development policy: a pluralist approach Yuk a Fukunaga

I

Introduction

Specialized institutions with narrowly defi ned mandates flourish in various fields of international law. Global1 economic institutions (GEIs) such as the World Bank,2 the International Monetary Fund (IMF) and the World Trade Organization (WTO) have been among the most influential. The main source of their influence is that the GEIs are often equipped with effective tools to enforce rules and policies. For example, the World Bank and the IMF may impose conditions on their loans while the WTO has a compulsory dispute settlement system. The enforcement of their rules and policies not only affects inter-state relations among the member countries but also, and more often, forces the modification of the members’ domestic policies. Because of the growing impact of the latter, these institutions are occasionally criticized for unduly restricting the autonomy of the member countries’ decision-making processes. Interestingly enough, the critics do not necessarily argue that the GEIs should not influence the domestic policies of the members at all; rather, the criticism concerns how they should do so. The criticism is twofold. First, critics express a concern over the ‘democratic deficit’ of the institutions in view of the lack of procedures in place to reflect the voices of all stakeholders, including state and non-state actors. They argue that no institution should enforce rules and policies that are formulated in the absence of 1

2

This chapter uses the term ‘global’ instead of ‘international’ in order to highlight that the impacts of GEIs extend not only to states and inter-state relationships but also to businesses and citizens within states. The World Bank is composed of five branches: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID).

22

GEIs and the autonomy of development policy

23

those potentially affected by these rules and policies. Second, critics point out the ‘economic bias’ of the institutions in that their rules and policies take into account only economic considerations. They complain that the enforcement of such rules and policies distorts domestic policy decisions that need to reflect both the economic and non-economic values of citizens. The non-economic values typically imply environment and human rights but can also include other values such as health and culture. There are a number of practical proposals to reduce the ‘democratic deficit’ and the ‘economic bias’ of the GEIs. Some of these may be reasonable, while others may not. The main purpose of this chapter is not to undertake a detailed analysis of the respective proposals. Instead, it aims to assess the theoretical bases of the proposals. As will be discussed, these proposals often assume the continuity of the domestic legal orders with the international legal order. To put it in an extreme way, the continuity may suggest that the international and the domestic legal orders are ultimately converging into a unified global legal order. Based on the assumption of an emerging global legal order, the proposals argue that GEIs should hear the views of all stakeholders – both state and non-state and both economic and non-economic actors – and pursue balanced policies, taking into account all policy considerations, both economic and non-economic, in order to ensure the unity of the order. To a certain degree, these arguments correctly reflect the current dynamics between the international and the domestic legal orders. However, they often disregard the diversity and plurality of our societies. Section III of this chapter examines and criticizes the theoretical assumptions behind the proposals and proposes, as a complement, a pluralist approach that emphasizes the plurality of the global legal order. In order to clearly illustrate the theoretical arguments, this chapter focuses on the development policies of the three major GEIs, i.e., the World Bank, the IMF and the WTO. The development policy of the GEIs has had increasing impact on the domestic conditions and policies of developing countries, and is often criticized on counts of both ‘democratic deficit’ and ‘economic bias’. Section II of this chapter describes how the development policy of the GEIs has influenced the domestic conditions and policies of developing countries, how it has been criticized and how the GEIs have responded to the criticisms. Section II provides a basis for the theoretical analyses in Section III. Section IV sketches out the practical implications for the GEIs of the theoretical analyses set forth in Section III. Finally, Section V concludes the chapter.

24

Yuka Fukunaga

II

The development policy of the GEIs and proposed improvements

In the early days of the GEIs, their development policies paid little attention to the domestic conditions and policies of developing countries. For example, in the late 1950s and 1960s, the World Bank increased economic development assistance to developing countries, with the strong financial support of the United States;3 however, its loans were primarily targeted at building economic infrastructure such as power plants and roads that were considered essential for economic growth.4 The General Agreement on Tariffs and Trade (GATT),5 under the changing international environment in the 1960s,6 began to exempt the developing Contracting Parties from the GATT traditional principles of non-discrimination and reciprocity,7 but fell short of actively addressing development concerns within developing countries. The exclusive focus of the GEIs on macroeconomic policies (and not on domestic conditions and policies) was consistent with the demands of developing countries at that time. During that era, their demands 3

4

5

6

7

During this period, the World Bank also strengthened its institutional framework by establishing the IFC and the IDA. The IFC was instituted to promote private sector development in developing countries, while the IDA was designed to provide credits to developing countries on concessional terms. D. Kapur, J. P. Lewis and R. Webb, The World Bank: Its First Half Century (Washington DC, Brookings Institution Press, 1997), vol. 1, pp. 109–20. The other Bretton Woods Institution, the IMF, also began to strengthen its institutional framework for development purposes by establishing the Compensatory Financing Facility (CFF) and the Buffer Stock Financing Facility (BSFF), but its role in development assistance was rather limited until the 1970s. Oct. 30, 1947, 61 Stat. A-11, T.I.A.S. 1700, 55 UNTS, 194. The GATT is the predecessor of the WTO. Strictly speaking, the GATT was a provisional agreement without an institutional framework; however, this chapter refers to the GATT as one of the GEIs in light of its subsequent institutional development and the creation of the WTO. For example, it was in 1964 that the United Nations Conference on Trade and Development (UNCTAD) was created with the hope that developing countries be integrated into the international trading system. In 1965, the GATT Contracting Parties incorporated Part IV into the GATT, entitled ‘Trade and Development’, under which the GATT began to authorize preferential tariffs without requiring reciprocity, which led to the adoption of the generalized system of preferences (GSP) in 1971. See R. E. Hudec, Developing Countries in the GATT Legal System (London, Trade Policy Research Centre, 1987), chs. 4–6; R. Prebisch,‘ Vers une Nouvelle Politique Commerciale en Vue du Développement Économique: Rapport du Sécretaire Général de la Conférence des Nations Unies sur le Commerce et le Développement’, Revue Économique, 16 (1965) 676; M. Virally, ‘Le Principe de Réciprocité dans le Droit International Contemporain’, Recueil des Cours, 122 (1967-III) 88.

GEIs and the autonomy of development policy

25

for economic development, which were partly driven by the rise of the decolonization movement and nationalist sentiment, aimed at achieving substantive equality between developing and developed countries. Thus, their chief concern lay in the size of their economies, and they squarely rejected the interference of international institutions in domestic affairs.8 The limited policy focus of the GEIs and the nature of the developing countries’ demands determined the approach of international law scholars towards the development issue during this period. The purpose of the then academic movement under the heading of the international law of development (droit international du développement)9 was limited to legitimizing the modification of the traditional principle of formal equality and to bringing a new principle of substantive equality into the relationship between developing and developed countries.10 However, the limited focus on macroeconomic policies gradually turned out to be insufficient and inappropriate to promote the development of developing countries. Since the 1970s, the focus of the GEIs’ development policy has gradually shifted from the overall economies of developing countries to their domestic conditions and policies. For example, the World Bank adopted a ‘basic needs’ approach in the 1970s, which necessarily directed its attention to domestic conditions within developing countries.11 Thereafter, although the policy priorities of the World Bank changed over time, as illustrated by the structural adjustment policy12 and the so-called Washington Consensus in the 1980s,13 as

8

9

10

11 12

13

K. Ito, ‘Reexamination of the “International Law of Development”: Toward the Constitution of New Theoretical Framework’, Hongo Hosei Kiyo, 12 (2003) 1, pp. 4–12 [Japanese]. A. Philip, ‘Les Nation Unies et les Pays en Voie de Développement’, presented at L’Adaptation de L’O.N.U. au Monde D’Aujourd’hui (Colloque International de Nice, 27–29 mai 1965), pp. 130–3. See, for example, M. Virally, ‘Vers un Droit International du Développement’, Annuaire Français de droit international , 11 (1965) 3, pp. 5–7; O. Schachter, ‘The Evolving International Law of Development’, Columbia Journal of Transnational Law, 15 (1976) 1; R-J. Dupuy, ‘Communauté Internationale et Disparités de Développement: Cours Général de Droit International Public’, Recueil des Cours, 165 (1979-IV) 119; T. Takashima, International Law of Development (Keio Tsushin, 1995) [Japanese]. Kapur et al., supra, note 4, pp. 265–8. Ibid., pp. 513–44; I. F. I. Shihata, The World Bank in a Changing World: Selected Essays (compiled and edited by F. Tschofen and A. R. Parra), (Dordrecht, Martinus Nijhoff, 1991), pp. 25–7 and 58–61. J. Williamson, ‘What Washington Means by Policy Reform’ in J. Williamson (ed.), Latin American Adjustment: How Much Has Happened? (Washington DC, Institute for International Economics, 1990), p. 7. See also G. Rains, ‘Successes and Failures of

26

Yuka Fukunaga

well as the current focus on good governance14 and poverty reduction,15 its chief concern has consistently been the domestic conditions and policies of developing countries. As for the IMF, the collapse of the par value system dramatically reduced its originally intended role and led it to assume new functions of financing and monitoring the economies of developing countries.16 Similar to the World Bank, the IMF exerts influence over the domestic conditions and policies of developing countries by imposing conditionality on its loans.17 In the GATT/WTO, although the development issue was not brought to the forefront until recently,18 its expanding rules19 and strengthened dispute settlement procedures led to increased impacts on the domestic policies of developing countries. In light of the potential inconsistencies between the GATT/WTO rules and the domestic rules and policies of developing countries, special and differential (S&D) treatment has been incorporated in order to avoid the

14

15

16

17

18

19

Development Experience Since the 1980’s’ in L. Emmerij (ed.), Economic and Social Development into the XXI Century (Inter-American Development Bank, 1997), p. 81. See, for example, J. C. Hopkins, ‘Therapeutic Lending in a Post-Colonial World’, Michigan State Journal of International Law, 14 (2006) 439, pp. 452–4; V. P. Nanda, ‘The “Good Governance” Concept Revisited’, Annals of the American Academy of Political and Social Science, 603 (2006) 269, pp. 272–6; World Bank, Localizing MDGs for Poverty Reduction in Viet Nam: Ensuring Good Governance for Poverty Reduction (2003); Shihata, supra, note 12, pp. 53–61 and 79–93. See, for example, G. de Burca, ‘Developing Democracy Beyond the State’, Columbia Journal of Transnational Law, 46 (2008) 221, pp. 256–76; DFID and R. Alsop (ed.), Power, Rights, and Poverty: Concepts and Connections (The World Bank, 2004), available at www. siteresources.worldbank.org/intempowerment/Resources/PPFinalText.pdf (accessed 10 May 2010); R. Kanbur and D. Vines, ‘The World Bank and Poverty Reduction: Past, Present, and Future’ in C. L. Gilbert and D. Vines (eds.), The World Bank: Structure and Policies (Cambridge University Press, 2000), pp. 101–3. In order to perform its new function, the IMF established the Structural Adjustment Facility and the Enhanced Structural Adjustment Facility (ESAF). D. Fuhr and Z. Klughaupt, ‘The IMF and AGOA: A Comparative Analysis of Conditionality’, Duke Journal of Comparative and International Law, 14 (2004) 125, pp. 127–32; Evaluation of Structural Conditionality in IMF-Supported Programs, Issues Paper for an Evaluation by the Independent Evaluation Office (IEO) (2005), available at www.imf.org/external/np/ieo/2005/sc/051805.pdf (accessed 10 May 2010); International Monetary Fund, Guidelines on Conditionality (2002), available at www.imf.org/ External/np/pdr/cond/2002/eng/guid/092302.pdf (accessed 10 May 2010). The development issue was the center of attention in the 1960s but the objective of the measures adopted by the GATT was limited to entitling developed countries to derogate from the obligations of the GATT in order to redress the imbalance between developed and developing countries. Regulatory agreements such as the GATS (General Agreement on Trade in Services) and the TRIPS Agreement (Agreement on Trade-Related Aspects of Intellectual Property Rights) were newly adopted in the Uruguay Round.

GEIs and the autonomy of development policy

27

inconsistencies,20 and technical assistance has been provided in order to remove them.21 The GEIs’ shift in development policy increased tension with the national regulatory autonomy of developing countries, and led to the possibility of inviting resentment from developing countries amidst the North–South conflicts.22 In fact, at one point, the fear became reality in the context of the disputes over the nationalization of natural resources.23 Developing countries succeeded in adopting the Charter of Economic Rights and Duties of States,24 stipulating that each state has the right ‘to nationalize, expropriate or transfer ownership of foreign property’ and that any controversy over compensation ‘shall be settled under the domestic law of the nationalizing State and its tribunals’, which fueled controversy over the applicable rules of international law on nationalization.25 Nevertheless, developing countries were not totally ignorant of the existing international law rules even during the most intensive period of the disputes.26 Moreover, today, developing countries often choose to accept international law rules of trade and investment in order to benefit from the increasing trade with, and investment from, developed countries.27 There is also a suggestion that the shift in the development policy of the GEIs was made in response to the social movement from the developing world.28 20

21 22

23

24 25

26 27

28

Hudec, supra , note 7, pp. 81–8. For example, the TRIPS Agreement contains several S&D provisions in view of the possibility that the enhanced protection of intellectual property rights could prevent developing countries from adopting the development policies of their choice. Doha Ministerial Declaration, WT/MIN(01)/DEC/1 (20 November 2001), paras. 38–41. The United Nations General Assembly adopted a resolution concerning Permanent Sovereignty over Natural Resources in 1962 and the Declaration on the Establishment of a New International Economic Order in 1974. See, for example, R. Dupuy (ed.), The New International Economic Order: Commercial, Technical and Cultural Aspects (Dordrecht, Martinus Nijhoff, 1980). The growing awareness of sovereignty and the demand for economic independence from Western countries drove some developing countries to nationalize natural resources in their territories. For more about the historical background, see N. Schrijver, Sovereignty over Natural Resources: Balancing Rights and Duties (Cambridge University Press, 1997), chs. 2–3. U.N.G.A. Res.3281 (XXIX), 12 December 1974. M. Sornarajah, The International Law on Foreign Investment, 2nd edn (Cambridge University Press, 2004), pp. 283–8; J. Nakagawa, Legal Process of Natural Resources Nationalization (Tokyo, Kokusai Shoin, 1990), pp. 162–74 [Japanese]. Schachter, supra, note 10, pp. 8–9. Cf. D. L. Swenson, ‘Why Do Developing Countries Sign BITs?’, U.C. Davis Journal of International Law and Policy, 12 (2005) 131. B. Rajagopal, International Law from Below: Development, Social Movements and Third World Resistance (Cambridge University Press, 2003), pp. 95–9 and 104–12.

28

Yuka Fukunaga

With these circumstances in mind, the question is not whether the GEIs are justified in constraining the domestic policy autonomy of developing countries at all, but rather how the GEIs should influence it.29 In this regard, there are two major criticisms against the development policy of the GEIs.30 First, the GEIs have been criticized for exerting undue influence on the domestic policies of developing countries without hearing the voices of the stakeholders (‘democratic deficit’).31 Second, the development policy of the GEIs has been criticized for being overly economically oriented and for distorting indispensable non-economic interests and values in developing countries, such as human rights and the environment (‘economic bias’).32 With regard to the first criticism, the proposals made by critics include the following: more active participation of developing countries in the decision-making process; increased involvement of non-state actors, including human rights and environmental nongovernmental organizations (NGOs); and the enhancement of the accountability and transparency of the GEIs. For the second criticism, the improvement proposals include considerations of non-economic interests and values, enhanced consistency with international law rules of human rights and the environment, and more effective compliance monitoring.33 29

30

31

32

33

But see C. H. Lee, ‘To Th ine Ownself be True: IMF Conditionality and Erosion of Economic Sovereignty in the Asian Financial Crisis’, University of Pennsylvania Journal of International Economic Law, 24 (2003) 875. While this chapter focuses on the criticisms that arose from the increasing constraints on the policy autonomy of developing countries, another frequent criticism is that the structural problems of the World Bank and the IMF, such as their bureaucratic nature and the undue influence of a few developed countries and of the fi nancial sector, prevent them from effectively pursuing their policy goals. See, for example, N. Woods, The Globalizers: The IMF, the World Bank, and Their Borrowers (Cornell University Press, 2006), pp. 15–28. See, for example, M. Darrow, Between Light and Shadow: The World Bank, The International Monetary Fund and International Human Rights Law (Oxford, Hart Publishing, 2003), pp. 104–6; J. W. Head, The Future of the Global Economic Organizations: An Evaluation of Criticisms Leveled at the IMF, the Multilateral Development Banks, and the WTO (New York, Transnational Publisher, 2005), pp. 65–6, 117–9 and 172–3. See, for example, Darrow, supra, note 31, pp. 66–83; Head, supra, note 31, p. 63, pp. 113–4 and 169–71; Woods, supra, note 30, pp. 39–64. For these and other proposals, see, for example, Darrow, supra, note 31, pp. 221–93; Woods, supra, note 30, pp. 179–213; A. Buira (ed.) Reforming the Governance of the IMF and the World Bank (London, Anthem Press, 2005); Head, supra, note 31, pp. 94–110, 155–66 and 201–12; D. D. Bradlow, ‘Should the International Financial Institutions Play a Role in the Implementation and Enforcement of International Humanitarian Law?’, University of Kansas Law Review, 50 (2002) 695, pp. 713–21; O. Medenica, ‘The World Bank, the IMF and the Global Prevention of Terrorism: A Role for Conditionalities’, Brooklyn Journal of International Law, 29 (2003–4) 663, pp. 692–707; F. MacKay, ‘Universal Rights or a

GEIs and the autonomy of development policy

29

The GEIs have, at least partly, been responding to these criticisms. For example, the World Bank widened its mandate to take into account non-economic considerations34 and adopted the environmental and social ‘safeguard’ policies that are designed to avoid, mitigate or minimize the adverse environmental and social impacts of projects supported by the Bank.35 Moreover, the Bank established the Inspection Panel to ensure compliance with its policies, including its safeguard policies.36 The most notable feature of the Panel is that it shall receive requests for inspection by any ‘affected party’ (except a single individual) or by ‘the local representative of such party or by another representative in exceptional cases’.37 The IMF has also been expanding its mandate to include noneconomic issues.38 For example, it reflects concerns such as governance, gender and the environment in its conditionality and consultation under Article IV of the Articles of Agreement.39 In addition, the IMF established

34

35

36 37

38 39

Universe into Itself?: Indigenous Peoples’ Human Rights and the World Bank’s Draft Operational Policy 4.10 on Indigenous People’, American University International Law Review, 17 (2002) 527, pp. 533–5. The relevant provisions of the Articles of Agreement provide that ‘only economic considerations shall be relevant to’ its decisions. Articles of Agreement of the International Bank for Reconstruction and Development, 27 December 1965, 16 UST 1945, 60 Stat. 1440, TIAS No. 1502, 2 UNTS. 134, amended, 17 December 1965, 16 UST 1942, Art.IV, sec.10; Articles of Agreement of the International Development Association, 26 January 1960, 11 UST. 2284, TIAS No.4607, 439 UNTS. 249, Art.V, sec.6. The World Bank expanded its mandate by interpreting the term ‘economic considerations’ in a flexible manner. See, for example, The International Bank for Reconstruction and Development, Development and Human Rights: The Role of the World Bank (1998), available at http://siteresources. worldbank.org/BRAZILINPOREXTN/Resources/3817166-115895645304/40441681186409169154/08DHR.pdf (accessed 10 May 2010); Shihata, supra, note 12, pp. 67–79; D. D. Bradlow, ‘The World Bank, the IMF, and Human Rights’, Transnational Law and Contemporary Problems, 6 (1996) 47, pp. 55–9. The World Bank, Operational Manual, vol. 1, available at http://wbln0018.worldbank. org/institutional/manuals/opmanual.nsf/05TOCpages/The World Bank Operational Manual?OpenDocument (accessed 4 February 2008). Resolution No. IBRD 93-10/Resolution No. IDA 93–6 (1993). Resolution, para. 12. For the Inspection Panel, see, for example, D. D. Bradlow, ‘Lessons from the NGO Campaign Against the Second Review of the World Bank Inspection Panel: A Participant’s Perspective’, ILSA Journal of International and Comparative Law, 7 (2001) 247; T. Kiriyama, ‘Development and Human Rights in the World Bank: Operational Policy on Indigenous Peoples and the Inspection Panel’, Journal of International Law and Diplomacy, 102 (2004) 589, pp. 598–605 [Japanese]. Darrow, supra, note 31, pp. 170–83. See, for example, IMF, The Role of the IMF in Governance Issues – Guidance Note (Approved by the IMF Executive Board, 25 July 1997), paras. 12–16, available at www. imf.org/external/np/sec/nb/1997/nb9715.htm - I2 (accessed 10 May 2010).

30

Yuka Fukunaga

the Poverty Reduction and Growth Facility (PRGF)40 and the Exogenous Shocks Facility (ESF) to refine its policies in order to effectively achieve the Millennium Development Goals adopted by the United Nations.41 The World Bank and the IMF have also been playing an increasingly important role in post-conflict peace-building.42 In the WTO, there has been at least one dispute that has implications for the treatment of non-economic considerations in development policy. In the EC – Tariff Preferences dispute, India challenged an EC measure that imposed conditions for the granting of different tariff preferences to developing countries.43 The conditions included the protection of labor rights, the protection of the environment and the combatting of drug production and trafficking. Although the Appellate Body found that the EC’s measure did not comply with the term ‘non-discrimination’ in paragraph 2(a) of the Enabling Clause,44 it noted that the term does not require the granting of identical preferences to all developing countries, and that different preferences can be granted to some developing countries in order to meet the development, financial and trade needs of individual developing countries.45 This finding suggests that differential tariff preferences could be allowed under the WTO in view of non-economic considerations, provided that such considerations would be in line with the needs of development, finance and trade. Despite these changes in the GEIs, critics continue to argue for wider and more effective participation of stakeholders as well as for consideration of broader policy concerns. Instead of assessing the validity of 40 41

42

43

44

45

The PRGF replaced the ESAF. The Millennium Development Goals were derived from the United Nations Millennium Declaration adopted in 2000. The Goals include a set of specific targets to reduce poverty and improve the quality of life in developing countries. United Nations Millennium Declaration, G.A. Res. 55/2, U.N. GAOR, 55th Sess. (U.N. Doc. A/Res/55/2, 2000). K. E. Boon, ‘“Open for Business”: International Financial Institutions, Post-Confl ict Economic Reform, and the Rule of Law’, New York University Journal of International Law and Politics, 39 (2006–7) 513, pp. 522–49. Request for the Establishment of a Panel by India, European Communities – Conditions for the Granting of Tariff Preferences to Developing Countries (EC – Tariff Preferences), WT/DS246/4 (9 December 2002). Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, Decision of 28 November 1979 (L/4903). Appellate Body Report, EC – Tariff Preferences, WT/DS246/AB/R, adopted 7 April 2004, paras. 157–65. Cf. R. Howse, ‘India’s WTO Challenge to Drug Enforcement Conditions in the European Community Generalized System of Preferences: A Little Known Case with Major Repercussions for “Political” Conditionality in US Trade Policy’, Chicago Journal of International Law, 4 (2003) 385.

GEIs and the autonomy of development policy

31

individual proposals presented by critics, the next section examines the theoretical bases of these proposals.

III Emergence of a global legal order and a pluralist approach Section II highlighted the growing influence of recent GEI development policy on the domestic conditions and policies of developing countries. However, this permeating influence is not exclusive to the GEIs. Human rights and environmental institutions whose primary focus is the domestic conditions and policies within states are growing in numbers and influence. The development of these institutions has motivated international law scholars to question the traditional dichotomy between the international and the domestic legal orders,46 and even led some to suggest the emergence of a new global legal order.47 The assumed emergence of a global legal order occasionally underlies the above-mentioned proposals pertaining to the development policy of the GEIs. This section reviews the international law studies related to this assumption; discusses the implications for the GEIs and the limitations of these studies; and presents a pluralist approach as a complementary perspective on the global legal order. At the outset, it is important to note that there has been an increase in attention paid to the dynamic continuity between the international and the domestic legal orders. For example, in explaining why states obey international law, Harold Hongju Koh presents the idea of the ‘transnational legal process’. According to this idea, states internalize international law rules in a variety of public and private, domestic and international forums.48 Further, using the concept of a ‘disaggregated state’, Anne-Marie Slaughter explains that networks of government officials – regulators, judges and legislators – converge national rules, principles and judicial decisions; improve compliance with international 46 47

48

P. C. Jessup, Transnational Law (Yale University Press, 1956), pp. 1–16. See, for example, L. M. Friedman, ‘Erewhon: The Coming Global Legal Order’, Stanford Journal of International Law, 37 (2001) 347, pp. 353–63; Y. Blank, ‘The City and the World’, Columbia Journal of Transnational Law, 44 (2005–6) 875, pp. 888–90; G. Teubner, ‘“Global Bukowina”: Legal Pluralism in the World Society’ in G. Teubner (ed.), Global Law Without a State (Aldershot, Dartmouth Publishing Company, 1997), pp. 7–8. H. H. Koh, ‘Transnational Legal Process’, Nebraska Law Review, 75 (1996) 181, pp. 183–86; H. H. Koh, ‘Why Do Nations Obey International Law?’, Yale Law Journal, 106 (1996–7) 2599, pp. 2645–58.

32

Yuka Fukunaga

agreements; and enhance cooperation among them.49 Both Koh and Slaughter share the view that the distinction between the international and domestic legal orders is becoming increasingly blurred; however, their viewpoints differ with regard to the causes. While Koh pays attention to the influence of international law permeating the domestic legal orders,50 Slaughter focuses on the partnership among the domestic actors, which transcends national borders.51 In addition, Martha Finnemore analyzes this blurring phenomenon, using constructivist theory, and criticizes the static and uniform view of state interests. She argues that ‘state interests are defined in the context of internationally held norms and understandings about what is good and appropriate’.52 From among international economic law scholars, Ernst-Ulrich Petersmann, who has published numerous works on constitutionalism, makes a normative argument that it is necessary for national, transnational and international judges and courts to cooperate with each other in order to protect the rule of law in international trade.53 Albeit from different perspectives, these and other scholars are generally in agreement that the international and the domestic legal orders are becoming increasingly interconnected. Based on the growing continuity of the domestic legal orders with the international legal order, some international law scholars have suggested that a new global legal order is emerging.54 Although different scholars have varying ideas on the nature of such a global legal order, the emergence of a new global legal order often implies that the domestic legal orders are enmeshed with international law rules and norms and, in addition, that multiple legal orders – local and national, regional and international, and public and private – are gradually beginning to comprise a single body of law. Further, this implies that autonomy in domestic decision-making is constrained because important policy decisions may not be made solely at the domestic level. They may be either supplemented or even replaced by policy decisions made at the international or other levels, in part because decisions made at the domestic level can later be challenged at the 49

50 51 52

53

54

A. M. Slaughter, A New World Order (Princeton University Press, 2004), pp. 5–14 and 171–95. Koh, ‘Transnational Legal Process’, supra, note 48, pp. 203–5. Slaughter, supra, note 49, pp. 12–14. M. Finnemore, National Interests in International Society (Cornell University Press, 1996), pp. 1–31. E-U. Petersmann, ‘Multilevel Judicial Governance of International Trade Requires a Common Conception of Rule of Law and Justice’, Journal of International Economic Law, 10(3) (2007) 529, pp. 539–47. See supra, note 47.

GEIs and the autonomy of development policy

33

international level. Based on these assumptions, the emergence of a global legal order has two major implications that have been identified. First, commentators have highlighted that procedural rights for stakeholders cannot be secured solely by ensuring accountability at the domestic level. In other words, even if stakeholders participate, express their views and influence the domestic decision-making process, a policy decided in this manner can be dismissed at a different forum in a global legal order. Therefore, it is argued that stakeholders – particularly non-state actors – should be allowed to participate in decision-making processes both at the domestic and the international levels. Among the scholars who argue for procedural rights of non-state actors in a global legal order, Benedict Kingsbury, Nico Krisch and Richard Stewart have observed the emergence of a global administrative law. This would provide principles, procedural rules, review mechanisms and other mechanisms relating to transparency, participation, reasoned decision-making and the assurance of legality in global governance, addressed to both state and non-state actors including individuals, market actors and NGOs.55 In a similar manner, Daniel Esty regards transparency and public participation as essential elements for ensuring the good governance of international institutions. 56 In particular, in the context of the WTO, Steve Charnovitz argues that the involvement of NGOs can enhance the legitimacy of international institutions.57 These analyses occasionally draw on other studies in different areas of the social sciences, such as cosmopolitan democracy58 and deliberative democracy.59 The second major implication is that the emergence of a global legal order may require policy coordination at the international level rather than the domestic level. Policy objectives are occasionally in conflict – such as the conflicts between development and human rights and between 55

56

57

58

59

B. Kingsbury, N. Krisch and R. B. Stewart, ‘The Emergence of Global Administrative Law’, Law and Contemporary Problems, 68 (2005) 15, pp. 23–5 and 27–42. See also B. S. Chimni, ‘Co-Option and Resistance: Two Faces of Global Administrative Law’, New York University Journal of International Law and Politics, 37 (2004–5) 799, pp. 801–6. D. C. Esty, ‘Good Governance at the Supranational Scale: Globalizing Administrative Law’, Yale Law Journal, 115 (2006) 1490, pp. 1530–4. S. Charnovitz, ‘Nongovernmental Organizations and International Law’, American Journal of International Law, 100 (2006) 348, pp. 363–8; S. Charnovitz, ‘WTO Cosmopolitics’, New York University Journal of International Law and Politics , 34 (2001–2) 299. D. Held, Democracy and the Global Order: From the Modern State to Cosmopolitan Governance (Stanford University Press, 1995). J. Habermas, Between Facts and Norms (Cambridge MA, MIT Press, 1996), pp. 107–9 and 118.

34

Yuka Fukunaga

trade and environment – and there may arise a need to make trade-offs between confl icting objectives. Such trade-offs are normally effected at the level of domestic decision-making. However, the emerging global legal order – particularly the permeating influence of the GEIs over domestic policies, on the one hand, and the relatively moderate influence of human rights and environmental institutions on the other – could distort the balance in domestic policy decisions (in a manner that is most likely biased towards economic interests). Therefore, policy coordination may be needed at the international level in order to minimize detriment from this distortion.60 This issue, commonly referred to as the fragmentation of international law rules, has been drawing the attention of international law scholars, who have been discussing various questions such as whether fragmentation is harmful or not, and, if it is harmful, how it can be minimized. In the WTO context, among other aspects, the discussion has thus far focused on whether and how the WTO should coordinate its rules and policies with non-economic international law rules and policies.61 Although most international law scholars appear to agree that the WTO should consider non-economic international law rules and policies, there is considerable disagreement on how this should be done. For example, Robert Howse argues that panels and the Appellate Body should take into account noneconomic values and non-economic international law rules in interpreting the WTO Agreements.62 Joost Pauwelyn goes so far as to suggest that, in certain situations, panels and the Appellate Body should apply nonWTO international law rules that conflict with the WTO rules.63 However, Andrew Guzman questions the legitimacy of the adjudicatory approach suggested by Howse and Pauwelyn, and supports negotiated solutions. He 60 61

62

63

Darrow, supra, note 31, pp. 66–112. See, for example, B. Simma, ‘Fragmentation in a Positive Light’ in ‘Diversity or Cacophony: New Sources of Norms in International Law Symposium’, Michigan Journal of International Law, 25 (2003–4) 845; Report of the Study Group of the International Law Commission (fi nalized by M. Koskenniemi), ‘Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law’, (A/CN.4/L.682, 2006). R. Howse, ‘Adjudicative Legitimacy and Treaty Interpretation in International Trade Law: The Early Years of WTO Jurisprudence’ in J. H. H. Weiler (ed.), The EU, the WTO and the NAFTA: Towards a Common Law of International Trade (Oxford University Press, 2000), pp. 51–61; R. Howse, ‘From Politics to Technocracy – and Back Again: The Fate of the Multilateral Trading Regime’, American Journal of International Law, 96 (2002) 94, pp. 109–12. J. Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge University Press, 2003), pp. 456–78.

GEIs and the autonomy of development policy

35

proposes that the WTO should, over time, expand its role to include non-trade issues. According to him, this can be done if the WTO is structured along departmental lines, in order to permit its expansion into new areas while simultaneously taming its trade bias.64 From a different perspective, Andrew Lang argues that reinventing the concept of embedded liberalism creates an understanding, not only of how the trade regime should balance its economic objectives with other social objectives, but also of how intersubjective understandings of the social objectives are constructed.65 Outside the WTO, many argue that the World Bank and the IMF should use their development policies to protect the environment and human rights at the same or even higher levels than those provided for in other international law rules.66 As briefly reviewed above, studies pertaining to a global legal order acknowledge (correctly, for the most part) the current dynamics between the international and the domestic legal orders. Against this background of the emergence of a new global legal order, the development policies of the GEIs have been criticized for their democratic deficit and economic bias, and proposals for improvement have been put forward. In other words, as part of a unified global legal order, the GEIs are required to directly reflect the voices of the constituents of this new order, including non-state actors, without the intervention of the states. Moreover, the GEIs are required to coordinate their development policy with other domains and levels of the new order so as to lend coherence to that order. At first glance at least, these criticisms and proposals appear convincing. As the above reviews pertaining to a global legal order suggest, it is almost undeniable that state and non-state stakeholders need to be given procedural rights in international institutions in some way, and that specialized international institutions with limited mandates cannot operate in complete isolation from other international law rules and institutions. However, the studies that discuss the emergence of a global legal order have one critical flaw: they often overlook the persisting discontinuity between the international and the domestic legal orders. 64

65

66

A. T. Guzman, ‘Global Governance and the WTO’, Harvard International Law Journal, 45 (2004) 303, pp. 307 and 313–48. A. T. F. Lang, ‘Reconstructing Embedded Liberalism: John Gerard Ruggie and Constructivist Approaches to the Study of the International Trade Regime’, Journal of International Economic Law, 9(1) (2006) 81, pp. 101–15. See, for example, Darrow, supra, note 31, pp. 124–33; MacKay, supra, note 33, pp. 544–54, 559–66 and 589–606; Kiriyama, supra, note 37, pp. 607–10; Medenica, supra, note 33, pp. 704–7.

36

Yuka Fukunaga

This discontinuity can be illustrated, for example, by the attitude of domestic courts in major developed countries, which generally are reluctant to directly apply international law rules.67 Moreover, the rules of international agreements often allow the contracting parties discretion on how to internalize international law rules in the domestic legal orders.68 The recent managerial approach to compliance69 also suggests that international law rules may not necessarily assume that the rules are immediately and unconditionally a part of the domestic legal orders. In addition, empirical studies show that the specific context of domestic conditions and local imperatives affects the manner in which a state internalizes its obligations under international law rules.70 These facts suggest that states retain a considerable degree of policy autonomy, despite the development of international law rules and institutions. More importantly, the discontinuity is not only a description of reality but it also has normative value. Our societies are extremely diverse, comprising different cultures, religions, resources, ethnicities, and so on, and this diversity merits protection. The policy autonomy left to each state is to preserve such diversity. This does not imply that diversity justifies rejecting outright the incorporation of international law rules into domestic legal orders. Instead, it suggests that, even if international law rules claim universality and are accepted as such, they acquire particular meanings in the specific sociological contexts of each society.71 The 67

68

69

70

71

See, for example, Y. Shany, Regulating Jurisdictional Relations between National and International Courts (Oxford University Press, 2007), pp. 39–77; T. Cottier and K. N. Schefer, ‘The Relationship between World Trade Organization Law, National, and Regional Law’, Journal of International Economic Law, 1 (1998) 83. Cf. H. H. Koh, ‘International Law as Part of Our Law’, American Journal of International Law, 98 (2004) 43, pp. 55–7; Slaughter, supra, note 49, pp. 181–3. A. Chayes and A. H. Chayes, The New Sovereignty: Compliance with International Regulatory Agreements (Cambridge MA, Harvard University Press, 1995), pp. 1–28 (pointing out that coercive measures to sanction violations are ineffective in enforcing international law in today’s international system, and presenting an alternative ‘managerial model’ relying on a cooperative, problem-solving approach such as reporting and monitoring, dispute settlement and capacity-building). A. L. Paulus, ‘The Emergence of the International Community and the Divide Between International and Domestic Law’ in J. Nijman and A. Nollkaemper (eds.), New Perspectives on the Divide Between National and International Law (Oxford University Press, 2007), pp. 228–34; D. J. Fleming and J. P. McEvoy, ‘Domestic Implementation of Canada’s International Human Rights Obligations’ in O. E. Fitzgerald (ed.), The Globalized Rule of Law: Relationships between International and Domestic Law (Ontario, Irwin Law, 2006), pp. 527–41; P. B. Potter, ‘Legal Reform in China: Institutions, Culture, and Selective Adaptation’, Law and Social Inquiry, 29 (2004) 465, pp. 478–86. M. Koskenniemi, ‘International Law in Europe: Between Tradition and Renewal’, European Journal of International Law, 16 (2005) 113, pp. 122–3; Y. Onuma, Human

GEIs and the autonomy of development policy

37

attempt to apply an international law rule in a uniform manner should be rejected as the unilateral imposition of a particular viewpoint regarding the rule. In light of the above analyses, this chapter proposes to add a pluralist perspective to the current debate on a global legal order.72 This perspective emphasizes the descriptive and normative value of the discontinuity that persists within the global legal order. While the pluralist approach acknowledges that the international and the domestic legal orders are being converged into an emerging global legal order, it modifies the above-mentioned implications of the global legal order in light of the discontinuity. Its core proposal is to encourage each state to remedy autonomously the democratic deficit and the economic bias in the domestic legal orders, instead of addressing these problems directly at the international level. More specifically, the pluralist approach comprises two distinct arguments.73 First, it cautions against the full participation of all non-state actors at the international level. In fact, since a certain degree of discontinuity remains between domestic legal orders and the international legal order, the need to give non-state stakeholders rights to participate at the international level is questionable. In addition, from a normative perspective, the pluralist approach warns that participation of all non-state actors might negate the value of the discontinuity and replace it with hegemonic dominance of the particular views of those with louder voices. While the wealth of the developed world allows its non-state actors to actively engage in discourse at the international level, non-state actors in the developing world often lack the capacity to access international forums.74 Allowing the full participation of all non-state actors may eventually compromise the interests of the weaker (but sometimes more genuine) stakeholders in the developing world.75 Even if we disregard the disparity that exists among stakeholders’ capacities, in societies that

72

73 74

75

Rights, States, and Civilizations: From a Universalistic Perspective to an Intercivilizational Perspective of Human Rights (Tokyo, Chikuma Shobo, 1998), pp. 141–51 [Japanese]. For the historical roots of legal pluralism and its possible extension to international law, see P. S. Berman, ‘Global Legal Pluralism’, Southern California Law Review, 80 (2007) 1155, pp. 1169–79. For different views on global legal pluralism, see, for example, Teubner, supra, note 47. P. M. Nichols, ‘Extension of Standing in World Trade Organization Disputes to Nongovernment Parties’, University of Pennsylvania Journal of International Economic Law, 17 (1996) 295, pp. 318–19. Y. Fukunaga, ‘Participation of Private Parties in the WTO Dispute Settlement Processes: Treatment of Unsolicited Amicus Curiae Submissions’, Soochow Law Journal, 4 (2007) 99, pp. 105–13.

38

Yuka Fukunaga

comprise multiple constituencies with a wide range of interests, values, religions and ethnicities, enhanced accountability to some of these could imply reduced accountability to others.76 In light of the above considerations, the pluralist approach rejects the notion of allowing the participation of all non-state stakeholders in a single unified forum. Instead, this approach suggests that there are multiple decision-making forums with different constituents, and these are not necessarily sequential. Each constituent should be given a voice at forums that best reflects its values, without being disturbed by non-constituents. Second, the pluralist approach questions the need for unity in the global legal order. In other words, it acknowledges that there is unresolvable fragmentation among international law rules with different scopes and among international institutions with different mandates. On the one hand, this means that the existing rules of international law fail to coordinate the conflicts among international law rules and institutions.77 On the other hand, it also means that the conflicts should be left untouched, to a certain extent, in light of the fact that international society lacks the shared hierarchical order of various interests and values that is indispensable to coordinate conflicting rules and policies. There is a suggestion that the policies of the GEIs should be adjusted in light of ‘justice’ considerations;78 however, the notion of what is ‘just’ varies in each society and cannot be determined in a unitary manner in the international sphere.79 The pluralist approach argues that the discontinuity enables the unresolvable fragmentation in the international legal order to be resolved in domestic legal orders in accordance with the hierarchy that each state embraces. Doing otherwise would threaten the diversity of our separate nations.

IV

Practical implications of the pluralist approach

Th is section sketches out the practical implications of the pluralist approach for GEI development policy. First, the GEIs should determine cautiously the scope of stakeholders participating in their decision-making processes. The wider participation 76

77 78

79

N. Krisch, ‘The Pluralism of Global Administrative Law’, European Journal of International Law, 17 (2006) 247, pp. 263–74. ILC Report, supra, note 61. F. J. Garcia, ‘Global Justice and the Bretton Woods Institutions’, Journal of International Economic Law, 10(3) (2007) 461, pp. 464–7. Rajagopal, supra, note 28, pp. 221–4.

GEIs and the autonomy of development policy

39

of NGOs from developed countries runs the risk of the imposition of Western values on developing countries without considering the values of the latter.80 The pluralist approach insists that effective participation in the decision-making process of the GEIs should be ensured for genuine constituents of developing countries. The GEIs must consider in entirety the interests and values of the people who actually live in developing countries and who are actually affected by their development policies, instead of considering the interests of Northern-based NGOs that might erroneously presume that they represent ‘higher’ or more advanced values.81 In this regard, it is worth reassessing the two landmark cases wherein the World Bank, for the first time, responded to the voices of the NGOs: the Polonoroeste project and the Narmada Valley project. The objective of the former was to fund Brazil’s project to build a highway and feeder roads, partly with the expectation that the project would contribute to poverty alleviation. However, the Bank later gave up funding the project in the face of NGO warnings that the project could have serious consequences for ecology and the indigenous population. With regard to the Narmada Valley project, the World Bank decided to help the Indian government build over 3000 dams along the Narmada River in order to increase irrigation capacity and power generation. However, this project was expected to result in the dislocation of millions of people. NGOs were critical of the human rights and environmental costs of the project and launched international campaigns against it; they ultimately succeeded in forcing the Bank to withdraw funding.82 While these cases are often cited as successful examples of the participation of NGOs in the GEIs’ development policy-making and implementation, they also reflect the disproportionate influence that US-based NGOs have on World Bank policy. In both projects, the NGOs not only 80

81

82

N. Woods, ‘Making the IMF and the World Bank More Accountable’ in Reforming the Governance of the IMF and the World Bank , supra , note 33, pp. 149 and 159–66. See also Rajagopal, supra , note 28, pp. 258–62. Other commentators point out the tremendous influence the United States has over GEI policy. See, for example, N. L. Bridgeman, ‘World Bank Reform in the “Post Policy” Era’, Georgetown International Environmental Law Review, 13 (2001) 1013, pp. 1020–2; Note (M. Elahi), ‘The Impact of Financial Institutions on the Realization of Human Rights: Case Study of the International Monetary Fund in Chile’, Boston College Third World Law Journal, 6 (1986) 143, p. 145. Cf. Y. Blank, ‘Localism in the New Global Legal Order’, Harvard International Law Journal, 47 (2006) 263, pp. 274–6. For a detailed analysis of these projects, see, for example, R. Wade, ‘Greening the Bank: The Struggle over the Environment, 1970–1995’ in Kapur et al., supra , note 4, pp. 637–53 and 687–709.

40

Yuka Fukunaga

approached the World Bank directly but also lobbied US congressmen, warning them of the possible disastrous consequences of the projects. In fact, the support of the US Congress, which has considerable influence in the World Bank, was crucial to the success of the NGOs’ campaigns. This fact implies that US-based NGOs are in a better position to influence the Bank’s policy than NGOs located elsewhere. Thus, if the World Bank increases the participation of all NGOs in its policy-making, the result may be that US-based NGOs further reinforce their influence over the World Bank’s policy: they can affect the Bank’s policy by lobbying the US Congress and by addressing the World Bank directly. In this light, the pluralist approach suggests that the World Bank should interact more actively with the local communities in developing countries rather than with NGOs in general, in order to prevent the voices of the genuine stakeholders from being drowned out by others.83 The second practical implication of the pluralist approach is that, although the GEIs should pay heed to the non-economic rules of international law, they should also be aware of the different implications of these rules in the context of development in each developing country. The pluralist approach does not deny that the GEIs, as part of the global legal order, should endeavor to align their policies with other areas of international law84 and collaborate with other international institutions.85 Such efforts can help the GEIs avoid unnecessary conflicts with non-economic international law rules and effectively pursue sound 83

84

85

Rajagopal, supra, note 28, pp. 174–89. In addition, efforts should also be made to improve developing country government participation, for example, by improving their voting procedures in the GEIs. See, for example, C. Jakobeit, ‘Enhancing the Voice of Developing Countries in the World Bank: Selective Double Majority Voting and a Pilot Phase Approach’ in Buira, supra, note 33, pp. 213, 215–17 and 223–9. Cf. UN Millennium Project, Investing in Development: A Practical Plan to Achieve the Millennium Development Goals (2005), pp. 211–22. For a debate on the implications for the GEIs of the international legal instruments on the protection of indigenous people, see J. W. Head, ‘Protecting and Supporting Indigenous Peoples in Latin America: Evaluating the Recent World Bank and IDB Policy Initiatives’, Michigan State Journal International Law, 14 (2006) 383, pp. 403–9 and 418–23; F. MacKay, ‘The Draft World Bank Operational Policy 4.10 on Indigenous Peoples: Progress or More of the Same?’, Arizona Journal International & Comparative Law, 22 (2005) 65. Berman, supra, note 72, pp. 1196–1201. The World Bank and the IMF have been intensifying their cooperation as the duplication of their operations increases: D. D. Bradlow and C. Grossman, ‘Limited Mandates and Intertwined Problems: A New Challenge for the World Bank and the IMF’, Human Rights Quarterly, 17 (1995) 411, pp. 433–4. In addition, the WTO has started cooperating with development institutions under the Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries, launched in 1997. ‘Working Together to Enable LDCs to be Active Players and

GEIs and the autonomy of development policy

41

development policies.86 However, the GEIs should be mindful of the fact that their primary objective is to generate economic benefits, through either development assistance or trade liberalization, and not to enforce international law rules in general.87 It is essential for the GEIs to discover the different implications for non-economic international law rules in the specific context of a particular developing country.88 Th is assumes greater importance in light of the permeating influence of GEI development policy on the domestic conditions and policies of developing countries. At this point, it is again instructive to review the above-mentioned landmark cases. Although the positive aspect of the cases is emphasized, in that the World Bank made reasonable decisions not to fund the projects in consideration of non-economic concerns, it should not be disregarded that the World Bank’s withdrawal of funds does not necessarily put an end to the planned projects themselves. For example, in the case of the Narmada Valley project, the Indian government continued to undertake dam construction even after withdrawal of the World Bank funds.89 Moreover, it is also significant to note that the World Bank’s

86

87

88 89

Beneficiaries of the Global Trading System: Integrated Framework Explained’, available at www.integratedframework.org/fi les/non-country/IF_explained.pdf (accessed 10 May 2010). The WTO has also initiated the ‘Aid for Trade’ project, which seeks to mainstream trade into development strategies; Recommendation of the Task Force on Aid for Trade, (WT/AFT/1, 2006). See also J. P. Trachtman, ‘The Missing Link: Coherence and Poverty at the WTO’, Journal of International Economic Law, 8(3) (2005) 611, pp. 619–21. Bradlow and Grossman, supra, note 85, pp. 434–8; Darrow, supra, note 31, pp. 282–4 and 287–93. For the relationship between loan agreements and other international law rules, see A. Broches, ‘International Legal Aspects of the Operations of the World Bank’, Recueil des Cours, 98 (1959-III) 297, pp. 343–53; J. W. Head, ‘Evolution of the Governing Law for Loan Agreements of the World Bank and Other Multilateral Development Banks’, American Journal of International Law, 90 (1996) 214, pp. 230–4. The fact that the World Bank and the IMF are specialized agencies of the United Nations does not affect this conclusion. It should also be noted that the World Bank and the IMF are relatively independent from the United Nations system as compared to other specialized agencies. See Agreement between the UN and the International Bank for Reconstruction and Development, 16 UNTS. 346, (15 November 1947), Article I, para. 2; Agreement between the UN and the International Monetary Fund, 16 UNTS. 326, (15 November 1947), Article I, para. 2. See also S. I. Skogly, The Human Rights Obligations of the World Bank and the International Monetary Fund (London, Cavendish Publishing Limited, 2001), pp. 103–5 and 151–2; Boon, supra, note 42, pp. 542–3. At the same time, the fact that the WTO is external to the United Nations system does not isolate it from the rules of international law adopted under the United Nations. Boon, supra, note 42, pp. 575–9. K. Dan, The World Bank and Non-Governmental Organizations (Tokyo, Tsukiji Shokan, 2006), pp. 183–4 [Japanese].

42

Yuka Fukunaga

projects often produce mixed results: while they may undermine the environment or human rights, they may be expected to achieve other similarly important interests and values, such as poverty reduction. Although these two projects illustrate cases in which environmental and human rights costs undoubtedly outweigh other benefits, there may be other cases wherein projects would require a different decision after the weighing and balancing of competing interests and values. Therefore, it is essential to consider carefully both developmental and non-economic concerns, and to adjust non-economic rules of international law and other values in accordance with the specific context of each developing country. In other words, it is not possible to apply international law rules in a uniform manner. The importance of adjusting non-economic rules and values based on specific contexts can also be illustrated by the experiences of the World Bank in promoting political reform in developing countries in order to combat corruption or restore governance in post-confl ict situations. The World Bank often attempts to achieve its goals by introducing a one person, one vote electoral system and a gender-balanced representation that are based on the principles of democracy. However, such attempts have occasionally encountered fierce resistance from local communities that claim that their traditional decision-making processes were incompatible with the values of the West .90 For example, in Indonesia, the World Bank launched a project to establish elected and gender-balanced sub-district councils in order to eradicate a political culture of corruption and to decentralize political power. Despite the overall success of the project, the councils occasionally became paralyzed due to their rejection by the traditional authorities that were excluded from the councils.91 Learning from the Indonesia experience, the Bank adopted a more flexible policy when establishing village-level councils in East Timor; they gave councils the option of making determinations by consensus and open ballot, and left traditional leaders with the responsibility of organizing the process for selecting nominees to the councils.92 Although the World Bank failed

90

91 92

F. Rawski, ‘World Bank Community-Driven Development Programming in Indonesia and East Timor: Implications for the Study of Global Administrative Law’, New York University Journal of International Law and Politics, 37 (2005) 919, pp. 930–2. Ibid., pp. 924–32. Ibid., pp. 938–40; World Bank, ‘Timor-Leste: Project Performance Assessment Report’, (27 June 2007), paras. 3.11–15. See also T. A. Kelley, ‘Exporting Western Law to the

GEIs and the autonomy of development policy

43

to suppress the opposition to the councils, it was a valuable attempt to socialize democratic principles in accordance with the traditions and values of a developing country. Recently, the World Bank successfully completed a pilot project in Ghana which aimed to integrate and improve the involvement of traditional authorities instead of bypassing them.93 These cases demonstrate the strength of the pluralist approach of endorsing the multiple meanings of seemingly universal rules and values, including democracy.

V

Conclusion

The development policies of the GEIs have been increasingly impacting on the domestic conditions and policies of developing countries. It is against this background that the GEIs have been criticized for their democratic deficit and economic bias, and have been urged to allow for the wider and more effective participation of non-state stakeholders and to take into account both economic and non-economic considerations. These criticisms have important theoretical implications in that they suggest the emergence of a global legal order. While this chapter does not deny the emergence of a global legal order, it insists on the persistent discontinuity that remains within the global legal order. The discontinuity gives a state sufficient autonomy to decide, on its own, how to adapt its rules and policies to international law. Only with this discontinuity can we preserve the diversity of our societies. When the GEIs formulate and implement development policy, they should be aware of the descriptive and normative value of the discontinuity. This chapter suggests that the pluralist approach would enable them to do so.

93

Developing World: The Troubling Case of Niger’, George Washington International Law Review, 39 (2007) 321, pp. 329–33 and 362–6. World Bank, Implementation Completion and Results Report on a Grant in the Amount of US$ Million 5.05 to the Republic of Ghana for Promoting Partnership with Traditional Authorities Project (31 May 2007).

3 Fragmentation, openness and hegemony: adjudication and the WTO Jason Beckett

I

Introduction

Contemporary international law is trapped between an incomprehensible reality of fragmentation and a sentimental dream of constitutional order: between Apology and Utopia. The process of fragmentation is a direct result of the technicalisation and specialisation inherent in the modern project of a professional international law: the attempt to model international law ever more closely on its municipal counterpart; to secure for international law the autonomy of national law. Constitutionalism forms the limit point of the juridical imagination: the ‘iron cage’, or condition of possibility, of modern juridical thought. As a result, international lawyers generally, and (incorporationist) trade lawyers in particular, have sought refuge in the idea of ‘coherence’. In accordance with this ideal, the disparate branches of a fragmented international law are to, and thus can, be brought, non-coercively, into a rational order – an order within which the essence of each sub-system is preserved, and their surface differences are shown to yield an underlying harmony of interests. However, this dream is unsubstantiated! In reality, coherence represents not a natural confluence of interests, but the unequal compromise of competing worldviews caught in mortal conflict. Because coherence is an unattainable goal, the search for ‘coherence’ becomes the wilful disregard of a reality of conflict, the hegemonic imposition of a particular project which has, always already, subsumed and regulated its ‘others’. The search for coherence can be nothing but a denial of reality, and a refusal to search after the necessarily complex responses to the challenges the process of fragmentation offers. Coherence, perceived as an alternative to strict constitutionalism, is an attempt to secure a level cohesion on a par with municipal legal orders. 44

Fragmentation, openness and hegemony

45

Given its structural pre-eminence within international law, trade law’s response to this reality is of particular importance. The pursuit of coherence disguises a hegemonic strategy: the assumption of constitutional power, of political authority, but in denial, and thus without the corollary acceptance of political responsibility.

II

Technicalisation

It is convenient to take Koskenniemi’s history of the development, professionalisation and technicalisation of public international law (PIL) as our starting point. This presents ‘modern’ international law as a project of professionalisation, technical perfection and isolation; an attempt to insulate (or at least separate) international law from power politics between nations. In short, to model international law on its domestic counterpart.1 This process should be particularly associated with Hersch Lauterpacht and Arnold MacNair, and with the establishment of the British Yearbook of International Law and the International Law Reports, alongside – commentating and reporting upon – the Permanent Court of International Justice (PCIJ), and the Covenant of the League of Nations.2 International law would be recognised as a profession, as a distinct – and valuable – system in international life. The authority of law would be based on its claims of technical expertise, and depoliticisation. PIL could then be conceived of as a single legal system, which – like any other complete system – could provide a single right answer to any given legal problem. The ideological legitimation of PIL would be directly analogous to that of domestic law: law provides singular answers to contested problems.3

III Fragmentation: the telos of specialisation Weber and Luhmann, functional differentiation However, Koskenniemi also notes that ‘the problems faced by public international law today … result in large part from that strategy … of 1

2

3

This would also have a decisive effect on the imagination of, particularly European, international lawyers and on their stock responses to crises. See note 61 and accompanying text, infra. M. Koskenniemi, ‘The Fate of Public International Law: Between Technique and Politics’, Modern Law Review, 70 (2007) 1, p. 2. N. MacCormick, ‘The Concept of Law and “The Concept of Law”’, Oxford Journal of Legal Studies, 14 (1994) 1.

46

Jason Beckett

becoming technical ’.4 Fragmentation – the perceived disintegration of PIL into discrete sub-systems or ‘self-contained regimes’ (e.g. trade law, environmental law, human rights law) – whether it is perceived as a problem or not, results from that same strategy. In other words, there is a direct – and, indeed, inexorable – link from technicalisation to fragmentation, a link inherent in the process of modernity itself. Philosophically, or sociologically, we can term this process the division of labour, which leads to ‘functional differentiation’.5 As labour, or knowledge, increases, and becomes diff use, the role of generalist becomes ever less feasible; professionalisation then leads – inexorably, and perhaps harmlessly – to specialisation. No one would be expected, for example, to be proficient in New Zealand law, or English law (nor would any self-respecting law school teach a course in either). Yet, at least sometimes, at least some of us, are expected to be proficient in international law: indeed, some even claim this proficiency for themselves.6 We can see the beginnings of a paradox here: within our specialisations, ‘we’ perceive contestation, ambiguity, vagueness and indeterminacy; yet outside our specialisations, we intuitively expect/assume the law to be clear, or at the very least significantly clearer. Th is is a vital point, the implications of which will be examined later in this chapter. The important point for now, however, is that increasing specialisation necessarily leads to fragmentation, be it the division of labour, functional differentiation, or, most drastically yet most plausibly, operational closure.

IV

Solipsism and operational closure: being an expert

Solipsism is the process of perceiving the world through ourselves, it is an epistemic necessity, a precondition of imposing intelligibility on the world. As MacIntyre has noted:

4 5

6

Koskenniemi, supra, note 2. See M. Weber, Science as a Vocation; see also W. Rasch, Niklas Luhmann’s Modernity: The Paradoxes of Differentiation (Stanford University Press, 2000); and N. Luhmann, Law as a Social System (Oxford University Press, 2004). B. Simma and D. Pulkowski, ‘Of Planets and the Universe: Self-Contained Regimes in International Law’, European Journal of International Law, 17 (2006) 483.

Fragmentation, openness and hegemony

47

to share a culture [is] to share schemata which are at one and the same time constitutive of and normative for intelligible action by myself and are also means for my interpretations of the actions of others.7

Solipsism is a closure, by means of which we impose sense upon the world by forcing its raw data into categories we understand. It is also a community concept, the schemata or categories we apply are not created by us; they are inherited.8 Thus we interpret the strange on the basis of analogies with the familiar. The specifically Luhmannian insight is that this closure causes different social systems to interpret the world differently. Indeed, taken to its logical conclusion, it causes the different systems to ‘construct’ entirely different worlds. Worlds are nothing more than the sum of their interpretations, because there is no direct access to a pre-theoretical reality.9 This gives rise to the theory of operational closure, and the distinctions between ‘system’ and ‘environment’. It also underwrites the claim that (individuals generally and) experts or functionaries in particular act within these systems as (mere) ‘points of attribution’, or ‘semantic artefacts’.10 Put simply, lawyers think like lawyers, economists like economists, moralists like moralists, etc. Each employs a specific coding to interpret the world around them, and thus the same ‘reality’ appears differently from different perspectives.11 Members of each system perceive the world only in terms of that system: for lawyers the world is understood in terms of legal/illegal; for economists profit/loss; for moralists good/bad. But these codes have no meaning outside each system. For each system, all other systems (and the communications they produce) are simply part of the environment – ‘noise’ which can be interpreted only in terms of that 7

8

9

10 11

A. MacIntyre, ‘Epistemological Crises, Dramatic Narrative and the Philosophy of Science’, The Monist, 60 (1977) 453. See further, J. Beckett, ‘Mercy, Particularity, and the Map from the Void’, Archiv für Rechts-und Sozialphilosophie, 93 (2007) 217. R. Darnton, ‘Philosophers Trim the Tree of Knowledge: The Epistemological Strategy of the Encyclopedie’ in The Great Cat Massacre, and Other Episodes in French Cultural History (London, Penguin Group, 2001), pp. 191–213. See, for example, A. Camus, The Rebel (London, Penguin Group, 2000), pp. 230–5; G. Teubner, ‘How Law Thinks’, Law and Society Review, 23 (1989) 727. Teubner, ibid. N. Luhmann, Theories of Distinction: Redescribing the Descriptions of Modernity (Stanford University Press, 2002) and Luhmann, Law as a Social System, supra, note 5; Teubner, supra, note 9 and Teubner, Law as an Autopoietic System (Oxford, Blackwell, 1993); W. Rasch, Sovereignty and Its Discontents: On the Primacy of Conflict and the Structure of the Political (London, Birkbeck Law Press, 2004); J. Beckett, ‘Confl icting Orders: How Peace is Waged’, Leiden Journal of International Law, 20 (2007) 281; J. Black, ‘Constitutionalising Self Regulation’, Modern Law Review, 59 (1996) 24.

48

Jason Beckett

system’s code.12 Thus, where ethics may declare pollution ‘bad’, the law will understand a call to make such conduct (or what it imagines ethics to consider ‘bad’ conduct) ‘illegal’. However, economics will simply perceive an additional cost (the fine) imposed on certain forms of waste disposal. The basic proposition of this chapter is that this process of operational closure also takes place within the law, and underwrites and explains the process of ‘fragmentation’ which international law is currently experiencing.13 Moreover, electing to understand and explain the phenomenon in this way leads to new insights and an enhanced understanding of the operation of this process, and what may be done about it. Conversely, failing to understand fragmentation in this way leads to increasingly pathological responses to it.

The nature of expertise Expertise then is something we develop, but it is also something which restricts us. To understand certain things is to fail, or refuse, to understand others. Expertise becomes a worldview, in confl ict with alternative expertise. The old adage ‘jack of all trades, master of none’ has as its inevitable corollary the fact that to master one ‘trade’ is the work of a lifetime; and lawyers are no more lawyers than constructors are constructors. Each field has undergone its own processes of specialisation and consequent differentiation; the latter into, inter alia, builders, joiners, plumbers, electricians, architects and interior designers. Th is is the division of labour, the process of fragmentation. Specialisation occurs because it is efficient and expedient. The division of labour allows more to be accomplished. In law, specialisation facilitates the accumulation of expertise in specific areas, at the expense of ignorance in others (where expertise will be accumulated by others, ignorant of the complexities in the former area). This involves the division not only of labour, but of the law; a division into functional areas, or specialisations: war/force; human rights; environment; trade; organisations, etc. Thus specialisation allows for increased focus and depth, for the discovery and overcoming of uncertainty and ambiguity; but also for the creation of dissension, disagreement, incoherence and indeterminacy. These may, in turn, be overcome, but at the price of consensus 12 13

Teubner, ‘How Law Thinks’, supra, note 9. G. Teubner and A. Fischer-Lescano, ‘Regime-Collisions: The Vain Search for Legal Unity in the Fragmentation of Global Law’, Michigan Journal of International Law, 25 (2004) 999.

Fragmentation, openness and hegemony

49

loss.14 Fragmentation is inexorable in the process of technicalisation, specialisation, expertise. Yet this differentiation is the motor of progress: the ‘negative’ and the ‘positive’ are inevitably intertwined.15

V

The functioning of operational closure Self-reference and coding

It has been noted, and seems widely accepted, that ‘no [self-contained] regime can be created outside the scope of general international law.’16 From this some have made the false syllogistic deduction that no such regime can exist outside the scope of general international law. This relies on the claim of lineage, or genealogy: the regime was created by PIL, and it is therefore (always and forever) part of international law. But this is simply not so. Biologically, it is tantamount to claiming that we remain, physically, part of our mothers. A more legal analogy might be that of former colonies – particularly those (like New Zealand) which were given independence voluntarily.17 In these cases, the legal system of the new state began as a part of the legal system of the colonial power; it was created within that system, but was not therefore inexorably bound to that system, not fated to remain a part of that system for all eternity. Arguably at least, the system could not have been created outside the metropolitan legal order, but it could break free of that system. It could declare its own independence, and sever its reliance on its former master. Thus the question cannot be logically foreclosed in this way. It is not a question of whether self-contained regimes can exist, but rather of whether they do exist. To return to the colonial analogy: in Luhmannian terms, the question of separation, of closure, arises when the colonial system wishes to depart from the judgements, and hence authority, of the metropolitan order. New Zealand law wishes to end its dependence on, and thus subservience to, British law. Separation is consummated when 14

15 16

17

M. Koskenniemi, ‘International Law in Europe: Between Tradition and Renewal’, European Journal of International Law, 16 (2005) 113, p. 119. Weber, supra, note 5. A. Lindroos and M. Mehling, ‘Dispelling the Chimera of “Self-Contained Regimes”: International Law and the WTO’, European Journal of International Law, 16 (2005) 857. Actually, this seems equally true of states founded on revolution, as even there the allocations (of property, rights, etc.) of the former, colonial, system generally remain as the default position, or foundation of the new legal system.

50

Jason Beckett

the question no longer stands as legal/illegal in a British legal order, but in the New Zealand one. The same question can be formulated – albeit with different force and emphases – in relation to ‘general PIL’ and the differentiated (sub?) systems of the contemporary international order.

Normative closure and cognitive openness ‘Luhmann views modernity as the fragmentation of society into a plurality of autonomous discourses characterised by the loss of a unifying mode of cognition.’18 The same division can be applied by analogy to international law, and the various ‘sub-systems’ or ‘regimes’ which have evolved from, and perhaps broken free of, international law. The moment at which a system breaks free – at which ‘hypercircular closure’ takes place – is the moment in which its own code becomes autonomous.19 Thus WTO autonomy came into being at the moment that the ‘Trade and …’ (‘linkage’) debate began to function as an independent discourse. This discourse presupposes a triple distinction between ‘WTO legal/illegal’, ‘general PIL legal/illegal’, and other sub-systems’ legal/ illegal.20 However, it is important to understand the functioning of this closure. Neither systems nor sub-systems exist in isolation. Autopoeisis is an evolution of systems theory, which, while accepting the postulate that systems are affected by their environment, that they are adaptive and open, disputed the seemingly obvious point ‘that they could be directly influenced, regulated or even determined by their environment’.21 Autopoeisis accepts that, while allowing regulating actors to ‘intervene directly by defining environmental constraints’ has some effect, it ‘became increasingly clear’ that this impact was unexpected, the system did not behave/ react as expected, or desired. A return to the idea of ‘closed systems’ was absurd – the environment did clearly affect the system – so the idea of ‘self-description’ was developed to provide a point of reference toward which the system can be organised. This ‘basic circularity and organisational closure’ alone provides

18 19 20

21

Teubner, supra, note 9, p. 738. Teubner, Law as an Autopoietic System, supra, note 11, pp. 25–46, especially 33. Actually, this may only be a twin distinction. As I shall go on to argue, ‘general PIL’ is simply another sub-system, with neither greater, nor lesser, autonomy than the others. Teubner, Law as an Autopoietic System, supra, note 11, p. 13.

Fragmentation, openness and hegemony

51

stabilising mechanisms.22 This is what moves us beyond the stalled binary debate of openness/closure:23 systems are both open and closed. That is, systems are cognitively open (they are aware of their environment, and changes therein), but normatively closed: they cannot change their basic coding. As a result, their cognitive openness is conditioned by their normative closure. Put differently, closure effects their capacity to perceive and interpret ‘reality’ (the environment). The environment can only be made sense of in terms of the system’s own code, because there must be a self-aware system to interpret that reality. Closure takes place at two levels: 1. The question of relevance (legally relevant/irrelevant) 2. The question of effect (legal/illegal)

The internal environment Operational closure is offset by, but also conditions, a ‘cognitive openness’. In brief, systems can perceive the world outside themselves – which, importantly, includes the other systems – but can understand this world only in terms of their own closure, their coding. Thus, for law the world can only be perceived in terms of legal/illegal; for economics in terms of profit/loss; science, true/false; morality, good/bad; etc. Consequently, no system can understand any other system; there is neither communicability, nor even translatability.24 Instead, each system must strive to make sense of the actions – and especially the communications – of the others, in terms of its own operational closure. Th is leads to the radical constructivism of the Luhmannian method; and on to the idea of the ‘internal environment’.25 This is an epistemic space within which each system constructs its own ‘world’; the constructions of the other systems are also located here, and it is here (alone) that systems can act intelligibly. However, their actions are intelligible only to themselves; to the other systems, including that being ‘regulated’, the actions are mere ‘noise’, ‘perturbations’ which must be constructed in terms of that system’s own code, (re)constructed within its internal environment. ‘The “binding decisions” 22 23

24 25

Ibid., p. 15–16. As exemplified in the ongoing debate between Pauwelyn and Trachtman; see infra note 57 and accompanying text. See notes 59–63, and accompanying text, infra. N. Luhmann, Social Systems (Stanford University Press, 1995), pp. 189–93.

52

Jason Beckett

that are the outcomes of the political system [are] the perturbations that irritate other systems.’26 Operational closure is an absolute bar on intersystemic understanding or communication. Each system, by identifying unity differently, effectively constructs and then observes (regulates) a different world from any other system. This is equally true of the differentiation within (international) law, and precludes escape into a fantasy of a common language or perspective shared by lawyers. This gives a different perspective on the fragmentation of PIL, which should now be understood as a series of differentiated, operationally closed, (sub-)systems, aware of, but not in (direct) contact with one another – a series of systems each of which believes itself complete, and in touch with the environment, but each ‘in fact’ communicating with, and regulating, only itself, and its interpretations of the others.

Applying foreign law: expertise effaced The ‘trade and …’ or ‘linkage’ debate is, in effect, a question of interdisciplinarity, linked to, yet separate from, the other questions of interdisciplinarity27 inherent in the application of (international) law. Like any question of interdisciplinarity, the debate entails two reductive movements which efface the expertise claimed. First, the external (‘and’ ‘linked’) discipline has to be constructed as a coherent whole, whose ‘norms’ can be readily (incontestably) identified and ‘incorporated’ by the dominant discourse (trade law). Second, this process of incorporation – i.e. in fact the process of construction outlined above – must recreate these ‘norms’ as trade norms, or ‘facts’ within trade law: as trade law variables. The first movement returns us to the paradox outlined at the beginning of this chapter;28 the second will lead us to the quite separate paradox with which the chapter concludes.29 When law is described to laypersons, it is presented as a machine,30 producing a singularly correct answer to any given question; similarly economics, political science, natural science, etc. Yet, for practitioners, each discipline is recognised as a field of contestation. Nonetheless, so-called interdisciplinarity attempts to suppress the paradox whereby 26 27 28 29 30

Rasch, supra, note 11, p. 44. For example, the interface between law and economics, or law and science. See notes 6 and 7, and accompanying text, supra. See notes 76 and 77, and accompanying text, infra. See, for example, M. Berlins and C. Dyer, The Law Machine, 5th edn (London, Penguin Group, 2000).

Fragmentation, openness and hegemony

53

the ‘dominant’ discourse is perceived as a field of contestation, and the ‘minor’ discipline is not. Think, for example, of law and economics, or international law–international relations. As a rule, the minor discipline is used as a strategic tool (weapon) in the battles over the major one. Th is requires that that discourse be presented as coherent and authoritative. Richard Posner’s dalliances with ‘economics’ in his ‘Law and Economics’ thesis/school provide a perfect illustration. Posner (presumably unsatisfied with his institutional authority) seeks the additional support of the ‘science’ of economics31 without ever engaging the disputes and confl icts within economics, let alone the external, or historical, critiques of economics (as a nonscientific discourse/discipline). His (preferred) version of economics is presented as authoritative, coherent and, moreover, capable of addressing ‘extra-economic’ questions relating to the assignment of value to social facts.32 Even those exceptions (e.g. Anne-Marie Slaughter), who nail their colours to the mast, present their version/stream of the minor discipline (e.g. international relations; IR) as both coherent and incontestable. In fact, it is neither; it is speculative and contested.33 The linkage debate requires an analogous presentation. Trade law is open-ended and indeterminate, hence it must be supplemented (for its content as well as its legitimacy) by other regimes of international law, e.g. human rights or environmental law. Thus: In its very fi rst case, the Appellate Body of the WTO observed that the WTO agreements ‘should not be read in clinical isolation from public international law’ and later specified that ‘[c]ustomary international law applies generally to the agreements between WTO members’.34

Again, a twin movement should be highlighted: first, the move to gain advantage within trade law (that is, in favour of one of (any) two (or more) positions within WTO discourse); second, the move to legitimise trade 31

32

33

34

R. Posner, Economic Analysis of Law, 7th edn (Austin TX, Wolters Kluwer Law & Business, 2007). P. Schlag, ‘“L’hors de Texte, C’est Moi” – The Politics of Form and the Domestication of Deconstruction’, Cardozo Law Review, 11 (1989–90) 1631. J. Goldstein, M. Kahler, R. O. Keohane and A-M. Slaughter, Legalization And World Politics (Cambridge MA, MIT Press, 2001); A-M. Slaughter, ‘International Law in a World of Liberal States’, European Journal of International Law, 6 (1995) 503; contra see J. E. Alvarez, ‘Do Liberal States Behave Better? A Critique of Slaughter’s Liberal Theory’, European Journal of International Law, 12 (2001) 183. Koskenniemi, supra, note 2, p. 16.

54

Jason Beckett

law’s hegemonic/expansionist tendencies.35 Moreover, this process of elision or effacement is inevitable. If the external discourse is to be ‘effectively’ employed, it must be presented (by its proponents in the dominant discourse) as coherent and authoritative; its norms self-identifying.36 This is particularly true when we consider its ‘customary’ norms, which can be applied as a part of ‘general international law’. However, custom actually adds yet another layer of complexity – because identifying customary norms entails privileging one theory above the others in the highly contested arena of the ontology of CIL.37 Quite simply, the norms of other regimes are not self-evident in the way in which incorporationist discourse demands and requires. This point is very well illustrated by Philip Alston’s reconstruction and critique of the work of Ernst-Ulrich Petersmann.38 In essence, Alston levels all of the above charges at Petersmann. He has effaced the complexities of human rights discourse; he has recast that discourse in his own (neo-liberal) economic terms; and he has used this recast discourse as a strategic tool within trade law. In doing so, he has reduced human rights to commodities, trade (law) variables held ‘for instrumental purposes’ – now negotiable like any other commodity. He has robbed human rights of their essence and specificity. But all, of course, for the very best of reasons.39

Andrew Lang and the ‘trade and …’ debate In a very interesting and ambitious intervention in the debate, Andrew Lang has suggested that we abandon the ‘trade and …’ debate,40 and recognise instead that neither the ‘trade’ nor the ‘and …’ are naturally given: both are social constructs. The effect of the ‘trade and’ debate, according to Lang, is to guarantee the subservience of the ‘and’ or minor 35 36

37

38

39

40

Beckett, supra, note 11, p. 311. Which they are not; see, for example, R. Dworkin, Law’s Empire (Cambridge MA, Harvard University Press, 1986), pp. 65–6. See J. Beckett, ‘Countering Uncertainty and Ending Up/Down Arguments: Prolegomena to a Response to NAIL’, European Journal of International Law, 16 (2005) 213. P. Alston, ‘Resisting the Merger and Acquisition of Human Rights by Trade Law: A Reply to Petersmann’, European Journal of International Law, 13 (2002) 815. It should be noted that Petersmann has offered a response to Alston, see E-U. Petersmann, ‘Taking Human Dignity, Poverty and Empowerment of Individuals More Seriously: Rejoinder to Alston, European Journal of International Law, 13 (2002) 845. A. T. F. Lang, ‘Reflecting on “Linkage”: Cognitive and Institutional Change in the International Trading System’, Modern Law Review, 70 (2007) 523.

Fragmentation, openness and hegemony

55

discourses, and the inherent supremacy of current understandings of trade, and thus of trade law. In short, the ‘trade and’ debate serves only to privilege trade law, in structure and content: it does little or nothing for the external regimes whose legitimacy it recuperates for itself.41 I agree with Lang that the ‘trade and’ debate, in reifying a particular understanding of liberal trade, forms a ‘discursive structure’ through which critiques of the liberal trade project are understood.42 Moreover, he is also correct that this structure (the understanding of the liberal trade project) has changed over time.43 However, I disagree with his assumption that trade lawyers have control over this process of change, and he is wrong to assume that they have been ‘profoundly affected by external criticism’, becoming ‘a more diverse group than ever before’44 while still remaining trade lawyers. These claims simply contradict, unless they are founded on an implicit belief in the capacity of trade lawyers to transcend the confines of their discipline, reach the Archimedean point,45 and redefine the trade project – a claim itself at odds with Lang’s focus on discursive structure and ideological evolution. The paper betrays a belief that ‘external’ values can be assimilated as internal values, and yet ‘retain’ their original structure, effect and significance. Once more: they never had such a structure in the first place (other areas of PIL are contested also); and second, to define them as part of the trade structure is precisely to define them as trade values, i.e. to endlessly perpetuate their subordination.46 Moreover, and finally, it is trade lawyers who are to carry out this process of assimilation – whilst concurrently re-imagining themselves – and thus it is as trade variables that the external norms would be incorporated. The alternative is that trade lawyers lose that homogeneity, that shared focus (the privileging of trade and economic considerations), which causes them to be trade lawyers. That loss, however, will have unintended (yet entirely predictable) effects on the adjudicative machinery of world trade law.47 41 45

46

47

Ibid., p. 524. 42 Ibid., p. 536. 43 Ibid. 44 Ibid., p. 523. Th is is an imaginary space, outside of the World, from which ‘reality’ or ‘truth’ might be accurately perceived. See, for example, J. Broackes, ‘Realism, Scepticism and the Lament for an Archimedean Point: Stroud and the Quest for Reality’, Philosophy and Phenomenological Research, 68 (2004) 415. Moreover, this subordination is also exported to, and perpetuated within, the subsystems within which the principles originated. As environmental, human rights and other lawyers perceive the tactical advantages of recognition within the (structurally superior) trade law discourse, they will learn to instrumentalise their own constitutive norms and commitments. See notes 80 and 81, and accompanying text, infra. See notes 80–90, and accompanying text, infra.

56

Jason Beckett

Emissaries from another world? I particularly like the imagery of planets and universes, whether deployed by Simma and Pulkowski, ‘Of Planets and the Universe: Self-contained Regimes in International Law’,48 or (in oddly mixed metaphor) by Pauwelyn: ‘Bridging Fragmentation and Unity: International Law as a Universe of Inter-Connected Islands.’49 The implicit claim being that a universe is both universal (vast) and yet understandable (by the universalists). Perceiving the regimes (sub-systems) as planets raises two questions of perspective. To follow the reasoning of the above authors, we should be able to lift our focus from our planet to contemplate the mysteries of the universe: yet we will still be on our planet (within our regime) looking out. Consequently, our view will remain limited, distorted by distance, simplified by lack of detail. The alternative is to seek the advice of emissaries, representative of other worlds. Presumably, these would include legal emissaries (human rights or environmental lawyers), scientific technocrats and political advisers, all kinds of experts, authorities and witnesses. But what kind of information would they bring; and who would interpret it? Follow the analogy through: imagine the Earth was to send one emissary to the stars. Should the emissary be male or female? Black or white? Rich or poor? Occidental or oriental? Reduce the scope: imagine the United Kingdom was to send one emissary – to ‘verify’ ‘British life’ to an interested New Zealander – or Aborigine, or Cuban – the same questions apply; the same complexities must be effaced. But what else could be done? We could send multiple emissaries, but then no coherent view could be formed. Similarly then, were we to receive multiple emissaries, we must choose between their claims, their testimonies, their truths. This returns us to the first problem of perspective. Who describes and who decides are interrelated, cumulative, problems. The question of expertise gives way to one of epistemic authority, the need to decide, and thus to appropriation by the authoritative discourse.

Expertise re-visited: indeterminacy Perhaps the easiest place to perceive the paradoxical effect that expertise leads to indeterminacy is in so-called general international law: the 48 49

Supra, note 6. J. Pauwelyn, ‘Bridging Fragmentation and Unity: International Law as a Universe of Inter-Connected Islands, Michigan Journal of International Law, 25 (2004) 903.

Fragmentation, openness and hegemony

57

law of treaties and custom, of general principles, structure, coherence and interpretation.50 As initially noted by the American Legal Realists, and recapitulated by the Critical Legal Studies (CLS) movement, the ‘rules’ on legal interpretation (e.g. as encapsulated in arts. 31 and 32 of the Vienna Convention on the Law of Treaties; VCLT) are contradictory to the point of being meaningless: 31 (1). A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 32. Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable. According to art. 31, one must neither add to nor subtract from the text, merely interpret ‘naturally’, whatever that means.51 However, according to art. 32, if that is ambiguous or ‘absurd’ (unpalatable) one may go behind the text, find an ‘intention of the parties’. Moreover, and returning to art. 31, if the result is still undesirable, one may impose an ‘object and purpose’ (a telos) on the text, and interpret in its light. Still unsatisfactory? Add or remove words as necessary to realise the telos imposed. In short: do as you will is the whole of the law.52 The result is ‘decontextualised and arbitrary reasoning’, as Young has described the approach of the Panel in the Biotech case.53 Th is problem is endemic, and may be magnified (or at least made manifest) by the perfectly understandable desire for ambiguity – and

50

51

52

See M. Young, ‘The WTO’s Use of Relevant Rules of International Law: An Analysis of the Biotech Case’, International and Comparative Law Quarterly, 56 (2007) 907, pp. 920–1; J. Beckett, ‘Rebel Without a Cause? Martti Koskenniemi and the Critical Legal Project’, German Law Journal, 7 (2006) 1045, p. 1057; Pace I. Cheyne, ‘Gateways to the Precautionary Principle in WTO Law’, Journal of Environmental Law, 19 (2007) 155. On the fallacy of ‘ordinary meaning’ interpretation, see Beckett, supra, note 50; see also Schlag, supra, note 32; and S. Fish, Doing What Comes Naturally (Durham NC, Duke University Press, 1990). For arguments discounting the possibility of securing determinacy via linguistic precision, see W. Sharrock and B. Anderson, The Ethnomethodologists (Chichester UK, Ellis Horwood, 1986). See Young, supra, note 50, pp. 922–5. 53 Ibid., p. 924.

58

Jason Beckett

thus interpretative discretion – in legal texts.54 Moreover, it is radically exacerbated by what I have elsewhere analysed as ‘non-semantic indeterminacy’.55 This takes two forms: first is the multiplicity of values said to underlie international law (and thus offer themselves in the roles of telos and intention); the second is a radical disagreement as to what constitutes a norm of customary international law.56 As a result, all (international) lawyers are caught: even ‘general PIL’, which may even become, paradoxically, the most specialised of the sub-fields.

VI

Coherence and hegemony: the delusion of (Dworkinian) interpretation

One thing should be made clear, in case it is not already obvious: my concern in this chapter is not with competence, but with capacity. This is not simply a re-run of the Pauwelyn–Trachtman spat concerning the interpretation of the WTO’s statutes.57 It is not about whether the Panels are entitled to apply external law, but rather about whether they are able to do so. My thesis is that they are not able to do so, regardless of any normative grant of entitlement. Put differently, I would dispute the implicit assumption that, because openness or incorporation is permitted, therefore it must also be possible. External norms simply do not exist in a manner which would allow their incorporation in WTO law; moreover, even if they did, the system’s own closure would entail not incorporation but reconstruction. The norms to be applied by the WTO can only be WTO norms. External norms must be constructed as internal ‘facts’ in the WTO’s internal environment58 – facts whose very existence is conditioned on the WTO’s closure and coding: facts/norms of WTO law, reflecting trade 54

55 57

58

M. Koskenniemi, From Apology to Utopia, 2nd edn (Cambridge University Press, 2005), p. 591; Contra , I. Scobbie, ‘Wicked Heresies or Legitimate Perspectives? Theory and International Law’ in M. D. Evans (ed.) International Law, 2nd edn (Oxford University Press, 2006), pp. 89–92. Beckett, supra, note 50, pp. 1057–9. 56 Beckett, supra, note 37. See, for example, J. Pauwelyn, ‘The Role of Public International Law in the WTO: How Far Can We Go?’, American Journal of International Law, 95 (2001) 535, pp. 535–78; and ‘The Jurisdiction of the WTO’, American Society of International Law Proceedings, 98 (2004) 135, pp. 135–8. Contra, J. Trachtman, ‘The Domain of WTO Dispute Resolution’, Harvard International Law Journal, 40 (1999) 333, pp. 333–7; and ‘The Jurisdiction of the WTO’, American Society of International Law Proceedings, 98 (2004) 139. Although attempting to argue the exact opposite, this point is clearly illustrated by Cheyne, note 50 supra, pp. 160–1 and 168, and openly conceded, p. 171.

Fragmentation, openness and hegemony

59

law’s underlying economic focus. As Cheyne – in an article designed to support the incorporationist claim – states, ‘The Appellate Body has … treated the provisions that reflect [environmental law] as internal rules for the purposes of interpretation.’59 It is because of the radical indeterminacy of PIL,60 and the impossibility of incorporation or transplantation, that there can be no overall (external) perspective, no systemic view, no possibility of coherence. Thus, where Pauwelyn notes: ‘systemic interpretation’, that is, interpretation of a treaty in the context of the broader system of international law, including custom, general principles and certain other treaties (as in the US – Shrimp/Turtles and Oil Platforms cases), is an important conflict-avoidance tool.61

He misses the point entirely, replacing the question at issue with a sentimental abstraction.62 The conclusion of Koskenniemi’s argument is that the discovery of ‘coherence’, or the ‘values already embedded in the legal system’, the identification of a coherent ‘segmental expression’ of policy, is an imposition of one view, not the discovery of an Archimedean Point: The interpretative techniques lawyers use to proceed from a text or a behaviour to its ‘meaning’ create (and do not ‘reflect’) those meanings … Hermeneutics, too, is a universalisation project, a set of hegemonic moves that make particular arguments or preferences seem something other than particular because they seem, for example ‘coherent’ with the ‘principles’ of the legal system … But they offer no … authentic translation of the ‘raw’ preferences of social actors into (universal) law.63

59 60

61

62

63

Ibid., p. 171. On the ubiquity and radicality of indeterminacy in PIL, see Beckett, supra, notes 37 and 50; Koskenniemi, supra, note 54; and Rasch, supra, note 11. J. Pauwelyn, ‘The Fragmentation of International Law’, available at www.law.duke.edu/ fac/pauwelyn/pdf/fragmentation_of_international_law.pdf (accessed 16 May 2009), para. 29. However he had already conceded in para 15: ‘… Martti Koskenniemi, for example, has pointed out that unity is a hegemonic project which seeks the predominance of my perspective, my institution.’ Gillian Rose develops the concept of sentimentality, which she describes as our capacity to ‘embellish [our] arbitrary selectivity of compassion in rhapsodies or melodramas’; or, for lawyers, objective narratives of legal perfection and personal exculpation. All of which function to externalise suffering and deny our own implication, ‘leav[ing] us emotionally and politically intact’, ‘secure’ but gazing only at a comforting illusion, like ‘coherence’ or ‘confl ict-avoidance’. See Mourning Becomes the Law (Cambridge University Press, 1996), especially pp. 48–54. See, also, notes 65–76, and accompanying text, infra. Koskenniemi, supra, note 54, p. 597–8, footnotes omitted.

60

Jason Beckett

Put in more practical terms: Even if the institutions were to apply the same rules, they would apply them differently owing to ‘differences in the respective context, object and purposes, subsequent practice of parties and travaux preparatoires’.64

Any attempt at coherence could function only internally to a given system – the WTO believing itself to be coherent with general PIL – or through the imposition of hierarchy or meta-system; the ‘constitutionalisation’ of PIL .

VII Law(yer)s’ desire for a meta-system Coherence was intended to function as a non-hierarchical equivalent to constitutional order; but it cannot do so. However, constitutionalisation, order and the avoidance of norm-conflicts are deeply ingrained in the lawyer’s psyche. As Koskenniemi has noted, many of ‘our’ ‘European’ desires for international law are based on a solipsism which causes us to interpret the international order through the assumptions by which we make (normative) sense of the municipal: The domestic analogy that persuades us – contrary to all evidence – that the international world is like the national so that legal institutions may work there as they do in our European societies … we read international law in the image of our domestic legalism … Today, that tradition is most visibly articulated in the debate … about the constitutionalization of international law under the UN Charter.65

However, it is important to realise that the question of ‘visible articulation’ is quite distinct from that of existence. That is, the constitutionalisation debate is simply the most open, naïve, version of the desire for hierarchical ordering. This provides the context for Pauwelyn’s claim that: The challenge ahead is to fi nd a balance between, on the one hand, the need for diversity and specialized regimes and solutions and, on the other hand, the importance of maintaining an overall framework or ‘system’ of international law that offers a sufficient degree of security and coherence.66

The whole point of constitutionalism is to establish the hierarchical superiority of the constitution and, under the constitution, the hierarchical ordering of political and juridical institutions. The central problem 64 66

Koskenniemi, supra, note 2, p. 7. Pauwelyn, supra, note 61.

65

Koskenniemi, supra, note 14, p. 122.

Fragmentation, openness and hegemony

61

in attempting to replicate the model at the international level revolves around the allocation of authority: which document should form the constitution? Which body should sit at the apex of the hierarchical triangle? Coherence was an attempt to circumvent this problem, replacing the hierarchical structure with a heterarchy of agreement, consensus, cooperation and compromise. It was an attempt which failed, and did so inexorably: if competences are to be allocated, a meta-system is required. At the municipal level, Black has noted that: There is a need to develop an understanding of the role of law in the context of a functionally differentiated society 67 … [where] in place of the hierarchy of ‘state–individual’ there is a heterarchy of different spheres of society … mediate[d] in a horizontal manner.68

However, this heterarchy – and the role of law in relation to it – exists in the shadow of law’s (assumed) hierarchical superiority: it is the question of how law ought to regulate/supervise a heterarchy existing beneath it (but presumed to be valuable). It is precisely this (potentially failing) model which has a stranglehold on juridical thought. Thus, Teubner and Fischer-Lescano note how international lawyers: Direct themselves to a hierarchical solution to the problem, which, whilst not wholly reproducing the ideal of legal hierarchies of the nation-state, at least comes somewhere close to it.69

Pauwelyn encapsulates the desire for justice through order when he notes that: [The] ‘fall-back’ on other rules of international law, without the need for any explicit incorporation or reference in the treaty under examination, is a crucial, if not the most important, tool to maintain a modicum of coherence and interaction between the branches of international law.70

However, as Koskenniemi observes: Constitutionalism, as we know it from the national context, relies on some basic understanding of the common good.71

Perhaps then: A more plausible constitutionalism remains formal. It suggests that system and hierarchy are intrinsic to juristic thought and thus also to international law.72 67 69 70 72

Black, supra, note 11, p. 24. 68 Ibid., pp. 28–9. Teubner and Fischer-Lescano, supra, note 13. Pauwelyn, supra, note 61, para. 28. 71 Koskenniemi, supra, note 2, p. 16. Ibid.

62

Jason Beckett

This seems just as circular, eliding ‘juristic thought’ with the modern European nation-state, and its political ordering – an ordering predicated on the very same imposed unity of values that the formalising project was designed to dispense with. Simply another, albeit more elaborate, European sentimentality.73 Moreover, and more importantly, it does not address the unavoidable and substantive question of which document or institution should sit at the apex of the hierarchy. Coherence, to repeat, is simply another manifestation of this constitutional order. The heterarchy of functional differentiation sits beneath a hierarchically superior document (e.g. the UN Charter) or institution, e.g. the jurisdictionally privileged WTO adjudicative machinery. As a direct consequence, any move by the WTO to assume ‘responsibility’ for the concerns of other sub-systems entails assuming authority to interpret (construct) those systems within its own protocols;74 to reinforce and legitimate its own hierarchical superiority.75 Constitutionalism with the UN Charter (and thus the International Court of Justice; ICJ) at its peak is directly analogous to coherence with ‘General PIL’ (and thus the WTO’s interpretation of PIL) at its ‘summit’ (or ‘core’). The structural location of the WTO, as an institutionalised system, places a premium upon its constructions of ‘external’ law. Consequently, the desire for ‘openness’ leads to a hegemonic or imperialistic claim: a colonisation, and perpetual subordination, of the other sub-systems of PIL.76 The result could be termed the Pauwelyn Paradox: in attempting to ensure that ‘there is more to life than trade’,77 we turn all non-trade issues into trade variables.

VIII

Implications for WTO adjudication

It is fair to argue, I believe, that law is inherently universalist; very few legal scholars, practitioners, or theorists would be happy with the idea of spaces outside the law – of zones of lawlessness.78 However, from 73

74 75 77

78

The juristic form has served us well, and thus simply is the appropriate form. Even when it patently does not work, there can be no alternative. Another comforting, exculpatory, illusion, see supra, note 62. Young, supra, note 50, pp. 908, and 920–1. Beckett, supra, note 11, p. 311. 76 Koskenniemi, supra, note 2, p. 27. J. Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to other Rules of International Law (Cambridge University Press, 2003), p. xi. Steyn, ‘Guantanamo Bay: The Legal Black Hole’, presented at 27th F.A. Mann Lecture, The British Institute of International and Comparative Law and Herbert Smith (London,

Fragmentation, openness and hegemony

63

an autopoietic perspective, this is not unique: all systems perceive themselves as complete, and thus as constitutive and regulative of the entire world. For a system to perceive a problem as extant is for that system to believe that it (alone) can provide the (correct/appropriate) solution.79 Th is is no less true of WTO law – which shares with domestic law the privilege of hierarchical superiority within its social context, a privilege which functions to reinforce the assumption of unlimited jurisdiction. However, as noted, all systems have this tendency, and thus systems come into conf lict, they overlap, contest and compete. This ‘war of the social systems’80 is inevitable, because no system has any reality for any other system, and each system is sovereign over itself, and hegemonic in regard to others. The war can be denied or disguised, most especially if one (or more) system(s) is raised to the level of metasystem. 81 However, even then, the war is not ended, but displaced, internalised. This can occur – and can appear not to occur – because systems are paradoxically more sovereign over their constructions of each other than they are over themselves. ‘Real’ systems are heterogeneous, but can be externally constructed as homogenous precisely because of systems’ sovereignty over their own internal environment. Internally, law, ethics, economics, politics and so on are indeterminate; but externally they can be made to appear determinate and clear. This is important, because hegemonic systems – e.g. law – base their claims to hegemony on their capacity to learn from, or incorporate, other systems. Thus, a ‘sovereign’ law will be economically efficient, ethical, prudent, pragmatic and so on. However, this is possible only on the condition that law claims the ‘epistemic authority’ to determine the wise, ethical, efficient and so on; and that is possible only within the internal environment of law.

79

80

25 November 2003), available at www.statewatch.org/news/2003/nov/17Guantanamo. htm (accessed 22 February 2008). It is worth emphasising that, in the Luhmannian model, social-systems form the primary epistemic subjects, with individuals secondary at best. Thus references to subsystems are not synonymous to references to their practitioners: that, for example, land or environmental law perceives itself as complete does not entail that individual land or environmental lawyers share this perception, except when they are operating purely as land or environmental lawyers. Beckett, supra, note 11, pp. 308–10. 81 Rasch, supra, note 11, p. 39.

64

Jason Beckett

The regulatory trilemma This expansionist tendency – which is precisely advocated for the WTO by incorporationist scholars – appears, from an ‘external’ (or, rather, differently situated) perspective as a pathological overreach. The nature of the pathology is unclear, uncertain, or perspective-dependent: The result is the regulatory trilemma. Law is either ignored by the system, or it destroys that system’s traditional norms of behaviour; or it is itself disintegrated by the pressures imposed on it by the political and social systems.82

The classic development of the trilemma concerned the ‘interaction’ of law and ‘the lifeworld’ in a domestic setting, particularly where the law was asked to perform regulative (rather than censorial) functions. However, it can also be usefully transposed to a setting of internal legal fragmentation. Moreover, this transposition brings into relief the multiple, concurrent, pathologies of WTO overreach. Consider, for example, the ‘interface’ of WTO and environmental law: the so-called gateway principle. This claims that the WTO ‘reflects’ or ‘incorporates’ environmental law, and, particularly, the precautionary principle. However, the principle’s status, meaning and effect in environmental law are never examined. Instead, the WTO interprets its own statutes, returning, recursively, to its own previous judgements, creating the appearance of a precautionary principle – but one which has very limited (if any) practical effect.83 Thus, ‘the law’ (precautionary principle) is ignored by the system, or rather by two systems. In ‘reality’, precautionary measures are not permitted; in the WTO the richness of environmental law is effaced.84 Moreover, in appearing to consider the principle, the WTO has constructed its own image, within its internal environment.85 However, that ‘image’ appears as a particular form of noise within the system of environmental law. Given the structural imbalance whereby the WTO has compulsory jurisdiction, and environmental law no jurisdiction, 82 83 84 85

Black, supra, note 11, p. 47. Cheyne, supra, note 50, p. 171. See, also, notes 51–3, and accompanying text, supra. Young, supra, note 50, pp. 911, 912 and 915. On a similar note, but for structural rather than epistemic reasons, see H. Grosse RuseKhan, ‘Proportionality and Balancing within the Objectives of Intellectual Property Protection’ in P. Torremans (ed.), Intellectual Property and Human Rights (Alphen aan den Rijn, Netherlands, Kluwer Law International; Enhanced edn of Copyright and Human Rights, 2008), section IV.

Fragmentation, openness and hegemony

65

this noise becomes significant. The decision, being made by a court,86 has authority, and this opens up the political question of WTO hegemony.

The Hartian desire for verification In attempting to rescue law from the vagaries and idiosyncrasies of moralist or metaphysical reasoning (scholastic dogmatism), Hart redefined the project of jurisprudence as ‘an exercise in descriptive sociology’. Even though it can be demonstrated that law is neither a brute fact, nor a sufficiently coherent theoretical construct to facilitate this descriptive enterprise,87 one aspect of the Hartian project has proven particularly difficult to escape: the lawyer’s desire for verification. Thus where Hart was content to criticise other theorists for being ‘prepared to ignore any actual decisions of judges which run counter to their own logical calculations’88 and thus displaying a lack of care ‘for the actual practice of the law’, Hartian thinkers learn a different lesson: a proposition’s appearance in the text of a legal decision is (conclusive) proof of its validity. Think, for example, of the extensive focus by human rights lawyers on the Pinochet case89 in the United Kingdom’s House of Lords. The judges’ patent lack of expertise in PIL was quite ignored; what counted was their ‘authoritative’ determinations on the customary nature of the prohibition on torture. Likewise, the Canadian Supreme Court’s selfconsciously obiter remarks, in the Quebec case,90 on the putative ‘right to secession’ in PIL have been treated as an authoritative verification of that right. Lawyers, in short, like cases! Thus there are political consequences to expansive WTO jurisdiction. Because the WTO has compulsory jurisdiction, its views – its findings – have additional authority; they will 86

87 88

89

90

As Koskenniemi has noted, ‘The Appellate Body is today treated as a “court” and its members as “judges,” and its reports are read at government offices and universities as “judgments” whose “binding force” is hardly undermined’, see ‘Constitutionalism as Mindset: Reflections on Some Kantian Themes in International Law’, Theoretical Inquiries in Law, 9 (2007) 20. Beckett, supra, notes 37 and 50. H. L. A. Hart, Essays in Philosophy and Jurisprudence (USA, Oxford University Press, 1984), p. 268. For the manner in which Hartian analysis necessarily falls into the same trap, albeit prioritising personal preference over logical calculation, see Beckett, supra, note 50, pp. 1052–7. R v. Bow Street Metropolitan Stipendiary Magistrate, ex parte Pinochet Ugarte (No 3.) [2000] 1 AC 147. Reference Re Secession of Quebec (1998) 161 DLR (4th) 385.

66

Jason Beckett

be relied on as evidence of the state of the law outside the WTO framework. Thus, for example, Philippe Sands presents the decision in the Beef Hormones case as a ‘rule of risk assessment’ ‘appropriate [to] the international community’,91 that is, as a rule of environmental law; or at the very least, as material evidence of such a rule.

Gateways work two ways The metaphor of a ‘gateway’ is both instructive and distorting. It is distorting insofar as it underpins the idea of a freestanding ‘legal principle’, ‘norm’ or ‘rule’ existing – as a ‘thing-in-itself’ – outside the ‘estate’ of WTO law. An entity which is then ‘brought into’ that estate, that regime: unaltered, merely displaced.92 As has been demonstrated above, this is simply an inaccurate description of the processes of norm construction, identification and interpretation which occur when external law is ‘perceived’ and ‘applied’. Instead this is a truly constructive process whereby the legal norm is not displaced, transplanted, or even ‘transposed’, but entirely created (albeit under the guise/delusion of replication) within the WTO system. However, the metaphor is also helpful, serving to remind us of the bi-directional effects of this process of norm-construction. Put simply, gateways work two ways: allowing things in, but also allowing things out. Of course there is, in fact, neither ingress nor egress, and yet the normative terrain is altered on either side of the gateway. What is created within the WTO is also (re)constructed (reflected) without. The WTO’s ‘recognition’ or ‘interpretation’ of external norms also affects those norms in their own field of application.93

Homogeneity lost? Openness and the disintegration of trade law The fi nal ‘option’ within the trilemma – and perhaps an alternative reading of Lang’s proposal – is that WTO law takes the external norms

91

92

P. Sands, ‘Environmental Protection in the Twenty-First Century: Sustainable Development and International Law’ in R. L. Revesz, P. Sands and R. B. Stewart (eds.) Environmental Law, the Economy, and Sustainable Development (Cambridge University Press, 2000), p. 387. Cheyne, supra, note 50, p. 161. 93 This is implicitly conceded, ibid., p. 169.

Fragmentation, openness and hegemony

67

seriously. Environmentalists, human rights lawyers, and so on are invited on to the Panels and the Appellate Body, not as experts or witnesses, but as judges: their expertise is raised to a level equal to, or greater than, that of their trade law brethren.94 The system of the WTO would then be ‘disintegrated’, and replaced by a system of environmental or human rights adjudication, or, more likely, by open confl ict in the guise of judicial decision-making.

IX

Conclusions

Something remains plausible about the suggestion that hierarchy, order and coherence are intrinsic to juristic thought, and the implied claim that juristic thought is good, somehow valuable.95 It seems paradoxical to claim that juridical thought is good within the sub-systems, but bad between the sub-systems; and yet – as Luhmann has so famously, and repeatedly, noted – paradoxes are not inherently bad, and indeed, are often productive.96 Any attempt to introduce a meta-system to allocate disputes, competencies, or to find coherence would, necessarily, be hegemonic. The system would be doubly pathological in (a) claiming its own absolute truth (a neutrality amongst the other systems) and (b) simply internalising the conflicts within, and between, systems into itself.97 Perhaps then the better option is simply to acknowledge these conflicts, this inevitable fragmentation which technicalisation has bequeathed us: It is this change to which international lawyers have reacted by speculating on the ‘dangers’ of incoherence, forum shopping and, perhaps characteristically, ‘loss of overall control’.98

Perhaps we must learn to embrace this loss of control, or better still, to re-imagine it as an assumption of responsibility. Coherence, hierarchy, accommodation and other mechanisms of confl ict displacement are,

94

95

96

97

See Grosse Ruse-Khan, supra, note 85, for a similar argument, but again one based on a structural bias rather than epistemic limitation, and thus presupposing the possibility of an external perspective, from which such biases could be overcome. Th is claim is made explicit in Koskenniemi, supra, note 14, pp. 118–19, and supra, note 54, p. 591; see also Beckett, supra, note 50, pp. 1059–64. N. Luhmann, ‘The Th ird Question: The Creative Use of Paradoxes in Law and Legal History’, Journal of Law and Society, 15 (1988) 153. Beckett, supra, note 11, pp. 311–12. 98 Koskenniemi, supra, note 2, p. 4.

68

Jason Beckett

perhaps, better understood as conflict denial, and thus of a refusal of responsibility: see no evil, hear no evil, speak no evil. But conflict disguised/denied is not confl ict resolved. These mechanisms are simply insidious, devious deployments of hegemonic strategy.99 It may be true, as Koskenniemi has suggested, that knowledge of the forum in which a dispute will be decided is tantamount to knowledge of the decision which will be made,100 but coherence and order will not alter this. All they do is displace/deny responsibility for dispute allocation.101 Consequently, even if fragmentation is the problem, constitutionalisation is not the solution. This remains true when the constitutionalisation project is presented as an embrace of heterarchy through the possibility of coherence. This ‘solution’ does not escape the problems of hierarchy and power; it is simply an attempt to exercise constitutional authority, without claiming that authority, and so avoiding the need for political justification. Moreover, the move to hierarchy or coherence also insulates states from the political responsibility entailed by their adoption of concurrent but contradictory obligations, for example, in the fields of environment and trade. By allowing a tribunal to adjudicate on, or rather create and impose, a ‘coherence’ between these obligations – within a juridical framework which a priori privileges the trade law perspective – states can avoid the responsibility inherent in making such politically contested choices between their obligations, and the confl icting political priorities which they manifest. It is neither the judicial role to accept this responsibility, nor an acceptable political position for states to ‘outsource’ it. Both options – constitutionalisation and coherence – appear attractive principally because hierarchical, constitutional order forms the ‘iron cage’ of possibility,102 the limit point of the juridical imagination. However, the problematic is not, necessarily, that of surpassing the

99

100 101

102

Koskenniemi, supra, note 54, pp. 597–8; R. Cover, ‘Nomos and Narrative’, Harvard Law Review, 97 (1983) 4, p. 60, and ‘Violence and the Word’, Yale Law Journal, 95 (1986) 1601, p. 1628; J. Beckett, ‘The Violence of Wording’, No Foundations: The Journal of Extreme Legal Positivism (forthcoming 2010). Koskenniemi, supra, note 2, p. 8. On the relationship between the existence of a normative order and the abdication of responsibility, see F. Johns, ‘Guantanamo Bay and the Annihilation of the Exception’, European Journal of International Law, 16 (2005) 613. M. Weber, The Protestant Ethic and the Spirit of Capitalism (T. Parsons trans.) (London, Allen & Unwin, 1989), p. 181.

Fragmentation, openness and hegemony

69

municipal analogies and solutions which dominate juridical thought; but simply of recognising their contingency, their potential inadequacy (in either context) and their costs. It is merely a question of offering alternative conceptualisations. The challenge, of course, is imagining those alternatives.

PA RT I I WTO treaty interpretation: implications and consequences

4 Demanding perfection: private food standards and the SPS Agreement Tr acey Epps

I

Introduction

In a June 2005 meeting of the WTO’s Committee on Sanitary and Phytosanitary Measures (the SPS Committee), St Vincent and the Grenadines and Jamaica voiced concern about difficulties exporting bananas due to strict safety and quality standards imposed by British supermarkets.1 With other countries, they raised the issue again at meetings in October 20062 and June 2007.3 These producer countries’ concerns are driven by an increasing trend for private retailers in developed countries to require adherence from their suppliers with, inter alia, food safety standards that are more stringent than official government regulations. The countries in question have argued that, under the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement), governments are responsible for standards set by their private sectors. However, this argument is contentious and there is no supporting precedent for the complaining countries’ position. This chapter examines whether the SPS Agreement

1

2

3

Committee on Sanitary and Phytosanitary Measures (SPS Committee) – Note by the Secretariat, ‘Summary of the Meeting Held on 29–30 June 2005’, (WTO Doc. G/SPS/R/37/ Rev. 1, 2005), p. 6. The other countries were Argentina, Belize, Cuba, Dominica, Egypt, Indonesia, Kenya and South Africa. SPS Committee – Note by the Secretariat, ‘Summary of the Meeting Held on 11–12 October 2006’, (WTO Doc. G/SPS/R/43, 2006), p. 11. The other countries were Egypt, Pakistan, Ecuador, Brazil, Cuba, Belize, Chile, Venezuela, Argentina, Kenya, South Africa, Dominican Republic, Mexico, Colombia, China, Bolivia, Costa Rica, Peru and Rwanda. ‘Sanitary and Phytosanitary Measures: Developing Countries Complain about Pesticide Residue Requirements’, (WTO, News Items, 27 and 28 June 2007).

73

74

Tracey Epps

covers private sector standards.4 It concludes that it does not and considers some of the implications of this conclusion.5 Private standards potentially undermine the SPS Agreement’s objectives, impacting negatively on the international trading system and causing difficulties for developing countries. Conversely, they provide significant benefits for the private sector. Section II describes the use of private standards in the global agrifood system. Section III examines the SPS Agreement’s objectives and rules and concludes that they are not applicable to private food standards. Section IV considers the implications of this conclusion for the international trading system, for developing countries and for retailers and consumers. Section V concludes and raises questions for further research.

II

Private standards

Development and coverage Private standards deal predominantly with matters of food safety, but also cover quality and various social and environmental issues related to food production. Food safety regulation has traditionally been the domain of governments, with input from international bodies such as the Codex Alimentarius Commission (Codex).6 However, it is increasingly characterised by a mix of public and private organisations.7 On the private side, retailers have enormous buying power which enables them to impose 4

5

6

7

Th is question is currently being discussed within the SPS Committee. See for example, SPS Committee – Note by the Secretariat, ‘Private Standards and the SPS Agreement’, (WTO Doc. G/SPS/GEN/746, 24 January 2007). There may also be a question as to whether some of the private standards of the type referred to in this chapter are covered by the Technical Barriers to Trade (TBT) Agreement which covers documents that lay down ‘product characteristics or their related processes and production methods’ and with which compliance is mandatory; and also non-mandatory standards promulgated by ‘standardising bodies’. I have chosen to focus here on the SPS Agreement due to space constraints and the fact that, to date at least, more controversy has arisen over food standards that are covered by the SPS Agreement. For a brief discussion of TBT Agreement-related issues, see J. Bohanes and I. Sandford, ‘The (Untapped) Potential of WTO Rules to Discipline Private Trade-Restrictive Conduct’, working paper presented at the Society of International Economic Law Inaugural Conference (Geneva, July 15–17 2008), p. 30. Created in 1963 by the Food and Agriculture Organization (FAO) of the United Nations and the World Health Organization (WHO) to develop food standards, guidelines and related texts. T. Havinga, ‘Private Regulation of Food Safety by Supermarkets’, Law and Policy, 28 (2006) 515, p. 516.

Private food standards and the SPS Agreement

75

standards on suppliers and producers.8 Importers may also be involved in the development of private standards where they are contractually liable to the retailer for failure to supply products to desired safety and quality levels.9 Private standards are prevalent across Europe and are increasing in other countries, including the United States and Japan, as well as middle- and lower-income countries.10 Private food safety standards focus on various aspects of the supply chain from ‘farm to fork’. Good agricultural practice (GAP) covers production and harvesting up to when the product leaves the farm gate, while good manufacturing practice (GMP) covers processing.11 Requirements include how an item is produced, harvested, cooled, washed, graded, sorted, handled, processed, packed, stored, transported, traded, distributed and sold.12 Recently, standards have also begun to encompass social and environmental issues such as labour standards, occupational health and safety standards and climate change.13 Private standards are often more stringent than public regulations. EU regulation, for example, tends to require equivalence of risk outcomes, while private standards require equivalence of processes.14 In a recent survey of 16 leading retailers in OECD countries, 85 per cent reported that their standards were higher than the relevant government standard, while about half reported that they were significantly higher.15 8

9

10

11

12 13

14

15

P. N. Grabovsky, ‘Green Markets: Environmental Regulation by the Private Sector’, Law & Policy, 16 (1994) 419, p. 429; cited in Havinga, supra , note 7, p. 525. S. Willems, E. Roth and J. van Roekel, ‘Changing European Public and Private Food Safety and Quality Requirements: Challenges for Developing Country Fresh Produce and Fish Exporters – European Union Buyers Survey’, The World Bank, (Agriculture and Rural Development Discussion Paper, 2004), p. 19. S. Jaffee and S. Henson, ‘Standards and Agro-Food Exports from Developing Countries: Rebalancing the Debate’, The World Bank, (Policy Research Working Paper 3348, 2004), p. 2; T. H. Jonker, H. Ito and H. Fujishima, ‘Food Safety and Quality Standards in Japan: Compliance of Suppliers from Developing Countries’, The World Bank, (Agriculture and Rural Development Discussion Paper, 2004). J. E. Lamb, J. A. Velez and R. W. Barclay, ‘The Challenge of Compliance with SPS and Other Standards Associated with the Export of Shrimp and Selected Fresh Produce Items to the United States Market’, The World Bank , (Agriculture and Rural Development Discussion Paper, 2004), p. 18. Ibid., p. 18. D. Gascoigne and O’Connor and Company, ‘Private Voluntary Standards Within the WTO Multilateral Framework’, (WTO Doc. G/SPS/GEN/802, 2007), p. 15. G. C. Lee, ‘Private Food Standards and their Impacts on Developing Countries’, European Commission, (2006), p. 6. Committee for Agriculture, ‘Final Report on Private Standards and the Shaping of the Agro-food System’, OECD Directorate for Food, Agriculture and Fisheries, (2006), p. 23. See also Lee, supra, note 14.

76

Tracey Epps

The literature suggests that the private sector ‘has jumped ahead of the public sector, substituting consumer demand for citizen demand, market accountability for governmental accountability’.16 Private regulation is moving faster than governmental regulation and is broader in scope.17 In some cases, private standards are the impetus behind legislative developments.18

Motivation The primary motivation for the development of private standards is the desire of retailers to obtain a competitive advantage in the market. Setting strict and publicly visible standards is considered key in securing customer loyalty and increasing the value of a firm’s reputation.19 In particular, setting safety and quality standards that go beyond minimum government requirements helps protect the value of private brands and builds reputation.20 In Europe, the value of going beyond government requirements arose out of various food safety scares beginning in the 1980s – including bovine spongiform encephalopathy (BSE or ‘mad cow disease’) and dioxin contamination – which led to a decline of public confidence in the ability of governmental regulatory agencies to deal with food and agricultural safety issues.21 In Japan, a number of scandals, including a food poisoning outbreak caused by dairy products and the discovery of illegal levels of pesticide residues in frozen vegetables, had a similar effect.22 Many governments are under budgetary constraints which limit the scope of their regulatory activities, even in the face of such events.23 While some governments have responded in recent years to consumer

16

17 18

19 20 21 22

L. Busch and C. Bain, ‘New! Improved? The Transformation of the Global Agrifood System’, Rural Sociology, 69 (2004) 321, p 335. See also S. Henson and T. Reardon, ‘Private Agri-food Standards: Implications for Food Policy and the Agri-food System’, Food Policy, 30 (2005) 241, pp. 243–4. Busch and Bain, supra, note 16. For example, in Switzerland, an animal welfare scheme implemented by a supermarket was later adopted into government legislation. L. Fulponi, ‘Private Voluntary Standards in the Food System: The Perspective of Major Food Retailers in OECD Countries’, Food Policy, 31 (2006) 1, p. 8. Ibid., p. 6. Ibid. See also Gascoigne and O’Connor and Company, supra, note 13, p. 14. Fulponi, supra, note 18, pp. 2 and 9. Jonker et al., supra, note 10, p. 6. 23 Fulponi, supra, note 18, p. 2.

Private food standards and the SPS Agreement

77

concerns with new and improved food safety regulations,24 Havinga finds that, overall, public food safety regulation is becoming less detailed and less prescriptive. 25 Thus, retailers have an opportunity to build their reputations by filling the gap which consumers perceive to have been left by governments. In addition to concerns about safety and quality, consumers in Western countries have become increasingly concerned with social and environmental issues in food production and exhibit some willingness to pay more for products incorporating social goals.26 NGOs have played a significant role in pushing for retailers to incorporate these types of issues into their standard-setting activities.27 In Europe, retailers are moving to require environmental labelling to indicate, for example, whether produce has been air-freighted and, if so, the distance it has travelled (‘food miles’) and its ‘carbon footprint’.28 Retailers have developed private standards in many cases because of legal liability issues.29 In the United Kingdom, for example, the Food Safety Act requires buyers to take all reasonable steps to ensure that the food they receive from upstream suppliers is safe. However, it provides a defence against liability where retailers take all reasonable precautions and exercise ‘due diligence’ to avoid commission of an offence. 30 Th is has provided a strong impetus for fi rms to focus on their food safety practices, implementing strict quality assurance programmes with their suppliers and raising standards above minimum levels to ensure a margin of defence.31 Fulponi fi nds that in other countries, firms either anticipate enactment of similar legislation or act as if there is such legislation.32 24 26

27

28

29 30

31

32

Willems et al., supra, note 9, p. 7. 25 Havinga, supra, note 7, p. 529. See L. Becchetti and F. C. Rosati, ‘Global Social Preferences and the Demand for Socially Responsible Products: Empirical Evidence from a Pilot Study on Fair Trade Consumers’, The World Economy, (2007) 807. M. Hatanaka, C. Bain and L. Busch, ‘Th ird-party Certification in the Global Agrifood System’, Food Policy, 30 (2005) 354, p. 364. The term ‘carbon footprint’ refers to the total amount of carbon dioxide and other greenhouse gases emitted over the full life cycle of a product. David Deans, ‘Special Report: Carbon Labels – A Green Mark Too Far?’, available online at Ethical Corporation, www.ethicalcorp.com/content.asp?contentID=5622 (accessed 15 October 2008). Gascoigne et al., supra, note 13, p. 35. S. Henson and S. Jaffee, ‘Food Safety Regulation: An Overview of Contemporary Issues’, Food Policy, 24 (1999) 589, p. 594. J. E. Hobbs, A. Fearne and J. Spriggs, ‘Incentive Structures for Food Safety and Quality Assurance: An International Comparison’, Food Control, 13 (2002) 77. Fulponi, supra, note 18, p. 9.

78

Tracey Epps

The proliferation of private standards also owes much to changes in the global supply chain and retailing practices, including a trend towards vertical integration through the use of direct contracts between suppliers and retailers and the expansion of supermarkets in food retailing, both nationally and internationally.33 Mergers and acquisitions have caused significant concentration of the retail market, with the market share of big supermarkets having increased significantly.34 One estimate finds, for example, that 70 per cent of the food products sold in most major European markets is now sold through supermarkets.35 Retail consolidation has caused a market power shift from processors (who used to control product characteristics) to retailers.36 Retailers now have the power to impose standards on their suppliers.37 It has also made it difficult for national governments to regulate food safety and quality. As supply chains tend to cross multiple boundaries, government regulators are challenged by the quickening pace of product differentiation and expansion of quality attributes.38 Government regulators have difficulty keeping up with new developments and changing production practices. In a globalised world, to be effective, regulations need to be transnational in scope and applicability.39 Thus, a greater role has arisen for the private sector in standards setting and enforcement.40 Finally, consolidation heightens retailers’ liability concerns; with greater concentration, no food safety problem will be confined to local markets, increasing the potential for loss of reputation and financial liability.41

Form Private standards fall into one of two broad categories. The first involves group initiatives, where retailers and importers participate in either collective national schemes or collective international schemes. The second is where retailers set their own exclusive standards. 33

34 35

36 37 39

SPS Committee – Note by the Secretariat, supra , note 4, para. 4. See also L. Fulponi, Communication from the OECD to the Committee on Sanitary and Phytosanitary Measures, ‘Private Voluntary Standards and Developing Country Market Access: Preliminary Issues’, (WTO Doc. G/SPS/GEN/763, 2007). See also Henson and Reardon, supra, note 16, p. 242. Hatanaka et al., supra, note 27, p. 358. M. K. Muwanga, ‘Experiences on Adjustment to Private Standards in Key Export Markets’, presented at UNCTAD-WTO Informal Information Workshop (26 June 2007). Busch and Bain, supra, note 16, p. 328. Havinga, supra, note 7, p. 525. 38 Hatanaka et al., supra, note 27, p. 356. Ibid., p. 356. 40 Ibid., p 355. 41 Ibid., p. 358.

Private food standards and the SPS Agreement

79

Collective national and international schemes vary both in their product coverage and in the issues they address. They tend to focus on safety and quality issues, with some covering the entire supply chain and others focusing on specific aspects. One of the most influential national schemes is that maintained by the BRC (British Retail Consortium) which represents all British retailers. Its original standard was developed in response to the Food Safety Act 1990, which placed legal responsibility on retailers for products marketed under their own label.42 Today, it has global standards covering food safety, packaging, storage and distribution, which are published in eight languages.43 One of the most well-known collective international schemes is GlobalGAP, a retailers’ initiative originally developed by the European retailers’ fresh produce working group in response to food scares in Europe.44 GlobalGAP places GAP requirements on fruit and vegetables at the farm level. Member retailers use the scheme by requiring their suppliers to be GlobalGAP certified. It has been reported that GlobalGAP members control 85 per cent of the Western European fresh produce market and that the scheme’s influence is so pervasive that it is quickly becoming the standard for suppliers who wish to export to Europe.45 Exclusive standards are most common in Europe, where several retailers have developed their own specifications or private ‘codes of conduct’. Products are branded in a manner that draws consumers’ awareness to the assurances being made and helps differentiate one company’s products from those of their competitors (for example, Tesco’s ‘Nature’s Choice’ and Carrefour’s ‘Filière Qualité’).46 Often, exclusive standards are based on national and EU food safety and quality regulations, but in most cases exceed them. Lee notes that sometimes they even exceed the standards of collective schemes such as GlobalGAP.47 Major retailers also include social issues (for example, labour, animal welfare) and environmental rules in exclusive ‘codes of practice’.48 42 43

44

45 46 47

Lee, supra, note 14, p. 13. See online at www.brc.org.uk/standards/default.asp?mainsection_id=1 (accessed 29 September 2008). GlobalGAP was formerly known as ‘EurepGAP’, see www.globalgap.org/. Other international schemes include Safe Quality Food (SQF), an Australian initiative, and Global Food Safety Initiative (GFSI), established by 50 international retailers. Lee, supra, note 14, p. 27. Hatanaka et al., supra, note 27, p. 360. Gascoigne et al., supra, note 13, pp. 14–15. Lee, supra, note 14, p. 27. 48 Willems et al., supra, note 9, p. 19.

80

Tracey Epps

Monitoring and enforcement Private standards are only effective if adequately monitored and enforced. The most common method, particularly where standards relate to food safety, is through auditing by accredited certifying bodies.49 These certifiers are private or public organisations responsible for evaluating and certifying safety and quality claims based on a particular set of standards and compliance methods. Through certification, retailers are largely able to pass on responsibility and liability for policing the safety and quality of their products. If a product failure occurs, retailers can claim they took all reasonable precautions and exercised due diligence by adopting third-party certified standards.50 It also allows retailers to shift the cost of certification to suppliers and to use third-party certification as a marketing tool.51

III The SPS Agreement and private standards The SPS Agreement obliges WTO Members to follow certain rules in their regulatory decision-making concerning the adoption and enforcement of sanitary and phytosanitary (SPS) measures. These are measures to protect humans, animals and plants against risks arising from pesticides, additives, contaminants, toxins or diseases. They thus cover much of the same ground as private standards aimed at ensuring food safety. They do not, however, cover the same ground as private standards that are aimed at addressing social and environmental concerns. The analysis in this section is, therefore, only applicable to private standards dealing with food safety. The SPS Agreement provides that no Member should be prevented from adopting or enforcing measures necessary to protect human, animal or plant life or health; and that the negative impacts of domestic SPS measures on trade be minimised. It thus recognises the importance of domestic regulatory autonomy, as well as that of trade liberalisation in advancing global and domestic welfare. The SPS Agreement permits countries to adopt and maintain traderestrictive SPS measures that are ‘necessary’ to protect health, subject to a number of substantive and procedural rules. Article 3.1 provides the baseline by encouraging Member countries to base their SPS measures

49

Ibid., p. 15.

50

Ibid., p. 360.

51

Ibid.

Private food standards and the SPS Agreement

81

on international standards, guidelines, or recommendations, where they exist. It makes specific reference, for food safety, to the standards, guidelines and recommendations established by Codex.52 Where countries wish to introduce or maintain SPS measures that result in a higher level of protection than would be achieved by measures based on the relevant international standards, guidelines or recommendations, they must ensure that the measure chosen ‘is applied only to the extent necessary to protect human, animal or plant life or health, is based on scientific principles and is not maintained without sufficient scientific evidence’.53 Further, SPS measures must be based on an assessment of the risks to human, animal or plant life or health.54 This structure makes it more difficult for countries to shelter domestic industries behind restrictive health regulations or to disguise protectionist strategies under the cloak of health regulations.55 Two questions arise in determining whether private food safety standards are covered by the SPS Agreement. First, do private standards fall under the definition of ‘SPS measures’? Second, does the SPS Agreement cover the actions of retailers, being private, for-profit entities?

Are private standards ‘SPS measures’? The term ‘SPS measure’ is defined in Annex A(1) as: all relevant laws, decrees, regulations, requirements and procedures including, inter alia , end product criteria; processes and production methods; testing; inspection; certification and approval procedures; quarantine treatments including relevant requirements associated with the transport of animals or plants, or with the materials necessary for their survival during transport; provisions on relevant statistical methods, sampling procedures and methods of risk assessment; and packaging and labelling requirements directly related to food safety. [Emphasis added]

The SPS Agreement does not define the term ‘all relevant laws, decrees, regulations, requirements and procedures’, leaving open for interpretation whether it covers private standards. According to Article 31(1) of the Vienna Convention on the Law of Treaties, ‘a treaty shall be interpreted in good faith in accordance with 52 55

SPS Agreement, Annex A(3)(a). 53 Ibid., Article 2.2. 54 Ibid., Article 5.1. T. Josling, D. Roberts and David Orden, ‘Food Regulation and Trade: Toward a Safe and Open Global System’, Institute for International Economics, (2004), p. 40.

82

Tracey Epps

the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose’. 56 The words ‘laws and decrees’ on their ordinary meaning clearly refer to governmental measures. However, the words ‘regulations, requirements and procedures’ are more nuanced. Their ordinary meaning does not clearly indicate whether they must be governmental measures. On the face of it, the term ‘regulation’ comes closest to conveying such a meaning; however, defi nitions in the regulatory literature do not support this conclusion. Regulation refers to the processes of rulemaking (standard setting), monitoring, compliance and enforcement.57 Traditional views would accord the rulemaking function to the legislature or governmental regulatory bodies. However, regulatory theory today contemplates that this function may also rest with private actors, with regulation thus extending along a continuum from ‘command and control’ regulation where government is responsible for all aspects of regulation and administration, to privately controlled regulation at the other end.58 This view of regulation is implicit in various definitions of the term. For example, Black sees regulation as ‘the sustained and focused attempt to alter the behaviour of others according to defined standards or purposes with the intention of producing a broadly identified outcome’. This may involve, for example, mechanisms of standard setting, information gathering and behaviour modification.59 Flynn and Marsden write that ‘regulation may be formalised through the enactment of legislation or it may be established socially through sets of social [and economic] practices, backed up by political and/or economic power’.60 Private standards in the global agrifood system are capable of falling within the ordinary meaning of regulation as understood by regulatory theorists. They represent the private sector’s use of economic power to change the behaviour of producers and suppliers, and have the effect of establishing norms in the market. That said, there is a line between what 56

57

58

59

60

The applicability of the Vienna Convention to WTO disputes was confi rmed in US – Gasoline. Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, pp. 16–17. S. Picciotto, ‘Introduction: Reconceptualizing Regulation in the Era of Globalization’, Journal of Law and Society, 29 (2002) 1, p. 1. N. Gunningham and J. Rees, ‘Industry Self-Regulation: An Institutional Perspective’, Law and Policy, 19 (1997) 363, p. 366. J. Black, ‘Critical Reflections on Regulation’, Australian Journal of Legal Philosophy, 27 (2002) 1, pp. 25–6. A. Flynn and T. K. Marsden, ‘Rural Change, Regulation, and Sustainability’, Environment and Planning A, 27 (1995) 1180, p. 1186.

Private food standards and the SPS Agreement

83

are simply contractual specifications of supply requirements between a retailer and a supplier and those which represent regulation. This line is blurred, and identifying it will depend upon various factors, including the degree of market power held by the retailer and the degree to which the terms have become a market standard. Yet, one must be careful in relying solely on the ordinary meaning of words as accepted among a group (regulatory theorists) outside the context of the provision to be interpreted. Context is critical – here, it is that of a multilateral treaty widely understood to regulate government conduct. In the absence of specific provisions making private actions subject to the rules, there are arguably no grounds to read the rules as subjecting private actions to WTO disciplines. Some interpretive guidance of the SPS Agreement may, however, be obtained by reference to other covered agreements which form part of the relevant context of the SPS Agreement. Particularly relevant are cases decided under Article III:4 of the General Agreement on Tariffs and Trade (GATT) which refers to ‘all laws, regulations and requirements’. Several dispute settlement panels have considered the meaning of these terms. In Canada – Periodicals, the Panel stated that the terms ‘laws, regulations and requirements’ must involve a government action.61 In Canada – Autos, the Panel found that actions by private parties can only constitute ‘requirements’ within the meaning of Article III:4, where there is a ‘nexus’ between those actions and actions of a government, such that the government can be held responsible for the actions.62 A dispute panel considered the meaning of the word ‘requirement’ again in India – Autos, where it was suggested that there are two distinct situations that would satisfy the term ‘requirement’: (1) obligations which an enterprise is ‘legally bound to carry out’; and (2) obligations which are not mandatory but which an enterprise ‘voluntarily accepts in order to obtain an advantage from the government’.63 Both these definitions require an input from government, either in enforcing the legally binding requirement or in conferring an advantage.

61

62

63

Panel Report, Canada – Measures Concerning Periodicals, WT/DS31/R, adopted 30 July 1997, paras. 5.33–5.36. Panel Report, Canada – Certain Measures Affecting the Automotive Industry, WT/ DS139/R and WT/DS142/R, adopted 19 June 2000, para. 10.107. Panel Report, India – Measures Affecting the Automotive Sector, WT/DS146/R and WT/ DS175/R, adopted 5 April 2002, para. 7.184.

84

Tracey Epps

While care must be taken to interpret each of the covered Agreements according to their specific context, these decisions regarding GATT Article III:4 have direct relevance to interpretation of the term ‘all relevant laws, decrees, regulations, requirements and procedures’ in the SPS Agreement. The GATT and SPS Agreement were both implemented with the purpose of disciplining government action. Indeed, the initial impetus for development of the SPS Agreement came out of the perceived necessity to reinforce GATT rules and disciplines in the SPS area, given the adverse effects that such regulations and barriers can have on agricultural trade.64 Further, the SPS Agreement’s Preamble states that the Members desire to ‘elaborate rules for the application of the provisions of GATT 1994 which relate to the use of sanitary or phytosanitary measures, in particular the provisions of Article XX(b)’. Article 3.2 says that SPS measures which conform to international standards, guidelines or recommendations shall be presumed to be consistent with the relevant provisions of this Agreement and of GATT 1994. These references to the GATT in the SPS Agreement suggest that the term ‘measures’ in the latter should be read consistently with ‘measures’ under the GATT. In particular, it would be inconsistent if the SPS Agreement required private actions to comply with GATT rules if they are not covered by the GATT in the first instance. The Annex A definition of ‘SPS measure’ has been the subject of one decision: EC – Biotech Products. The Panel found that an SPS measure consists of three elements: the purpose of the measure, its legal form and its nature. It determined that the Annex A(1) mention of ‘laws, decrees, and regulations’ referred to the form that SPS measures must take. It then explained that the terms ‘requirements and procedures’ did not refer to the form SPS measures must take, but were a reference to their nature (for example, end product criteria, processes and production methods, testing, etc).65 The Panel therefore seemed to be saying that an SPS measure must be in the form of laws, decrees or regulations.66 The Panel’s decision 64

65

66

Report by the Chairman to the Negotiating Group on Agriculture, ‘Negotiating Group on Agriculture, Working Group Sanitary and Phytosanitary Regulations and Barriers’, (WTO Doc. MTN.GNG/NG5/WGSP/1, 1990). Panel Report, European Communities – Measures Affecting the Approval and Marketing of Biotech Products, WT/DS291/R, WT/DS292/R and WT/DS293/R, adopted 21 November 2006, para. 7.149. I. Carreño and P. R. Vergano, ‘Private Standards Within the WTO Multilateral Framework’ (O’Connor and Company, European Lawyers, Brussels) – Annex to

Private food standards and the SPS Agreement

85

appears to be underscored by a presumption that some nexus with government is required for a measure to be covered by the SPS Agreement. While such a presumption is arguably defensible, the insistence on SPS measures taking the form of ‘laws, decrees, or regulations’ is lacking any apparent justification, either in the text or otherwise. It should also be noted that the SPS Agreement includes the term ‘decrees’, which is not present in the GATT’s definition of a ‘measure’. The inclusion of this term provides further support for the argument that government action is required. Decree is ordinarily used to denote an official or authoritative decision. The Oxford English Dictionary defines it, inter alia, as ‘an ordinance or edict set forth by the civil or other authority; an authoritative decision having the force of law’. There is nothing to suggest that, of the words used in this list, regulations, requirements or procedures should be given a meaning so disparate as those preceding it, so as to include private actions with no nexus to government. Trebilcock and Howse provide further support for a narrow reading of the terms ‘regulation, requirements and procedures’. They argue that if the text of a WTO agreement constitutes or reflects a painstakingly negotiated set of trade-offs between liberal trade values and interests and other policy values and interests, attention to the exact text is essential to preserve the balance of the bargain.67 They suggest that such an approach is reflected in Article 19.2 of the Dispute Settlement Understanding, which states that ‘the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements’. The SPS Agreement represents a set of trade-offs between liberal trade values and domestic regulatory autonomy in an area of considerable political sensitivity. The enactment of SPS measures is a critical aspect of countries’ regulatory response to risks to humans, animals or plants. Interpretation of the Agreement should therefore aim to preserve the balance as negotiated. Interpreting ‘all relevant laws, decrees, regulations, requirements and procedures’ to include private standards would arguably extend countries’ obligations under the SPS Agreement in a manner that the negotiators never intended. Article 32 of the Vienna Convention permits reference to the travaux preparatoires in order to, inter alia , confi rm an interpretation, or to

67

Submission by the United Kingdom to the Committee on Sanitary and Phytosanitary Measures (WTO Doc. G/SPS/GEN/802, 2007), p. 73. M. J. Trebilcock and R. Howse, The Regulation of International Trade, 3rd edn (Oxford, Routledge, 2005), p. 134.

86

Tracey Epps

determine meaning where there is ambiguity or obscurity. During these negotiations, focus was always on ‘national practices’, with the understanding that assessment of a threat to animal or plant life or health, and determination of the preventive measures considered necessary, were matters ‘which lay within the competence of the relevant national authorities in each country.’68 Th is supports the interpretation that the Agreement was intended to discipline government measures. As Gascoigne points out, while private standards were already in use before and during negotiation of the SPS Agreement, safety standards were typically considered to be a matter for action by governments.69 Widespread private sector responses to broader consumer concerns have come about largely since negotiation of the Uruguay Round Agreements.70 Finally, the Appellate Body has said that interpretation must give meaning and effect to all the terms of a treaty and that an interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility.71 If the definition of SPS measure were read to include private standards, it would essentially render Article 13 of the SPS Agreement (which makes provision for actions by ‘non-governmental entities’) redundant, as there would be no need for a provision dealing with actions by non-governmental entities if their actions in the form of private standards were already covered. Thus, the context of the Agreement supports a finding that SPS measures only comprise governmental measures.

Actions by non-governmental entities Article 13 states that: Members shall take such reasonable measures as may be available to them to ensure that non-governmental entities within their territories, as well as regional bodies in which relevant entities within their territories are members, comply with the relevant provisions of this Agreement. [Emphasis added.] 68

69 71

Committee on Trade in Agriculture, ‘Sanitary and Phytosanitary Regulations and Other Technical Barriers to Trade’, (WTO doc. AG/W/13), para. 2. Excerpt in Annex of: Negotiating Group on Agriculture, Sanitary and Phytosanitary Regulations Affecting Trade in Agriculture – Background Note by the Secretariat, ‘Sanitary and Phytosanitary Regulations Affecting Trade in Agriculture’, (WTO Doc. MTN.GNG/NG5/W/41, 1988). Gascoigne et al., supra, note 13, p. 22. 70 Ibid. United States – Gasoline, supra, note 56, p. 23.

Private food standards and the SPS Agreement

87

Thus, governments are responsible at least in part for the actions of non-governmental entities. The Agreement does not define ‘nongovernmental entities’ and there are at least two possible interpretations of this fairly ambiguous term. It is arguable that only private entities that have been entrusted by government with the performance of certain tasks or that have some special legal status would fall under the definition.72 However, a broader interpretation that covers private entities might apply, as some developing countries have recently argued before the SPS Committee with respect to EurepGAP (now GlobalGAP).73 Nonetheless, it is unlikely that panels and the Appellate Body would adopt a broad definition of the term. The ordinary meaning of the words provides limited guidance. The Oxford English Dictionary defines the term ‘non-governmental’ as ‘not belonging to or associated with a government’. This definition would seem to cover any private entity, including retailers. However, the question must be asked why the term ‘non-governmental’ was chosen, as opposed to ‘private’ or ‘commercial’. The latter are ordinary, everyday words used to describe private, for-profit entities such as retailers. The addition of the prefi x ‘non-’ arguably puts the term into an intermediate category between governmental bodies on the one hand and fully private, for-profit organisations on the other. Taking a contextual approach, support for a narrow interpretation may be found by looking at other covered Agreements. The term ‘non-governmental entity’ is not found in the GATT, but is found in Article I:3 of the GATS which stipulates when a measure affecting trade in services is considered to be a measure taken by a WTO Member. It refers to ‘measures taken by non-governmental bodies in the exercise of powers delegated by central, regional or local governments or authorities’. The inclusion of the qualifier ‘delegated’ means GATS covers non-governmental measures only where the government has delegated responsibility for making the measure to the entity in question. GATS also refers to non-governmental bodies in its Annex on Telecommunications where it refers in paragraph 7(b) to the role played by ‘intergovernmental and non-governmental organisations and agreements 72 73

Gascoigne et al., supra, note 13, p. 9–10. SPS Committee – Note by the Secretariat, ‘Minutes of the Meeting held on 29–30 June 2005’, (WTO Doc. G/SPS/R/37, 2005), paras. 16–17. The European Commission responded that EurepGAP is a private body whose standards are not EC standards. Further, even if they exceeded the requirements of EC standards, the EC could not object to them as they did not confl ict with EC legislation (para. 18).

88

Tracey Epps

in ensuring the efficient operation of domestic and global telecommunications services, in particular the International Telecommunications Union’. This use suggests ‘non-governmental’ was meant to indicate some kind of intergovernmental or other recognised body involved in regulation and standard setting, perhaps such as Codex. The term ‘non-governmental’ is also found in the Agreement on Preshipment Inspection, in its definition of ‘international standards’. The footnote to Article 2.4 says that an international standard is a ‘standard adopted by a governmental or non-governmental body whose membership is open to all Members, one of whose recognised activities is in the field of standardisation’. This definition again suggests that in the WTO the term ‘non-governmental’ means something more than just any private commercial entity. The Agreement on Technical Barriers to Trade (TBT Agreement) uses the similar term ‘non-governmental body’ and defines it to include a body with ‘legal power to enforce a technical regulation’. This indicates the existence of some non-governmental bodies with no such legal power, but such bodies fall outside the scope of the Agreement. It is arguable that if the drafters of the SPS Agreement had intended the definition of non-governmental entity to be restricted in a similar manner to one of these other agreements, they would have done so explicitly, and that it is therefore inappropriate to read such elements implicitly into the SPS Agreement.74 However, given that the term ‘non-governmental entity’ is ambiguous and could be read in different ways, reference to context, including the way in which the term has been narrowed in other covered agreements, is therefore appropriate. The ordinary meaning of the words ‘non-government’, as noted above, is conceptually different from the words ‘private’ or ‘commercial’, words that would more readily be read to include retailers and their associations.75 There is nothing to suggest that the SPS Agreement should be radically different from other WTO Agreements when it comes to the meaning given to the 74

75

See Bohanes and Sandford, supra, note 5, p. 38. They refer to the Appellate Body’s statement that words should not be read into a treaty ‘that are not there’ (Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998, para. 45). See also Article 19.2 of the Dispute Settlement Understanding as noted above. Note that under consideration here are retailers and their associations such as EurepGAP. There may be an argument for construing actual standards-setting organisations (whether intergovernmental or sectoral) differently than associations such as EurepGAP which are controlled by retailers.

Private food standards and the SPS Agreement

89

term ‘non-governmental entity’. Reference to the travaux preparatoires reveals no proposals that the SPS Agreement would apply to private sector organisations.76 In addition, Gascoigne records the recollections of two Uruguay Round negotiators,77 both of whom suggest that the application of the Agreement to private voluntary standards was never mentioned, either in formal negotiating meetings or in informal discussions.78 The history of the SPS Agreement negotiations also supports a narrow interpretation. The issue of health regulations as trade barriers emerged during the Tokyo Round (1973 to 1979) as it was recognised that, not only did divergent regulations have the potential to impede trade, but the issue would grow in importance as governments adopted more health and safety and environmental regulations.79 The negotiators focused on government regulations as these had been proliferating since the late 1960s.80 The Tokyo Round negotiations led to adoption of the Agreement on Technical Barriers to Trade (known as the ‘Standards Code’) in 1979. The Standards Code applied to both industrial and agricultural products81 and aimed to minimise trade distortions arising from divergent national regulations.82 By 1987, however, consensus had emerged that the GATT and the Standards Code had failed to curtail proliferating regulations disrupting agricultural trade.83 Uruguay Round negotiations addressed this failure. The SPS Agreement was part of the response, with negotiators expressing concern that, if border restrictions such as tariffs and quantitative restrictions were reduced successfully, there would be more pressure on governments to use health 76

77

78 80

81 82

83

See the WTO series of documents MTN.GNG/NG5/WGSP#. See also T. P. Stewart, The GATT Uruguay Round: A Negotiating History (1986–1992), Volume 1, Commentary (Boston, Kluwer Law and Taxation Publishers, 1993). Gretchen Stanton, who chaired almost all of the negotiating meetings, and Digby Gascoigne, who represented Australia throughout the negotiations. Gascoigne et al., supra, note 13, p. 22. 79 Stewart, supra, note 76, p. 1067. Negotiations were based on a study that GATT Members had commenced in 1967 which aimed at establishing a comprehensive inventory of existing non-tariff barriers to international trade. The Activities of GATT 1967/68, (Geneva, GATT, 1969), p. 10; Stewart, supra, note 76, pp. 706–7. Article 1.3. Unlike the SPS Agreement, the Standards Code was a plurilateral agreement which meant that it was not ratified by all WTO Members; there were only 38 members at the end of 1991. Stewart, supra, note 76, p. 1067. D. Roberts, ‘Preliminary Assessment of the Effects of the WTO Agreement on Sanitary and Phytosanitary Trade Regulation’, Journal of International Economic Law, 1 (1998) 377, p. 380.

90

Tracey Epps

and sanitary regulations to restrict trade. The border restrictions in question were government measures, so a reasonable implication is that concern focused on the potential for governments to resort to health measures. The SPS Agreement’s initial Terms of Reference stated that ‘rights and obligations under the proposed SPS Agreement should be extended also to relevant local government bodies, on a best efforts basis’.84 Similar references were made throughout the negotiations; however, there was nothing to suggest that it should be extended to private entities. Thus, the available evidence suggests that the reference to ‘nongovernmental entities’ in Article 13 does not contemplate the application of the SPS Agreement to the development of private standards.

IV

Implications

Private standards are not legal requirements. However, where they become the industry norm, suppliers may have little choice in choosing whether or not to comply. As the WTO Secretariat notes, the choice is likely to be one between compliance or exit from the market. In these situations, the distinction between private voluntary standards and mandatory official requirements blurs.85

For the international trading system To the extent that private food safety standards are more stringent than official government requirements, the SPS Agreement’s trade liberalisation and transparency objectives are arguably being undermined. Similarly, private standards dealing with social and environmental issues may also undermine the general principles of trade liberalisation. First, onerous standards have the potential to impede market access. While the SPS Agreement does not guarantee any particular level of market access, it does seek to minimise the negative impacts of SPS measures on trade. If private standards are not covered by the SPS Agreement’s disciplines, then a back door is potentially opened to measures that have such a negative impact. A number of provisions in WTO Agreements seek to 84

85

Negotiating Group on Agriculture, Working Group Sanitary and Phytosanitary Regulations and Barriers – Note by the Nordic Delegation, ‘Form and Disposition of the Agreement on Sanitary and Phytosanitary Barriers’, (WTO Doc. MTN.GNG/NG5/ WGSP/W/10, 1990). SPS Committee – Note by the Secretariat, supra, note 4, para. 9. See generally Fulponi, supra, note 18.

Private food standards and the SPS Agreement

91

prevent circumvention of the rules by ‘textual hooks’ attributing to WTO Members conduct undertaken by private parties.86 However, the analysis in Section III did not uncover any ‘textual hooks’ in the SPS Agreement that could extend to the present case where there is no evidence that governments are deliberately circumventing their obligations. Second, private standards may be used as a protectionist tool or as a disguised restriction on trade. Traditionally, protectionism against imports has been considered the territory of producers. However, Perdikis, Kerr and Hobbs argue that the WTO ought to recognise that consumers can also represent a source of protectionist pressure.87 That is, consumers’ preferences lead them to demand ‘protection’ against imports that are seen as dangerous or otherwise undesirable (not necessarily because there is a real health risk), and this may be considered a form of protectionism which is able to take hold via private standards. In addition, while common wisdom holds that private standards are developed in response to consumer demand, there remains a question as to what drives consumer demand. Consumer demand for local produce may be driven in part by propaganda from local industry protecting themselves from foreign competition. Third, the proliferation of private standards may diminish the level of transparency around standard setting, further undermining the SPS Agreement’s objectives. Retailers are under no obligation to notify their standards and/or make their standard-setting processes transparent or consistent.88 Finally, where private standards are being used, two of the mechanisms provided for in Article 4 of the SPS Agreement to facilitate trade are made redundant. These are: first, the concept of equivalence which provides for countries to recognise other countries’ SPS measures as equivalent, even if different, so long as they achieve the importing Members’ desired level of SPS protection; and second, the concept of mutual recognition whereby the importing country explicitly recognises the equivalence of the regulations in the exporting country so that exporters need only comply with the regulations in their home country. The difficulty this presents is that including private standards under the SPS Agreement would potentially harm the trading system by reducing its legitimacy among domestic constituencies. The SPS Agreement 86 87

88

See Bohanes and Sandford, supra, note 5, p. 26. N. Perdikis, W. A. Kerr and J. E. Hobbs, ‘Reforming the WTO to Defuse Potential Trade Confl icts in Genetically Modified Goods’, The World Economy, 24 (2001) 379, p. 392. Gascoigne et al., supra, note 13, pp. 26–7.

92

Tracey Epps

has already come under fire for intruding into the regulatory decisions of Members and – by requiring scientific evidence – precluding consideration of social, cultural and ethical concerns.89 Hilf argues that the more the WTO is involved in the exercise of public authority by affecting domestic regulations, particularly in matters such as health, the more that authority must be legitimised in order to be respected. In this sense, legitimacy refers to the WTO’s need for a ‘high degree of moral and normative justification for its political and social actions’.90 Legitimacy of international institutions may be gained through democracy, where there is participation in deliberation and decision-making by agents considered as moral and political equals,91 as well as through delivering good results.92 The WTO’s legitimacy has been criticised as lacking on both these grounds.93 Extending its rules to private standards would further threaten the WTO’s legitimacy due to a lack of mandate or justification. Even if the organisation’s source of legitimacy is accepted as being the Member states,94 those states have not authorised the WTO to include private entities within its embrace.

For developing countries For developing countries, the impact of private standards may be both positive and negative. The main benefit – where compliance with standards is achieved – is enhanced access to foreign markets and the potential to develop longer-term trading relationships.95 Standards requiring 89

90

91

92

93 94

95

See, for example, D. N. Scott, ‘Nature/Culture Clash: The Transnational Trade Debate Over GMOs’, Hauser Global Law School Program, (Global Law Working Paper 06/05, 2005), pp. 31, 47 and 57; J. Scott, ‘On Kith and Kine (and Crustaceans): Trade and Environment in the EU and WTO’ in J. H. H. Weiler (ed.), The EU, the WTO and the NAFTA (New York, Oxford University Press, 2000), pp. 125–67. M. Hilf, ‘How Can Parliamentary Participation in WTO Rule-Making and Democratic Control Be Made More Effective? The European Context’ in E.-U. Petersmann (ed.), Reforming the World Trading System (New York: Oxford University Press, 2005) 413, p. 414. A. B. Zampetti, ‘Democratic Legitimacy in the World Trade Organization: The Justice Dimension’, Journal of World Trade, 37 (2003) 105, p. 117. D. C. Esty, ‘The World Trade Organization’s Legitimacy Crisis’ World Trade Review, 1 (2002) 7, p. 16. Ibid. J. Bacchus, ‘A Few Thoughts on Legitimacy, Democracy, and the WTO’ in Petersmann (ed.), Reforming the World Trading System: Legitimacy, Efficiency, and Democratic Governance (New York, Oxford University Press, 2005), pp. 429 and 431. Lee, supra, note 14, p. 23. Some argue that this is in fact the only benefit. O. Aloui and L. Kenny, ‘The Cost of Compliance with SPS Standards for Moroccan Exports: A Case Study’, The World Bank, (Agriculture and Rural Development Discussion Paper, 2004), p. 28.

Private food standards and the SPS Agreement

93

production process and performance improvements not only facilitate market access, but also have the potential to improve a country’s overall productivity and economic performance and also to benefit the local environment and worker health (for example, through less and correct use of pesticides).96 These potential benefits are, however, subject to developing country concerns that private standards are a barrier to market access for their exporters due to their content, cost of implementation and capacity requirements.97 With respect to the content of standards, the concern is that they are biased towards European practices.98 In addition, there are concerns that standards may be used as a protectionist tool.99 There are particular concerns about the appropriateness of social standards that are not related to product attributes and conflict with local circumstances, values and practices.100 Recent complaints in the SPS Committee have raised concerns in each of these regards.101 Second, the costs of implementation can be high, and reduce profit margins.102 Again, this is a key concern of those countries that have complained to the SPS Committee about EurepGAP standards for bananas.103 Costs tend to impact most severely on small and medium-sized producers with limited capital and economies of scale.104 Regarding certification, not only are suppliers often required to obtain third-party certification, but audits may be required multiple times annually and may have to be repeated due to lack of equivalence between schemes. Further, in many developing countries there are no independent third-party certifiers, meaning that suppliers must bring in certifiers from Europe or the United States, which is an expensive exercise.105 96

97 98

99 100

101

102 103

104 105

See generally Jaffee and Henson, supra, note 10. See also L. Fulponi, ‘Private Voluntary Standards and Developing Country Market Access: Preliminary Results’, (WTO Doc. G/SPS/GEN/763, 2007), para. 17. Gascoigne et al., supra, note 13, p. 5. Gascoigne et al., supra, note 13, p. 5. Willems et al., supra , note 9, p. 21. See also Jaffee and Henson, supra , note 10, pp. 14 and 37. Jaffee and Henson, supra, note 10, p. 2. Gascoigne et al., supra, note 13, p. 5. Aloui and Kenny write about standards that are ‘drastic and costly’ and not appropriate to local social and climatic conditions. Aloui and Kenny, supra, note 95, p. 29. See SPS Committee – Note by the Secretariat, ‘Minutes of the Meeting held on 29–30 June 2005’, (WTO Doc. G/SPS/R/37, 2005). Gascoigne et al., supra, note 13, p. 5. SPS Committee – Note by the Secretariat, ‘Summary of the Meeting Held on 11–12 October 2006’, (WTO Doc. G/SPS/R/43, 2006), p. 11. Gascoigne et al., supra, note 13, p. 5. Hatanaka et al., supra, note 27, p. 362. Willems et al., supra, note 9, p. 35.

94

Tracey Epps

Studies by Fulponi and the OECD do find, however, that once farms are compliant, the ongoing audit and certification costs of private standards are often not excessive in relation to sales. Also, some standards schemes allow for group certification, which may reduce the costs.106 Capacity constraints include both physical and human capital.107 Physical capital shortages are often external to suppliers, relating to economy-wide infrastructure and services such as lack of reliable energy supplies, low-quality transportation and telecommunications systems, lack of laboratories and lack of cold storage facilities.108 Human capital shortages may cause difficulties for exporters in administrative matters such as record keeping, chemical use verification, management of different standards systems and their compliance and certification of good manufacturing practices.109 Perhaps more fundamentally, human capital shortages lead to difficulties in implementing required changes in operations, particularly for small and medium-sized producers.110 Despite these costs, the outlook for developing countries as a whole is not necessarily negative. Jaffee and Henson find that the environment in which standards are being applied is complex and dynamic and it is not easy to generalise. Thus, the balance between standards-as-barriers and standards-as-catalysts is specific to particular commodities in particular markets.111 What is clear, however, is that where suppliers are unable to meet private standards, they will struggle to sell their goods into affected markets. Various studies have documented the difficulties faced by suppliers, noting that while those who are in a position to comply can benefit from private standards, those who are not risk being excluded from the market.112 The SPS Agreement recognises the ‘special difficulties’ that may be faced by developing country members in complying with its rules and expresses the Members’ desire to assist them in this regard. Its technical assistance and special and differential treatment provisions (Articles 9 and 10) are intended to promote the interests of developing countries. To the extent that these provisions are intended to support the WTO’s 106 107

108 109 110 112

Fulponi, supra, note 33, para. 12. L. Fulponi, ‘Private Standards Schemes and Developing Country Market Access: Findings From Four Case Studies’ (Presentation to Joint UNCTAD/WTO Informal Session on Private Standards, Geneva, 2007). Fulponi, supra, note 33, para. 19. Ibid., para. 15. See also Lee, supra, note 14, p. 26. Fulponi, ibid. 111 Jaffee and Henson, supra, note 10. See, for example, J. J. Okello and S. M. Swinton, ‘Compliance with International Food Safety Standards in Kenya’s Green Bean Industry: Comparison of a Small- and a

Private food standards and the SPS Agreement

95

broader development objectives, a failure to discipline private standards might be seen as undermining those development objectives. That is, rich countries may be seen as abdicating their regulatory responsibilities to the private sector, thereby avoiding transparency and other obligations under the SPS Agreement.

For retailers and consumers It has been suggested that consumer demand is a significant motivating factor in the growth of private standards. Yet, research indicates that purchasers only benefit to a limited degree from these standards. Only a relatively small class of consumers are in a position to demand higher standards and pay higher prices. This small group of consumers may not be reflective of the general population and may not fairly represent the broader public interest.113 Further, consumers’ ability to influence is limited; many corporations engaged in private standard setting limit participation and intervention in the decision-making process.114 It seems that large retailers are the only clear winners, as they are in a position to control production and distribution of food globally.115 The costs of developing and implementing private standards are low in return for high benefits, which include reducing risks and uncertainty, safeguarding against claims and retaining consumers’ trust. In most cases, retailers achieve these benefits by passing responsibility onto their importers and processors.116 The market power of retailers allows them to impose standards on suppliers without providing any contractual certainty of supply, and to demand adherence to standards without reciprocating by paying a premium for the products.117

V

Conclusion

A large number of private standards in the food industry deal with subject matter that falls within the purview of the SPS Agreement.

113

114 117

Large-scale Farm Producing for Export’, Review of Agricultural Economics, 29 (2007) 269. Aloui and Kenny, supra, note 95. J. Konefal, M. Mascarenhas and M. Hatanaka, ‘Governance in the Global Agro-food System: Backlighting the Role of Transnational Supermarket Chains’, Agriculture and Human Values, 22 (2005) 291. Ibid., p. 299. 115 Ibid., p. 295. 116 Willems et al., supra, note 9, p. 7. Gascoigne et al., supra, note 13, p. 5. See also Jonker et al., supra, note 10, p. 28; Henson and Reardon, supra, note 16, p. 247.

96

Tracey Epps

There is a double-edged sword regarding such standards. On one hand, if a private sector initiative is trade-distorting without adequate justification, WTO intervention might be considered appropriate. Indeed, failing to intervene threatens to undermine achievement of the SPS Agreement’s trade liberalisation objectives. On the other hand, to interpret the SPS Agreement as covering private standards would extend the WTO’s reach into market activities to an extent never anticipated by the negotiators and thus threaten its very legitimacy. On balance, the case for non-intervention by the WTO – in the absence of a clear negotiated mandate to the contrary – is the more convincing. The question then remains, if the type of private standards in question are not covered by the SPS Agreement, what next? And further, how to deal with standards that address social and environmental issues? As discussed, motivation for private standards revolves around enhancing reputation and profit. An optimal solution to the problems presented by the shift to private standards would be for governments to take a stronger regulatory stance, thus removing the motivation for retailers to set their own standards. If governments were to be more prescriptive and detailed with food safety standards, their efforts could be judged pursuant to the SPS Agreement. And engaging with the social and environmental issues that concern consumers would force WTO Members to come to terms with the issues raised and their implications for trade. To take such a stance would arguably be in the interests of governments as guardians of the legitimacy and relevancy of the multilateral trading system. However, there is a significant impediment to governments taking a strong regulatory stance. Most importantly, the private sector is doing it for them, thus minimising the costs to governments and allowing them to avoid hard questions raised by the use of social and environmental standards. Further, where consumers believe that retailers are acting in their interests by setting high standards, they will have less incentive to lobby governments to do more. These factors suggest that a second-best solution has to be found. Such a solution will likely require export-interested industries to take the initiative. Different approaches will be required, depending upon whether the problem facing the industry is a simple market access problem, or whether there is some form of disguised trade restriction or discrimination involved. When an allegation of discrimination or a disguised trade restriction arises (albeit due to private standards), governments of exporting countries are likely to take a greater interest if

Private food standards and the SPS Agreement

97

they feel that WTO rules are being undermined. That is, there might be a sense that their trading partners are – through government inertia – creating holes in the international trading regime. Whether governments of importing countries will also take an interest is less obvious. It is possible that they may do so due to lingering doubts about the possible application of WTO rules to the situation. However, the European Community’s denial of any responsibility in the face of the allegations by St Vincent and the Grenadines is not an encouraging sign in this regard. Despite this, where the problem facing an exporter involves some form of disguised trade restriction or discrimination, seeking to engage with the government of the importing country may be at least worth pursuing. It is certainly arguable that exporters should be able to enlist the support of their government, or government agencies (such as New Zealand Trade and Enterprise), to pursue such engagement. While governments of importing countries will likely say that they cannot control what private retailers do (as the European Community has told St Vincent and the Grenadines with respect to EurepGAP standards for bananas), persistent pressure may eventually have some traction. Engaging with governments of importing countries may be more fruitful if combined with a second approach, namely, to develop transnational networks of producers to engage with governments and/or retailers to find solutions to problems facing exporters. In the case of what appears to be disguised trade restrictions, such groups could seek to engage with both retailers and governments. Where the issue is purely a market access one, limiting engagement to the retailers and relevant organisations will be more appropriate. This type of approach recognises the market power held by retailers and would seek to rebalance the power shift in the market by bringing producers together. The situation facing different sectors and industries should be investigated, as no one solution will fit all. In particular, the best approach and possible solutions will differ, depending on whether the standards at issue concern food safety or quality, or social and environmental concerns. In some cases, there might be room for cooperation between retailers and producers in standard-setting activities. In others, there might be a role for competition law where retailers are large enough to have a dominant position in the marketplace. The implications of private standards for developing countries have been the subject of more research than have the implications for industries

98

Tracey Epps

in developed countries.118 This research confirms that there is a need for developed countries to provide assistance in order to help facilitate trade between developing and developed countries. In addition, they should ensure that their technical assistance programmes recognise the realities of trade, assisting developing countries to comply with private standards, not just governmental regulations. Perhaps one area where further research would be useful is the potential for producer networks in developing countries to engage with those in developed countries. This chapter has considered the interplay between the SPS Agreement and private standards, and posited directions for future research. The suggested solutions contained here are only a beginning. It is hoped that some of the issues and suggestions raised here will be of use in setting an agenda for such research. 118

The World Bank has done a significant amount of work in this regard. See the Agriculture and Rural Development Discussion Papers series, including: Aloui and Kenny, supra, note 95; Lamb, Velez and Barclay, supra, note 11; Jonker, Ito and Fujishima, supra, note 10; Steven Jaffee, ‘From Challenge to Opportunity: Transforming Kenya’s Fresh Vegetable Trade in the Context of Emerging Food Safety and Other Standards in Europe’, The World Bank, (Agriculture and Rural Development Discussion Paper 1, 2003); Steven Jaffee, ‘Delivering and Taking the Heat: Indian Spices and Evolving Product and Process Standards’, The World Bank, (Agriculture and Rural Development Discussion Paper 19, 2005).

5 Eroding national autonomy from the TRIPS Agreement Susy Fr ankel

I

Introduction

The TRIPS Agreement1 has acquired a notorious reputation. Many regard its requirements as too onerous and out of step with the economic and development needs of developing countries. Some developed countries regard it as not strong enough in some areas, such as enforcement of intellectual property rights. Since the coming into force of the TRIPS Agreement its dissatisfied members, whether they are developed or developing countries, have negotiated, sometimes successfully, changes to international intellectual property protections in other international fora. These changes have been possible for two reasons. First, because the changes are outside the scope of the TRIPS Agreement and so TRIPS is not a limitation on the protection emerging elsewhere. An example of this is the development of sui generis protection for traditional knowledge. Second, because the TRIPS Agreement provides members with degrees of national autonomy over the implementation of some aspects of the Agreement. This autonomy over implementation arises because of the structure of the TRIPS Agreement. The TRIPS Agreement has a framework that allows its members some national autonomy over their own intellectual property legal regime, as long as those laws do not otherwise breach the Agreement.2 That national autonomy, even if limited, is provided through a structural framework of minimum national standards of intellectual property protection which members are required to enact in 1

2

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement or TRIPS), 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization (WTO Agreement), Annex 1C, 33 I.L.M. 1197, 1198 (1994). Article 1.1 of the TRIPS Agreement provides ‘Members shall give effect to the provisions of this Agreement. Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection

99

100

Susy Frankel

their domestic law. Those standards are agreed minimums and members have also agreed that they may provide more extensive protection in their domestic laws.3 It is, therefore, sometimes said that the TRIPS Agreement is a floor and not a ceiling. The TRIPS Agreement also states that ‘Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.’4 The effect of this provision is that the TRIPS Agreement is premised on a kind of national autonomy over implementation. This means that there are a multitude of laws and methods of enacting and enforcing those laws that can meet the minimum standards. Thus, although the core principles are similar, the details of domestic laws may be very different. This fundamental nature of a minimum standards agreement means that it does not necessarily create detailed harmonisation. Complete harmonisation would result in identical or near identical domestic laws. Minimum standards preserve autonomy over the exact detail of the laws while creating a harmonised policy behind those differing laws.5 The scope of that national autonomy will vary between the different articles of the TRIPS Agreement. Some articles are broad in what they require whereas others are more prescriptive. Th is chapter, in Sections II and III, discusses minimum standards and various aspects of national autonomy in implementing standards in the core areas of intellectual property as defi ned in the TRIPS Agreement.6 The number of differences between national laws in many of these areas of intellectual property has led to a number of international negotiations to harmonise intellectual property standards more deeply. These negotiations have taken place and are taking place in fora such as the World Intellectual Property Organization (WIPO), 7 the Convention on Biological

3 5

6

7

does not contravene the provisions of this Agreement. Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.’ Ibid. 4 Ibid. This national autonomy over implementation coexists with the non-discrimination principles of national treatment and most-favoured nation (MFN). The non-discrimination principles ensure that members can expect that their intellectual property rights owners will qualify for non-discriminatory protection in other member states. The TRIPS Agreement does not defi ne intellectual property as such. In Article 1:2 it defi nes intellectual property as those areas covered in the Agreement which include copyright and related rights, trademarks, geographical indications, industrial designs, patents, layout-designs (topographies) of integrated circuits, protection of undisclosed information and control of anti-competitive practices in contractual licences. WIPO is a specialised agency of the United Nations, based in Geneva. See generally www.wipo.org/ (accessed 10 December 2009).

Eroding national autonomy

101

Diversity (CBD), 8 and more recently the ACTA negotiations.9 In addition to these multilateral negotiations, members harmonise their intellectual property protections through free trade agreement (FTAs). These other international standards, whether reached through multilateral negotiations or through FTAs, deepen the harmonisation of intellectual property standards and in doing so they may lessen the degree of national autonomy over the implementation of the TRIPS minimums.10 Section IV discusses how these multilateral agreements and FTAs erode national autonomy in the TRIPS Agreement. The relationship between these other standards and the TRIPS Agreement is complex and this chapter, in Section V, offers some conclusions about how that relationship might change international intellectual property law.

II

Minimum standards

The use of minimum standards as a framework for international intellectual property protection was established in the nineteenth century, when the first major multilateral agreements, the Berne Convention11 and the Paris Convention,12 were formed under the auspices of what is now known as WIPO.13 Minimum standards combined with national treatment 8

9

10

11

12

13

Convention on Biological Diversity, 5 June 1993, 1750 U.N.T.S. 143, available at www. cbd.int/ (accessed 10 December 2009). Article 8(j) provides: ‘Subject to its national legislation, respect, preserve and maintain knowledge, innovations and practices of indigenous and local communities embodying traditional lifestyles relevant for the conservation and sustainable use of biological diversity and promote their wider application with the approval and involvement of the holders of such knowledge, innovations and practices and encourage the equitable sharing of the benefits arising from the utilization of such knowledge, innovations and practices.’ There is ongoing work on defi ning and making operational this article at the Conference of the Parties. Anti-counterfeiting Trade Agreement negotiations are not part of any international organisation. They were commenced in October 2007 by the United States, the European Commission, Switzerland and Japan. Since then Australia, Canada, the European Union, Jordan, Mexico, Morocco, New Zealand, Republic of Korea, Singapore and United Arab Emirates have joined the negotiations. The details of the draft agreement became available for the first time in 2010. A summary can be found at www.med.govt.nz/templates/ ContentTopicSummary_34357.aspx (accessed 10 December 2009). Additionally members may agree to greater levels of harmonisation in bilateral and free trade agreement negotiations. Berne Convention for the Protection of Literary and Artistic Works, 24 July 1971 (Paris text), 1161 UNTS 3; 102 Stat 2852 (Berne Convention). Paris Convention for the Protection of Industrial Property, 14 July 1967 (Stockholm text), 828 UNTS 305 (Paris Convention). For a discussion of minimum standards in the Berne Convention, see generally S. Ricketson and J. C. Ginsburg, International Copyright and Neighbouring Rights: The Berne Convention and Beyond (Oxford University Press, 2006).

102

Susy Frankel

became the international intellectual property agreement structural norm. There are several aspects of intellectual property protections that were not covered by the Berne and Paris Conventions and that was, in part, a reason for the development of the TRIPS Agreement.14 The TRIPS Agreement incorporated the substantive parts of the Paris and Berne Conventions.15 As minimum standards do not achieve harmonisation, one might ask why the TRIPS Agreement is structured in that way. Undoubtedly, because it was more effective to adopt an existing, and in many ways successful, international intellectual property framework and expand on it rather than start from scratch.16 However, in using the minimum standards framework the TRIPS Agreement also embodies the autonomy that members have over implementation of those standards. By focusing on this autonomy over implementation I am not suggesting that the TRIPS Agreement is not a detailed Agreement that requires its members to have substantive and far-reaching intellectual property protections in their domestic law. Rather, I emphasise that the minimum standards framework is the mechanism through which there can be degrees of autonomy over some aspects of national laws. Minimum standards, however, can be made more and more detailed in a way that removes or lessens autonomy that members of an agreement may have. Minimum standards are a stepping stone to harmonisation. They begin a path to harmonisation because they create some similar standards of intellectual property protection and even, sometimes, similar details which are implemented in national laws. Minimum standards in international intellectual property agreements, such as the Berne and Paris Conventions, have always been combined with the ability for members to provide more extensive protection. Nations who desire more extensive protection can enact it for themselves. Such nations have often then wished to see similar, more extensive, protections in other countries and therefore seek to have those other countries enact more extensive protections. Thus, 14

15

16

The TRIPS Agreement also introduced dispute settlement to international intellectual property protection and this was an important reason that major developed countries pushed for intellectual property’s inclusion in the WTO. For a general discussion of the development of the TRIPS Agreement, see D. Gervais, The TRIPS Agreement: Drafting History and Analysis, 3rd edn (London, Sweet & Maxwell, 2008). The TRIPS Agreement also incorporated the International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, 26 October 1991, [hereinafter Rome Convention], see Article 13, and the Treaty on Intellectual Property in Respect of Integrated Circuits, 26 May 1989, see TRIPS Agreement, Article 1:3. Also WIPO was a well-established intellectual property-focused institution whereas the WTO has a broader mandate.

Eroding national autonomy

103

international intellectual property has progressively developed through this mechanism. While the minimum standards structure is much older than the TRIPS Agreement, since TRIPS came into force in 199617 there has been a lot of activity, multilaterally and through FTAs, to increase intellectual property standards. This activity has eroded and is eroding some aspects of the national autonomy that the TRIPS Agreement allowed in the first instance. Before discussing that erosion it is necessary to outline some of the TRIPS Agreement minimum standards and how they give members varying degrees of national autonomy over their implementation.

Copyright The TRIPS Agreement draws heavily on the Berne Convention to set the minimum standards for copyright protection. It does this by incorporating the main provisions of the Berne Convention into the TRIPS Agreement.18 These provisions include different types of minimum standards. They are a mix of broad standards, that leave considerable room for national differences, and prescriptive standards that do not leave much, if any, discretion over their implementation. Copyright law protects literary and artistic works, as defined in the Berne Convention.19 The TRIPS Agreement adds to the subject matter of protection by expressly requiring the protection of databases that are ‘intellectual creations’ and that members protect computer programs as literary works.20 The requirement for the protection of computer programs leaves little room for the category of copyright work which must be applied to computer programs, but it leaves much scope for how that literary work law develops. 21 17

18 19

20 21

Although the WTO agreements came into force in January 1995, industrialised members did not have to comply with the TRIPS Agreement until 1 January 1996. TRIPS Agreement, supra, note 1, Article 9:2. Article 2 of the Berne Convention, supra, note 11, provides that ‘the expression “literary and artistic works” shall include every production in the literary, scientific and artistic domain, whatever may be the mode or form of its expression, such as books, pamphlets and other writings; lectures, addresses, sermons and other works of the same nature; dramatic or dramatico-musical works; choreographic works and entertainments in dumb show; musical compositions with or without words; cinematographic works to which are assimilated works expressed by a process analogous to cinematography; works of drawing, painting, architecture, sculpture, engraving and lithography; photographic works to which are assimilated works expressed by a process analogous to photography; works of applied art; illustrations, maps, plans, sketches and three-dimensional works relative to geography, topography, architecture or science.’ TRIPS Agreement, supra, note 1, Article 10. In some countries computer programs are also protected as patents.

104

Susy Frankel

The Berne Convention allows members to make certain choices about the way in which they protect copyright works. Members are, for example, free to protect industrial designs through copyright, but they do not have to do so.22 Because the TRIPS Agreement allows for more extensive protection, the relationship between more extensive protection and the minimum standard can be complicated for national treatment purposes.23 However, broadly the ultimate proof of national autonomy over minimum standards is the ability for members to provide more extensive protection. Conversely, the ultimate limitation to national autonomy is the inability to provide less extensive protection except in the limited sphere of exceptions discussed below.

Trade marks and geographical indications The TRIPS Agreement is the fi rst time that a trade mark 24 and a trade mark owner’s rights25 have been defi ned broadly at the international 22 23

24

25

Berne Convention, supra, note 11, Article 1:7. An issue may arise whether a more extensive protection needs to be provided on a national treatment basis or whether it is outside the scope of the TRIPS Agreement so national treatment is not required. What is greater or outside of the Agreement is not always straightforward to identify. An example is the European approach to database protection, which it says is outside of the scope of the TRIPS Agreement because TRIPS does not require protection of data under Article 10. The alternative argument is that it ought to be subject to national treatment because protecting data from unfair extraction is a greater level of database protection than the TRIPS Agreement requires. It simply requires that the selection and arrangement of databases that are intellectual creations are protected, see TRIPS Agreement, Article 10.2, and for a general discussion of the database issue see Bernt Hugenholtz, ‘Implementing the European Database Directive’, www.ivir.nl/publications/hugenholtz/PBH-HCJ-LIB.doc (accessed 10 December 2009) and J. H. Reichman and P. Samuelson, ‘Intellectual Property Rights in Data?’, Vanderbilt Law Review 50 (1997), 51. Article 15:1 of the TRIPS Agreement provides ‘Any sign, or any combination of signs, capable of distinguishing the goods or services of one undertaking from those of other undertakings, shall be capable of constituting a trademark. Such signs, in particular words including personal names, letters, numerals, figurative elements and combinations of colours as well as any combination of such signs, shall be eligible for registration as trademarks. Where signs are not inherently capable of distinguishing the relevant goods or services, Members may make registrability depend on distinctiveness acquired through use. Members may require, as a condition of registration, that signs be visually perceptible.’ Article 16:1 of the TRIPS Agreement provides, ‘The owner of a registered trademark shall have the exclusive right to prevent all third parties not having the owner’s consent from using in the course of trade identical or similar signs for goods or services which are identical or similar to those in respect of which the trademark is registered where such use

Eroding national autonomy

105

level. 26 The defi nition of trade mark utilises the concept of a sign. The TRIPS Agreement requires protection of signs that are ‘words including personal names, letters, numerals, figurative elements and combinations of colours’.27 However, protection is not limited to particular types of signs and many countries have more extensive signs protected under trade mark law, such as sounds and smells. National autonomy over whether to have this, more extensive, kind of protection for trade marks is not simply a matter of choosing more extensive protection or not; the TRIPS Agreement expressly preserves such autonomy in the words ‘Members may require as a condition of registration that signs be visually perceptible.’28 The core requirement for trade mark protection is that trade marks must be distinctive. The TRIPS principle that trade marks must distinguish a trader’s goods from other traders’ goods29 is generally found in most trade mark laws. It is the kind of standard that should be described as leaving ample scope for national autonomy, as how courts and trade mark registration offices interpret distinctiveness varies from country to country. The TRIPS Agreement anticipates some of this variation of national laws as it provides that countries may (but, notably, not must) protect trade marks that have acquired distinctiveness through use.30 The TRIPS Agreement requires protection of geographical indications in a general way, allowing countries to determine whether they have a separate geographical indications system or whether it is a part of the trade mark system.31 Less autonomy is found for the protection of geographical indications relating to wines and spirits, where more detailed protection is required.32

Patents The TRIPS Agreement requires that members provide for patents over inventions in all fields of technology. 33 Th is removed any national

26

27 28 32 33

would result in a likelihood of confusion. In case of the use of an identical sign for identical goods or services, a likelihood of confusion shall be presumed. The rights described above shall not prejudice any existing prior rights, nor shall they affect the possibility of Members making rights available on the basis of use.’ The Paris Convention, supra , note 12, although it requires protection of well-known marks, does not require a broad substantive protection for trade marks. TRIPS Agreement, supra, note 1, Article 15:1. Ibid., Article 15:1. 29 Ibid. 30 Ibid. 31 Ibid., Article 22. Ibid., Articles 23 and 24. Also see generally Gervais, supra, note 14, pp. 290–324. TRIPS Agreement, Article 1.

106

Susy Frankel

autonomy over excluding certain categories of inventions from patentability purely on the basis of subject matter. Prior to TRIPS, many countries excluded patents in relation to pharmaceuticals.34 Under the TRIPS Agreement such blanket exclusions are no longer permissible, although developing countries had an extended period of time, until 2000, in which to bring their patent laws into compliance with the TRIPS Agreement.35 The extended period of time was until 2005 for patents relating to product inventions in ‘areas of technology not so protectable in its territory on the general dates of application’ of TRIPS.36 This extension until 2005 was particularly important for product patents relating to pharmaceuticals and agro-chemical products. Least developed countries have until 2013 to bring their laws to TRIPS Agreement standards.37 Even though the subject matter of patents is harmonised, there remains much national autonomy over the criteria of patentability. TRIPS provides that patents shall be available for inventions ‘provided that they are new, involve an inventive step and are capable of industrial application’.38 There is no definition of these criteria and so they may be defined in national law and interpreted by national courts. The result is widely different standards of patentability and much disagreement over those standards internationally. The TRIPS Agreement is silent on the definition of inventive step.39 Th is silence means that members must implement their own defi nitions of inventive step.40 Th is results in different countries having

34

35

36 37

38 39

40

Prior to TRIPS, India, for example, allowed patents for the process of making pharmaceuticals, but not for the end product. This allowed India to make generic pharmaceuticals through non-patented processes. TRIPS Agreement, Articles 65:2 and 65:3, which allow the same delay for countries transitioning from communism. Ibid., Article 65:4. Ibid., Article 66, which originally provided for a 10-year extension, but was extended by WTO Ministerial Declaration until 1 July 2013. The declaration is available online at www.wto.org/english/thewto_e/minist_e/min05_e/draft_text_e.htm (accessed 10 December 2009). TRIPS Agreement, supra, note 1, Article 27:1. A footnote records that inventive step is synonymous with non-obviousness, see footnote to Article 27 of the TRIPS Agreement . J. H. Reichman and R. C. Dreyfuss, ‘Harmonization Without Consensus: Critical Reflections on Draft ing a Substantive Patent Law’, Duke Law Journal 57 (2007), 85–130, p. 97, state, ‘Admittedly, TRIPS gives its Members some leeway to tailor their laws to local needs. For example, states can presumably supply their own definitions of “inventive step” and determine for themselves the technological scope of patent protection.’ See also pp. 98–9 and the discussion of tying inventive step to a nation’s economic goals. Also

Eroding national autonomy

107

different approaches to what is an inventive step. There must be limits to the autonomy that members have in defining inventive step. National definitions should presumably not be so demanding that nothing could be patentable, thus eliminating the scope of the TRIPS Agreement.41 The diversity arises from how inventive step is assessed. Broadly, an inventive step is something that is not obvious to a person skilled in the art. Beyond this, however, it is impossible to say that there is any international consensus or norm, regarding the level of or meaning of inventive step. Indeed, the push at WIPO for greater harmonisation of patent law and international negotiations aimed at that recognises the lack of consensus.42 Because TRIPS requires that products in all fields of technology must be patentable, there is no disagreement between members that fi rstuse pharmaceutical products are patentable. However, differences have emerged over whether TRIPS compliance requires second and subsequent uses of known pharmaceuticals to be patented.43 India’s law, for example, effectively defines inventive step so that it does not allow patents

41

42

43

of note is that the parameters of inventive step will often be a combination of statute and case law in common law countries. There must be some conceptual boundary otherwise the treaty provision would be meaningless and such an interpretation would not be consistent with the principles of treaty interpretation. See R. C. Dreyfuss and A. F. Lowenfeld, ‘Two Achievements of the Uruguay Round: Putting TRIPS and Dispute Settlement Together’, Virginia Journal of International Law 37 (1997), 275, at pp. 282–304 where the authors suggest this is an area where the WTO dispute settlement process should show deference to developing country standards of inventive step. There is an ongoing negotiation at WIPO for a harmonisation of substantive patent law treaty; see also discussion in Reichman and Dreyfuss, supra, note 40. New uses of known pharmaceuticals were not always patentable, even in the developed world, because the pharmaceutical was known, and therefore novelty and inventive step could not be established. These types of patents, often called Swiss claims, were patented, in developed countries, on the basis that although the pharmaceutical compound itself is not necessarily new, the use is new. A Swiss-type patent claim is a claim for the use of a known substance in the manufacture of a medicament for the therapeutic and/or prophylactic treatment of a medical condition. Swiss-type claims are designed to circumvent prohibitions on patenting methods of medical treatments and are also an exception from the absolute rule of novelty, because the substance or the composition in the claim already forms part of the prior art. Swiss claims are rationalised on the basis that novelty is not completely abandoned as there is a ‘novel’ use. Broadly, the supposed rationale behind allowing Swiss claim patents is a reward for investment made to fi nd new uses. See generally R. Eisenberg, ‘The Problem of New Uses’, Yale Journal of Health Policy, Law and Ethics 5 (2005), 717. The original Swiss claim was for a second use of a known pharmaceutical. Since then, patents have been granted for subsequent uses and for new dosages, see generally S. Frankel, ‘Lord Cooke and Patents: The Scope of “Invention”’, Victoria University of Wellington Law Review 39 (2008), 73, 92–4.

108

Susy Frankel

for second and subsequent uses of known compounds unless there is ‘an enhancement of the known efficacy’44 of the substance. India and some other developing countries regard such patents as being for incremental inventions and therefore resulting in the evergreening of a patent for a pharmaceutical substance.45 In sum, Members can and do delineate the details of patent systems according to their economic circumstances.46 This is clearly an area of the TRIPS Agreement where there has been much national autonomy. As discussed below, however, some FTAs have narrowed that autonomy for some members.

Enforcement of intellectual property The provisions of the TRIPS Agreement that require parties to have civil and criminal remedies and enforcement regimes are general requirements that provide much room for members to have considerable differences in their systems. Thus, there is much national autonomy in these minimum standards. General differences between WTO Members’ court systems are recognised in the TRIPS Agreement, which provides that none of the enforcement obligations create obligations that the parties provide a system of intellectual property enforcement that is distinct from its general civil and criminal law.47 44

45

46

47

The Patents (Amendment) Act of 2005, India, s 3(d), provides that the following are not patentable inventions: ‘The mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant.’ See generally A. Acuri and R. Castro, ‘How Innovative is Innovative Enough? Reflections on the interpretation of Article 27 TRIPS from Novartis v India ,’ http://papers.ssrn. com/sol3/papers.cfm?abstract_id=1159821 (accessed 21 March 2009); see also R. K. Rai, ‘Effect of TRIPS-Mandated Intellectual Property Rights on Foreign Direct Investment in Developing Countries: A Case Study of the Indian Pharmaceutical Industry’, Journal of World Intellectual Property 11 (5–6) (2008), 404. For further discussion of how members could do even more diversifying and be TRIPS compliant, see G. B. Dinwoodie and R. Dreyfuss, ‘Diversifying Without Discriminating: Complying with the Mandate of the TRIPS Agreement’, Michigan Telecommunications and Technology Law Review 13 (2007), 445. Article 41:5 of the TRIPS Agreement provides: ‘It is understood that this Part does not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general, nor does it affect the capacity of Members to enforce their law in general. Nothing in this Part creates any obligation with respect to the distribution of resources as between enforcement of intellectual property rights and the enforcement of law in general.’

Eroding national autonomy

109

The degree of autonomy in these provisions has been tested before the WTO dispute settlement body. In a dispute with China, the United States complained that China provided inadequate enforcement of copyright and trade mark infringement.48 One part of the complaint related to the thresholds of infringing copies that would give rise to a criminal level of infringement of copyright under Chinese law.49 The core of the United States’s case was that China’s thresholds, for criminal infringement in copyright law, rendered the requirements of the TRIPS Agreement to provide criminal offences for infringement ineffective in many instances where the criminal activity resulted in a number of copies that fell just below the relevant threshold. The scope of criminal liability and remedies for copyright infringement was an area over which there was little international agreement both in the Uruguay Round, leading to the TRIPS Agreement, and subsequently.50 Consequently the enforcement-related minimum standards, including those specifically about criminal liability and enforcement, are the classic example of minimum standards that are not prescriptive, but leave a lot of scope for different methods of implementation in national laws, or in other words the minimum standard leaves much national autonomy over its implementation.51 48

49

50

51

For a summary of the US position, see Office of the United States Trade Representative, ‘WTO Case Challenging Weaknesses in China’s Legal Regime for Protection and Enforcement of Copyright and Trademarks’, www.ustr.gov/sites/default/fi les/uploads/ factsheets/2007/asset_upload_fi le908_11061.pdf (accessed 10 May 2010). See Request for Consultation by the United States, China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights (China TRIPS Enforcement), WT/DS362/1, 10 April 2007. Interestingly, China reduced the level of the relevant thresholds from 1000 to 500 shortly before the US requested a Panel be formed to hear the dispute. As a result, the requirements for enforcement of intellectual property rights in the TRIPS Agreements are minimum standards, which are more akin to stating general principles rather than setting out details of enforcement. Article 41:1, the introductory provision to the enforcement articles of the TRIPS Agreement requires that: ‘1. Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.’ Article 61 of the TRIPS Agreement provides: ‘Members shall provide for criminal procedures and penalties to be applied at least in cases of willful trademark counterfeiting or copyright piracy on a commercial scale. Remedies available shall include imprisonment and/or monetary fines sufficient to provide a deterrent, consistently with the level

110

Susy Frankel

As discussed below, it is precisely because of this national autonomy that the ACTA negotiations aim to prescribe more details of intellectual property enforcement. Also, enforcement provisions are strengthened in a number of United States FTAs.

III Exceptions to minimum standards protection The greatest area of national autonomy in both the Berne Convention and the TRIPS Agreement are the exceptions to protection. The TRIPS Agreement provides for some specific exceptions, such as exceptions to patentability on the basis of ordre public.52 In copyright, trade marks and patents, there are general criteria that must be met in order for members to provide exceptions in their laws. The test for all of these general exceptions originates from the Berne Convention and that test was adopted and adapted in the TRIPS Agreement.53 This is known as the three-step test. This test allows members to delineate their own exceptions to TRIPS minimum standards provided that those exceptions meet all three conditions. The conditions vary slightly between the different areas of intellectual property, but broadly exceptions must be limited, must not conflict with the normal exploitation of the work and must take into account the legitimate interests of the intellectual property rights owner.54 The patent and trade mark exceptions also refer to the legitimate interest of third parties. While some exceptions are found in many jurisdictions, such as copyright exceptions for research, many exceptions are exclusive to a particular country or even group of countries. The TRIPS flexibilities are even

52

53

54

of penalties applied for crimes of a corresponding gravity. In appropriate cases, remedies available shall also include the seizure, forfeiture and destruction of the infringing goods and of any materials and implements the predominant use of which has been in the commission of the offence. Members may provide for criminal procedures and penalties to be applied in other cases of infringement of intellectual property rights, in particular where they are committed willfully and on a commercial scale.’ TRIPS Agreement, supra, note 1, Article 27:2. There are also permitted other exceptions from patentability, such as therapeutic and surgical methods of treatment, see Article 27:3. Also compulsory licensing of patents under Articles 31 and 31bis of TRIPS are a kind of exception. A discussion of the relationship between the provisions can be found in Ricketson & Ginsburg, supra, note 13, para 13.94–13.115 and see also WTO Panel Report, Canada – Patent Protection of Pharmaceutical Products, WT/DS114/R, adopted 17 March 2000. The details of the provisions can be found in relation to copyright at Article 13, trade marks at Article 17 and patents at Article 30 of the TRIPS Agreement.

Eroding national autonomy

111

sometimes cited as the way in which developing countries may calibrate the TRIPS Agreement to meet some development needs. The parameters of the three-step test have been heavily criticised because they are ill-defined and the WTO panel interpretation of the test has been complicated and has failed to provide sufficient guidance for national legislatures that craft such exceptions.55 In the face of this there have been calls to clarify and even harmonise exceptions to copyright.56 Perhaps the appeal of harmonisation is that it would give a common understanding to what is within the three-step test and what is not; however, that appeal is outweighed by a number of factors. First, the different exceptions arise precisely because of differing circumstances, including economic conditions in different countries. Within copyright law, for example, countries tend to have exceptions that reflect social values such as education, research and free speech. It is beyond the scope of this chapter to describe different countries’ approaches to copyright exceptions; however, some broad features are outlined here. The exceptions will vary, depending on the role of and the legal structure that supports such social values in any particular country. This means that some countries will have broader exceptions than others. Additionally, countries without major copyright industries may utilise exceptions as much as possible so that uses of copyright works are as inexpensive as possible. In the field of patents, countries that seek to have cheaper access to patented goods or even to produce cheaper versions of patented goods, such as generic pharmaceuticals, will often seek to use patent exceptions as broadly as possible.57 The entire purpose of exceptions is that they can be calibrated to local economic and cultural needs. Consequently, the notion of harmonised exceptions conceptually does not sit well with the broad purpose of exceptions, which is that they may be crafted to recognise national interests. 55

56

57

For a discussion of the three-step test see J. C. Ginsburg, ‘Toward Supranational Copyright Law? The WTO Panel Decision and the “Th ree-Step Test” for Copyright Exceptions’, R.I.D.A. 187 (2002) 3 and R. Okediji, ‘Towards an International Fair Use Doctrine’, Columbia Journal of Transnational Law 39 (2009) 75. For a summary of the calls for clarity and use of exceptions see UNCTAD/ICSTID Limitations and Exceptions to Copyright: Recent Developments and the Way Forward, available at www.unctad.org/sections/dite_totip/docs/tot_ip_0011_en.pdf (accessed 10 December 2009). Th is is not limited to patent exceptions. As discussed above, countries may calibrate patent criteria such as inventive step to meet local conditions, and compulsory licences under Articles 31 and 31bis are used to meet local needs.

112

Susy Frankel

There may be exceptions to this such as when national interests transcend boundaries and become a regional interest, such as in the European Union. Similarly exceptions may be harmonised within an FTA. In the AustraliaUnited States FTA, for example, the parties agree to limit exceptions in relation to copyright and patents.58 However, it could be argued that this was more in the US interest rather than in Australia’s interest.59

IV

Harmonisation outside of TRIPS

An inevitable consequence of minimum standards of intellectual property, rather than harmonised detail, is disputes over compliance with those minimum standards and attempts to reach agreement over the details of minimum standards. Other than formal disputes brought to the WTO dispute settlement body, disagreements over appropriate minimum standards are played out in the TRIPS Council discussions about the scope of the TRIPS Agreement and in other fora, including other multilateral bodies and FTAs. Negotiations in other multilateral fora include drafting a treaty for the protection of traditional knowledge and traditional cultural expressions at WIPO. Negotiations relating to protection for these matters are also under way in the context of the Convention on Biological Diversity,60 and the issues are part of other international bodies.61 As discussed above, there are many areas of the TRIPS Agreement where the minimum standards are so broad that they may be complied with in national laws in many different ways. Examples of this are the TRIPS exceptions, which are sometimes called the TRIPS flexibilities, and the civil and criminal enforcement standards. In both of these areas there are ongoing international negotiations to agree to more detailed provisions than those in the TRIPS Agreement. The European Union, United States, Switzerland and Japan commenced negotiations outside of any existing international body for a treaty providing more considerable detail on civil and criminal enforcement and 58

59

60 61

Australia-United States Free Trade Agreement, Chapter 17, available at www.dfat.gov.au/ trade/negotiations/us_fta/final-text/index.html (accessed 10 December 2009). See R. Burrell and K. Weatherall, ‘Exporting Controversy? Reactions to the Copyright Provisions of the U.S.-Australia Free Trade Agreement: Lessons for U.S. Trade Policy’, University of Illinois Journal of Law, Technology and Policy 2 (2008) 259. Supra, note 8. For an overview of the various international bodies see C. Beat Graber, ‘Institutionalization of creativity in traditional societies and in international trade law’, in Shubha Ghosh (ed.), Creativity, Law and Entrepreneurship (Cheltenham, Edward Elgar, 2010).

Eroding national autonomy

113

remedies for infringement of intellectual property rights. A number of other countries have now joined the negotiations.62 The details of the draft treaty were secret until 2010 although a summary of its aims was publicised in a G8 Leaders’ Communiqué which stated:63 Effective promotion and protection of IPR are critical to the development of creative products, technologies and economies. We will advance existing anti-counterfeiting and piracy initiatives through, inter alia, promoting information exchange systems amongst our authorities, as well as developing non-binding Standards to be Employed by Customs for Uniform Rights Enforcement (SECURE) at the World Customs Organization. We encourage the acceleration of negotiations to establish a new international legal framework, … ACTA, and seek to complete the negotiation by the end of this year. We will promote practical cooperation between our countries to develop tools to combat new techniques in counterfeiting and piracy and spread best practices. We reaffi rm our commitment on government use of soft ware in full compliance with the relevant international agreements and call on other countries to follow our commitment.

This tells more about the political motivation behind ACTA and strengthening international enforcement efforts generally than the content of the treaty. The failure in the Uruguay Round negotiations and in the ongoing work of the TRIPS Council to achieve more detailed enforcement provisions than the general minimum standards in TRIPS, and the US loss in the dispute it brought over China’s compliance enforcement provisions, have provided incentives to the ACTA negotiations. The call for harmonisation of exceptions in copyright law is now coming from a variety of quarters, which do not represent the broad copyright-rich countries such as the United States. An example is a call for an international agreement for copyright exceptions for the blind. At WIPO Brazil, Ecuador and Paraguay have proposed a treaty for exceptions to copyright to enable access to works for the blind.64 New Zealand is a country that already has such an exception in its national law.65 One question 62 63

64

65

Supra, note 9. Paragraph 17 of the G8 Leaders’ Communiqué on the World Economy published on 8 July 2008 and available at www.med.govt.nz/templates/ContentTopicSummary_34357. aspx (accessed 10 December 2009). See Secretariat Document of the WIPO Standing Committee on Copyright and Related Rights SCFCR/18/5, 25 May 2009, available at www.wipo.int/edocs/mdocs/copyright/en/ sccr_18/sccr_18_5.pdf (accessed 10 December 2009). Copyright Act 1994, s 69(1) provides, ‘A body prescribed by regulations made under this Act may, if the conditions contained in subsection (2) of this section are complied with,

114

Susy Frankel

is whether such a treaty is necessary. Also, is it the best way to achieve the stated aim of assisting the visually impaired? Under the TRIPS framework, members may provide such exceptions in their national laws and, as mentioned above, some do. The exception must be compliant with the three-step test and the level of protection must not be lower than the TRIPS minimums or indeed the Berne Convention minimums.66 If there is an agreement on this exception then it should avoid curtailing members’ ability to make even further exceptions under the TRIPS Agreement and the Berne Convention. What all of these negotiations have in common is that they aim, and some will succeed, in detailing international intellectual property obligations. To an extent all international negotiations curb members’ ability to act unilaterally; they must act in accordance with their international agreements. However, all of the international negotiations and agreements over intellectual property have the cumulative effect of curbing national autonomy that the TRIPS Agreement currently allows. In addition, FTA negotiations create limitations to that autonomy between member states. I have argued elsewhere that the plethora of FTAs have a norm-changing effect on international intellectual property standards that affect others outside of the FTA.67

V

Concluding thoughts

The number of agreements at multilateral, plurilateral and bilateral levels about intellectual property protection are delineating the boundaries of the protection in more and more detail. These processes have engaged many voices in different areas of intellectual property law and other areas of law, including areas affected by intellectual property law, such as human rights. Many of these processes seek to define the details of international intellectual property protection in such a way that the gaps in the minimum standards are filled in. While the filling of gaps may bring

66 67

make [or communicate] copies or adaptations of published literary or dramatic works for the purpose of providing persons who have a print disability with copies that are in Braille or otherwise modified for their special needs, without infringing copyright in those literary or dramatic works.’ Berne Convention, supra, note 11, Article 20. See S. Frankel, ‘The Legitimacy and Purpose of Intellectual Property Chapters in FTAs’, in Ross Buckley, Vai Io Lo and Laurence Boulle (eds), Challenges to Multilateral Trade: The Impact of Bilateral, Preferential and Regional Trade Agreements (Alphen aan den Rijn, Netherlands, Kluwer Law International, 2008).

Eroding national autonomy

115

a kind of clarity, it undoubtedly erodes some aspects of national autonomy over intellectual property protection that are found in the TRIPS Agreement. The process of detailing many more aspects of international intellectual property protection has and will continue to erode the level of national autonomy that, to the surprise of some, in fact exists under some minimum standards under the TRIPS Agreement.

6 The WTO and RTAs: a ‘bottom-up’ interpretation of RTAs’ autonomy over WTO law Alberta Fabbricotti

I

Introduction

The relationship between the WTO and regional trade agreements (RTAs) is usually addressed using a top-down approach that questions the compatibility of the RTAs with the WTO, under the assumption that the larger multilateral legal system perpetually prevails over the regional dealings. Another way of tackling the issue is to treat it as a political phenomenon, which cannot be framed in legal terms. This chapter suggests a third, bottom-up approach to the question, that RTAs’ autonomy over WTO law might be interpreted as tacit performance of an international custom, and not simply as non-compliant behaviours.

II The relationship between the WTO and RTAs according to existing doctrine: criticism A doctrinal approach to the relationship between the WTO legal system and the RTAs usually starts with Article XXIV GATT, Article V GATS and the Enabling Clause,1 which – it is said – ‘govern’ the formation and further implementation of RTAs, setting down substantial and procedural requirements with which RTAs are obliged to comply.2 1

2

These rules are alternative and somewhat complementary. GATT Article XXIV is applicable to agreements on trade in goods involving industrialised nations as among the contracting parties, the Enabling Clause covers trade in goods integration agreements concluded between developing countries, and Article V GATS deals with agreements providing for liberalisation in trade in services, whether amongst industrialised or developing countries or both. There are two substantial requirements. First, GATT Article XXIV obliges the WTO Members on entering an RTA to abolish or diminish approximately to zero the customs duties and the other regulations of commerce with respect to ‘substantially all’ trade

116

The WTO and RTAs

117

The intent of the review is to evaluate the degree of consistency of the regional dealings with the multilateral system. Therefore, the extremely complex relationship between WTO law and RTAs is usually tackled in a rather simplified one-way top-down direction.3 Another part of the doctrine deals with the subject of the WTO and regionalism, referring to Article 41.1(a) of the Vienna Convention on the Law of Treaties (VCLT). The WTO regulates conditions for inter se modifications to its multilateral agreements through its provisions on RTAs, that is, Article XXIV GATT, Article V GATS and the Enabling Clause. Therefore, these provisions should occupy a higher position (a sort of constitutional rank) in WTO law.4 A common feature of most writings, whether they address directly the WTO provisions pertaining to RTAs, or rely on Article 41 VCLT, is the assumption that the WTO legal system always prevails over RTAs. However, since there is abundant evidence that RTAs too often diverge from WTO RTA provisions, the doctrine supporting the WTO primacy over RTAs should explain this drawback either as a lack of clarity of the WTO provisions or as inappropriateness of the WTO monitoring functions, or both. Whatever the case, the majority of the doctrine concludes that there is a need to clarify or strengthen WTO rules about the creation and the development of RTAs. However, there are few concrete proposals for reform.5 The present chapter adopts a different approach. Unlike the abovementioned doctrine, a fundamental assumption of this chapter is the

3

4

5

originating from one of their regional partners (‘internal requirement’). Second, under paragraph 5, the contracting parties of an RTA must not increase duties or to render more severe the other regulations of commerce with respect to third States (‘external requirement’). The procedural requirements concern the duty to notify the text of the RTA and any subsequent change to it to the relevant WTO political bodies. The literature focusing on GATT Article XXIV is immense (the bibliography on GATS Article V and the Enabling Clause is more limited). A sample is contributions in L. Bartels and F. Ortino (eds.), Regional Trade Agreements and the WTO Legal System (Oxford University Press, 2006). J. H. Mathis, Regional Trade Agreements in the GATT/WTO: Article XXIV and the Internal Trade Requirement (The Hague, T.M.C. Asser Press, 2002), pp. 271–85; T. Cottier and M. Foltea, ‘Constitutional Functions of the WTO and Regional Trade Agreements’, in Bartels and Ortino (eds.), supra, note 3, pp. 43–74, at p. 56. C. B. Picker, ‘Regional Trade Agreements v. the WTO: A Proposal For Reform of Article XXIV to Counter this Institutional Th reat’, University of Pennsylvania Journal of International Economic Law, 26 (2005) 267; Y. Devuyst and A. Serdarevic, ‘The World Trade Organization and Regional Trade Agreements: Bridging the Constitutional Credibility Gap’, Duke Journal of Comparative and International Law, 18 (2007) 1.

118

Alberta Fabbricotti

impracticability of any solution that involves strengthening of WTO rules relating to RTAs. The history of Article XXIV GATT shows that states are extremely reluctant to modify any of it, regardless of whether the proposed change would make the rules more severe or are merely to clarify and explain. Recent evidence of this attitude is the very modest Transparency Mechanism for Regional Trade Agreements which resulted from the Doha Round negotiations.6 The original mandate of the Ministerial Conference was to clarify and improve disciplines and procedures applying to RTAs under the existing WTO provisions.7 Pauwelyn takes a pragmatic approach and questions the primacy of WTO law over RTAs.8 Like other authors, he departs from the view that the relationship between the WTO and RTAs is mainly political.9 According to Pauwelyn, general international law (in particular, the law of treaties)10 should only intervene to untangle the ‘messy maze of preferences’ resulting from the overlap between the WTO and RTAs.11 Panels and tribunals settling disputes, either at the WTO or under an RTA, should use this general international law for this untangling purpose. In applying self-restraint, judicial activism or other attitudes, as the case may be, these jurisdictional fora are entrusted to ‘redirect’, so to say, the

6

7 8

9

10

11

General Council Decision, ‘Transparency Mechanism for Regional Trade Agreements’, (WTO Doc. WT/L/671, 2006). Emblematic of the shortcomings of the Transparency Mechanism is its paragraph 10: ‘The WTO Secretariat’s factual presentation shall not be used as a basis for dispute settlement procedures or to create new rights and obligations for Members.’ Doha Ministerial Declaration, 14 November 2001, para. 29. J. Pauwelyn, Legal Avenues to ‘Multilateralizing Regionalism’: Beyond Article XXIV, paper presented at the WTO Conference on Multilateralizing Regionalism , (Geneva, 10–12 September 2007), available at www.wto.org/english/tratop_e/region_e/con_sep07_e/ pauwelyn_e.pdf (accessed 6 October 2008). For instance, this seems to be the view already held by P. Hilpold, ‘Regional Integration According to Article XXIV GATT – Between Law and Politics’, Max Planck Yearbook of United Nations Law, 7 (2003) 219. Reference is made by Pauwelyn, Legal Avenues to ‘Multilateralizing Regionalism’, supra, note 8, pp. 8–17, to rules on compatibility of successive treaties relating to the same subject matter (Article 30 VCLT), on interpretation of treaties (Article 31 VCLT), on effects of treaties on third States (Article 34 VCLT) and on inter se modifications (Article 41 VCLT). J. Bhagwati, Free Trade Today (Princeton, NJ, and Oxford, Princeton University Press, 2002), pp. 112–13, defi nes the ‘Spaghetti Bowl’ in the following terms: ‘a messy maze of preferences as PTAs formed between two countries, with each having bilaterals with other and different countries, the latter in turn bonding with yet others, each in turn having different rules of origin; an unruly mass of criss-crossing strings that, in any case, is beyond my capabilities!’

The WTO and RTAs

119

choices of the WTO Members being also contracting parties of one or more RTA on adjudicating fora and applicable law. This line of reasoning is not convincing.12 It is not clear whether the coordination of the different dispute settlement mechanisms, their jurisdiction and the law applicable by them etc., would occur either as a result of amendments in the relevant treaty rules (the WTO Dispute Settlement Understanding, or DSU, and of pertinent chapters or annexed protocols of RTAs) or as a ‘spontaneous’ conformity by panels and tribunals to rules of general international law (to the potential detriment of the specific terms of their mandate under WTO or RTA regimes). If the former option prevails, then again the unfeasibility of changing rules, whether having restrictive or explanatory intent, would apply. If the latter option prevails, that is, the direct reference to general international rules, several arguments of a different nature arise. First, there is a logical presumption that, since politics, not law, dominates the interplay between the WTO rules and RTAs, there would be even less room for law when conflicts (either of law or of jurisdiction) between the two systems arise. Second, and this is a point which is core to this chapter, it is doubtful that what is at stake is merely a conflict between treaties, thus suitable to being ‘untangled’ by rules pertaining to the law of treaties (VCLT), even if these were general or customary. It is suggested in this chapter that the VCLT does not regulate the matter at hand because it is different in essence.13 In the author’s view, it is a problem which forms ‘part of the general relationship between customary norms and treaty norms which is too complex to be dealt only with one aspect of it in [an] article [of a codification convention].’14 The above follows from the author’s main conjecture that RTAs’ foundation might rely on international custom. This argument will now be developed through a bottom-up interpretation of RTAs’ autonomy from WTO law. 12

13

14

For a critical analysis of Pauwelyn’s foundation, see Jason Beckett, ‘Fragmentation, Openness and Hegemony: adjudication and the WTO’, in this volume, pp. 58–62. F. Capotorti, ‘L’extinction et la suspension des traités’, Recueil des Cours, 134 (1971 – III) 417, pp. 517–19. Report of the ILC to the General Assembly, ILC Doc. A/6309/Rev. 1, ILC Yearbook, 1966, Vol. II, p. 236. Th is was an ILC comment to the VCLT draft Article 68 provisionally adopted in 1964 (see Doc. A/5809, ILC Yearbook 1964, Vol. II, pp. 198–9) and entitled ‘Modification of a Treaty by a Subsequent Treaty, by Subsequent practice or by Customary Law ’ [emphasis added] that the ILC decided to discontinue.

120

Alberta Fabbricotti

III The bottom-up approach to the WTO and regionalism and its customary law implications An implicit suggestion of this paper is to overturn the perspective from which the issue of the WTO–RTAs relationship is usually addressed, switching from a ‘top-down’ approach (it is the WTO which determines the conformity requirements for RTAs), to a ‘bottom-up’ approach (it is the RTAs themselves which determine the degree of their adherence to WTO law, through their actual behaviour).15 Empirical observation shows that RTAs choose to abide by WTO obligations. The structure of the WTO–RTAs legal relationship is thus characterised by ‘variable geometry’ rather than by hierarchical order.16 The only way to overcome the impasse, ‘reforms needed/reforms impossible’, is to go beyond the language and scope of Article XXIV GATT, Article V GATS and the Enabling Clause17 (from now on, only GATT Article XXIV will be mentioned, for simplicity). One should, however, resist the temptation to qualify all interactions between the WTO and RTAs as political questions which cannot be tackled from a legal point of view. Conversely, it might prove particularly useful to look more deeply into State practice relating to RTAs and compare the attitude of WTO Members when they participate in WTO bodies and conferences, creating or implementing WTO rules on RTAs or discussing amendments to them, with the actual behaviour of WTO Members when acting as RTA contracting parties. Th is may show whether States, whilst appearing laissez faire, negligent or careless regarding relevant WTO obligations 15

16

17

Th is suggestion originates from an observation of P. Picone and A. Ligustro, Diritto dell’Organizzazione Mondiale del Commercio (Padua, CEDAM, 2002), p. 528. The expression ‘variable geometry’ means that commitments differ for different Members of the WTO. Special and different treatment is a form of variable geometry to give special recognition for developing country needs. RTAs should be considered as another example. See the 2004 Report by the Consultative Board to the DirectorGeneral, Supachai Panitchpakdi, on ‘The Future of the WTO – Addressing Institutional Challenges in the New Millennium’ (Sutherland Report), para. 292. For a possible resort to ‘variable geometry’ as a strategy to cope with the WTO–RTAs relationship, see A. Fabbricotti, ‘Remarks’, ASIL Panel on ‘Multilateralizing Regionalism and the Future Architecture of International Trade Law As a System of Law’, ASIL Proceedings, 103 (2009), forthcoming. The Enabling Clause is a GATT Contracting Parties Decision of 1979. The Clause should be considered as a treaty provision in that GATT 1994 paragraph 1(b)(iv) makes it clear that the GATT 1994 consists of ‘[…] other decisions of the Contracting Parties to GATT 1947’.

The WTO and RTAs

121

concerning RTAs, may in those RTAs conduct themselves in a somewhat general, uniform and systematic way. At first sight, States’ negligence or carelessness appears so deliberate and widespread as to be logically perceived as symptoms of ‘autonomy’ of RTAs with respect to the WTO. If this is so, then what State practice suggests is that non-compliance with WTO rules should mean something more than being wrong under WTO law. If this is so, then it is crucial to ask whether non-compliant State practice can be interpreted as a tacit performance of an international customary right, freedom or obligation. The formation of a custom explaining otherwise non-compliant State practice is the ultimate question addressed in this chapter. To the best of the author’s knowledge, this is an argument that has never been investigated. When customary law is injected into the debate relating to the WTO and regionalism, it is done to demonstrate that WTO treaty rules have become or have reproduced international customs.18 Otherwise, customary law is discussed because of the express reference, in Article 3.2 DSU, and thus, in relation to the more far-reaching impact on the WTO system.19 Ultimately, all previous writings have explicitly or implicitly linked the issue of the existence of international customary law to the cause of the primacy of WTO law.

IV

Difficulties with the argument (and overcoming them?)

Clearly, the proposition submitted in the present chapter is likely to run up against some difficulties. Th ree potential concerns are canvassed below.

The attribution of RTAs’ behaviours to the Member States First, the idea that the existence of a customary rule could be inferred from RTAs’ attitudes and concrete behaviours poses problems. This view relies on a questionable paradigm of strict direct legal attribution based on the assumption that RTAs’ measures and concrete behaviours coincide with the State practice of the contracting parties. It also relies, rather unrealistically, on the idea that the individual stances of RTA members 18

19

See L. Hsu, ‘Applicability of WTO Law in Regional Trade Agreements: Identifying the Links’ in Bartels and Ortino (eds.), supra, note 3, pp. 525–52. This issue has been so extensively debated in doctrine that there is no point in providing a list of contributions here, even as a sample.

122

Alberta Fabbricotti

are cumulatively transposed and enforced at a universal level through the intermediation of RTAs’ common organs. Also, it might be suggested that ‘instances of [State] practice have to be attributable to States, for which reason the practice of international organizations … is excluded’.20 An answer to these hypothetical comments is that the expression ‘RTAs’ autonomy’ has been used in this chapter more as a methodological fiction than with a strict legal exactitude. Indeed, as noted above, this chapter will consider State practice relating to RTAs’ concrete behaviours imputable only to States, not to the entities they created through the conclusion of RTAs.

The content of the customary rule Second, this argument requires identifying the exact content of the customary rule relating to RTAs that State practice evidences. This is particularly difficult and troublesome as modern RTAs may have very wide subject-matter coverage and in many substantive ways differ considerably from each other. Consequently, any attempt to extract a common essential element, principle or rule, from this complex network of different, overlapping, systems of norms, is likely to conclude that the very essence of all RTAs is the creation of ‘trade preferences’ or, correspondingly, ‘discrimination against third parties’. Although this common substance appears too wide and perhaps vague to form the content of an international customary rule prescribing obligations, in my view the validity of such a conjecture should not be excluded in principle, where the international custom instead reflects, transposes or reinforces a freedom or a right. It is commonly accepted that, under customary international law, States are essentially free to enter any agreement of any kind and content.21 Exceptions are jus cogens subject matter22 and/or principles and rules embodied in the UN Charter. Therefore, States are free to discriminate against third countries if they deem it convenient. In the domain of trade, this means freedom to conclude RTAs. On the one hand, this supposed customary freedom represents a pillar of international trade relations and should thus be promoted and 20

21

22

M. E. Villiger, Customary International Law and Treaties: A Manual on the Theory and Practice of the Interrelation of Sources, 2nd edn (The Hague, Kluwer, 1997), pp. 16–17. Cottier and Foltea, supra , note 4, p. 41. In general, on the unfettered freedom of States regarding the subject matter regulated by treaties, see A. Cassese, International Law, 2nd edn (Oxford University Press, 2005), p. 154. Articles 53 and 64 of the 1969 Vienna Convention on the Law of Treaties.

The WTO and RTAs

123

safeguarded.23 Article 12 of the Charter of Economic Rights and Duties of States,24 which makes the participation of States in sub-regional, regional and interregional cooperation agreements in the pursuit of their economic and social development a right, and ranks corresponding expectations of third countries as mere legitimate interests, seems to confirm this view. Indeed, although the Charter does not possess a binding legal character per se, given the exhortative function and nature of UN General Assembly resolutions, it is assumed that its Art. 12, which is based on the ethos of Article 52 of the United Nations Charter, reiterates an established principle of international trade and of economic relations generally.25 On the other hand, a general obligation of non-discrimination does not limit this customary freedom, since most favoured nation (MFN) and national treatment can hardly be regarded as international customs. It is common knowledge that this potentially unlimited customary freedom is instead countered by treaty law, mainly through the non-discriminatory clauses contained in the WTO agreements.26 The International Law Commission’s Study Group on the Fragmentation of International Law has highlighted that regionalism plays an unusual role in international trade law compared to the functions it normally performs within other sub-systems of international law: It is often assumed that international law is or should be developed in a regional context because the relative homogeneity of the interests or outlooks of actors will then ensure a more efficient or equitable implementation of the relevant norms. … Nevertheless, one aspect deserves mention here, namely regionalism in regard to trade law. Despite the strong pull for a global trade regime within the GATT/WTO system, the conclusion of RTAs has not diminished, on the contrary … in view of the difficulties and controversies in developing the universal trade system, there appears presently to be no end in sight to the conclusion of RTAs.27 23 24

25

26

27

E. Triggiani, Il trattamento della nazione più favorita (Naples, Jovene, 1984), p. 124. See G. A. Resolution 3281 (XXIX), in General Assembly Official Records (GAOR), 29th Session, Supplement N. 31, (UN Doc. A/9631, 1974), pp. 50–5. S. K. Chatterjee, ‘The Charter of Economic Rights and Duties of States: An Evaluation After 15 Years’, International and Comparative Law Quarterly, 40 (1991) 669, p. 677. Panel Report, Korea – Measures Affecting Government Procurement, WT/DS163/R, adopted 19 June 2000, para. 7.96. Th is noted: ‘Customary international law applies generally to the economic relations between WTO Members. Such international law applies to the extent that the WTO treaty agreements do not “contract out” from it.’ ILC, 58th Session, Report of the Study Group of the International Law Commission, fi nalised by Martti Koskenniemi, ‘Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law’, (Doc. A/CN.4/ L.682, 2006), paras. 205 and 210.

124

Alberta Fabbricotti

In 2005, the same Study Group had observed that ‘while members noted that “regionalism” generally fell under the problem of lex specialis, some still felt that this was not all that could be said about it. In some fields such as trade, for example, regionalism was influencing the general law in such great measure that it needed special highlighting.’28 If RTAs’ autonomy from WTO law is explained on the ground that, in their trade relations, States are either ‘free to prefer’ or have a ‘right to prefer’, this is likely to have unjustified devastating effects on the WTO legal order, the raison d’être of which is non-discrimination. The WTO and the MFN rules are still important, 29 though they recently seem to have lost their momentum, 30 meaning that the issue should be approached with extreme caution. Should the discourse on customary law fi nd some support in State practice, then a proper balance should be drawn in order to coordinate the co-existence of such custom with the treaty law of the WTO and their reciprocal deference. This might be achieved if the interplay between RTAs and the WTO is considered as a question of interrelation between different sources of international law.

Duration of the customary rule Another difficulty is, when did this hypothetical custom that envisages a freedom or right to discriminate in international trade relations come into existence? It could be that the considered custom has progressively developed in the course of an undefined period of time, though surely since 1947. It has principally manifested itself through a generalised disregard for GATT Article XXIV and other similar WTO provisions successively introduced

28

29

30

ILC, 57th Session, ‘Report of the International Law Commission on the Work of its 57th Session’, (UN Doc. A/60/10, 2005), para. 461. Funnily, several scholars place emphasis on the opposite occurrence: ‘like it or not, RTAs are here to stay’ or ‘the political and legal reality is, therefore, that regional agreements are here to stay’! See Hsu, supra , note 18, p. 524; and Pauwelyn, Legal Avenues to ‘Multilateralizing Regionalism’, supra , note 8, p. 3; R. Baldwin and P. Thornton, Multilateralising Regionalism: Ideas for a WTO Action Plan on Regionalism, (London, CEPR, 2008), p. 2. The Sutherland Report, supra , note 16, para. 60, notes: ‘Yet nearly five decades after the founding of the GATT, MFN is no longer the rule; it is almost the exception … what has been termed the “spaghetti bowl” of customs unions, common markets, regional and bilateral free trade areas, preferences and an endless assortment of miscellaneous trade deals has almost reached the point where MFN treatment is exceptional treatment.’

The WTO and RTAs

125

in the system.31 Such reasoning assumes that Article XXIV is a positive, prescriptive treaty provision. As a consequence, a custom derogating from it could only have formed successively. It could also be that Article XXIV derogated from a pre-existing custom when it entered into force. It follows from this that, since 1947 and until an imprecise date, the treaty norm of Article XXIV could have existed legally, in between two periods during which a supposed customary freedom or right to prefer prevailed in international trade relations. Alternatively, it could be argued that the custom in question is ancient and dates back to a period before 1947. That would mean that Article XXIV never produced its formal prescriptive effects, having always been ‘dormant’. In the present author’s opinion, this alternate view is not groundless, or even absurd, as it might appear at first sight. A recent study revealing the dubious origins of Article XXIV reinforces this position.32 A thorough assessment of the two above perspectives and their implications is beyond the scope of this chapter. However, whatever the answer to the above question might be, it seems likely that a customary right or freedom to agree on trade preferences with some partners and not to extend these preferences to other countries existed before 1947. There are indeed many arguments that support this view. First, the practice of bilateral commercial treaties, which dominated international trade relations before GATT, showing the steady presence in these dealings of a saving clause preserving the preferences accorded in other treaties. In other words these saving clauses maintained in force certain previously established – or even hypothetical future – preferences, without extending them, in force of the MFN standard, to the partner in the bilateral treaty containing such a saving clause.33 Second, a majority of the pre-1947 doctrine34 and some influential reports of the League of Nations35 considered that a ‘regional exception’, 31

32

33

34

35

As explained below, in the following paragraph, evidence of such a custom might also be inferred from the extent of the ‘regional exception’ and from acquiescence by the WTO, that is, from the degree of enforcement and/or enforceability of the WTO rules relating to RTAs. See K. A. Chase, ‘Multilateralism Compromised: The Mysterious Origins of GATT Article XXIV’, World Trade Review, 5 (2006) 1. See United States Tariff Commission, Handbook of Commercial Treaties: Digests of Commercial Treaties, Conventions, and Other Agreements of Commercial Interest Between All Nations (Washington DC, Government Printing Office, 1923). See, for example, R. Riedl, La clause de la nation la plus favorisée (Vienna, Recueil Sirey, 1928), pp. 96–7. See, for example, League of Nations, ‘Recommendations of the Economic Committee Relating to Commercial Policy’, (Doc. C.138.M.53.1929.II, 1929), pp. 11–12; Société des

126

Alberta Fabbricotti

recognised by tradition or accepted as custom, existed and that this exception had had the legal effect of precluding the formation of a customary MFN clause. Therefore, it has been argued that ‘throughout the years, a custom has formed, aiming at excluding from the operation of the MFN treatment clause all advantages and favours conceded as among the members of a customs union. Even without an express treaty provision, the practice supports this point of view.’36 Of note in relation to this quotation is that only customs unions were RTAs in the period preceding 1947.

V

Is there an international custom behind RTAs’ autonomy from WTO law? Theory/methodology

Further investigation into State practice should serve to ascertain the existence of the two requirements of international customary law, namely diuturnitas (consistent State practice) and opinio juris (acceptance of State practice as law).37 As regards the diuturnitas, this requirement is arguably already satisfied by the great number of existing RTAs. As of July 2007, a total of 380 RTAs, of which 205 were then in force, had been notified to the GATT/WTO.38 All but one WTO Member were parties to one or more RTAs. Therefore, it might be said that all these RTAs represent such a ‘pattern of treaties in the same form’39 which produces evidence of an international custom.40

36

37 38

39

40

Nations, La politique commerciale dans le monde d’après guerre, Rapport des Comités économique et financier (Geneva, SdN Publications, 1945). My translation from French. See Henri François Oppenheim, La clause de la nation la plus favorisée dans la pratique internationale de la Suisse (Zurich, Éditions Polygraphiques, 1948), p. 114. Whether, in the absence of any express treaty provision, the entry into a customs union affects treaty obligations to accord most favoured nation treatment to a third State, see R. Jennings and Sir A. Watts (eds.), Oppenheim’s International Law, 9th edn, 2 vols. (Harlow, Longman, 1992), vol. I, pp. 1331–2. Article 38.1(b) Statute of the International Court of Justice. An up-to-date list of RTAs notified to the WTO is provided at www.wto.org/english/ tratop_e/region_e/region_e.htm (accessed 6 October 2008). See I. Brownlie, Principles of Public International Law, 6th edn (Oxford University Press, 2003), p. 6. Texts of treaties are top-listed among the forms of ‘Evidence of Customary International Law’. See ILC Yearbook 1950, Vol. II, p. 368. The view that treaties are evidence of the state of customary international law is generally shared in principle. See, for instance, R. R. Baxter, ‘Multilateral Treaties As Evidence of Customary International Law’, British Yearbook of International Law, 41 (1965–1966) 275.

The WTO and RTAs

127

As to the other requirement (opinio juris), arguably, since they are treaties, all RTAs are inherently a practice accepted as law. In the North Sea Continental Shelf case, for example, the International Court of Justice confirmed that treaty norms could turn into custom.41 Furthermore, the Court has said that multilateral conventions ‘may have an important role in recording and defining rules deriving from custom or in developing them’.42 The same can be said of regional and bilateral treaties.43 These preliminary arguments based on classical theories should not prevent investigation of further State practice relating to RTAs.44 This should include a survey of the attitude of WTO Members when they participate in WTO bodies and conferences creating, implementing or amending WTO rules on RTAs and of the actual practice of WTO Members when acting as RTA contracting parties. While a complete analysis of such a practice is beyond the scope of this chapter, the following paragraphs will focus on what this author considers to be two major indicators of State practice: the extent of the ‘regional exception’ and the degree of RTAs’ autonomy in respect to the WTO legal order. Next, it is appropriate to analyse the relevant WTO jurisprudence in order to evaluate the degree of enforcement and/or enforceability of the WTO provisions relating to RTAs. This step appears indispensable because customary law is established by a pattern of claim and also by acquiescence, of the WTO and by other States (WTO Members not being party to a particular RTA).45 Indeed, as pointed out by one writer, in the development of customary rights the two processes – constant assertion of the right in question and consent in that assertion on the part of the 41

42

43

44

45

‘North Sea Continental Shelf (Federal Republic of Germany/Denmark)’, (ICJ Reports 1969), para. 71. ‘The Continental Shelf (Tunisia v. Libyan Arab Jamahiriya)’, (ICJ Reports, 1985), para. 27. See also ‘Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v USA)’, (ICJ Reports, 1986), paras. 174 and 181. On the relevance of bilateral treaties see Baxter, supra, note 40, pp. 275–6; A. A. D’Amato, The Concept of Custom in International Law (Ithaca, NJ, and London, Cornell University Press, 1971), p. 104, and Villiger, supra, note 20, p. 189, para. 296. Admittedly the above argument (‘since they are treaties, all RTAs are inherently a practice accepted as law’) is rather simplistic. Regarding treaties giving rise to customary law, ‘treaties do not, in most cases, articulate the norm as one of customary law (unless one assumes that laying down a rule in a treaty automatically means articulating the rule as a norm of customary law)’. See M. Akehurst, ‘Custom as a Source of International Law’, British Yearbook of International Law, 47 (1974–1975), p. 43, footnote 7. See also Nicaragua v USA, supra, note 42, paras. 174–82. See M. N. Shaw, International Law, 5th edn (Cambridge University Press, 2003), p. 84.

128

Alberta Fabbricotti

affected States or intergovernmental entities – are complementary and mutually interdependent.46

The extent of the ‘regional exception’ Since State practice regarding RTAs is immense, it is inconceivable to review it analytically here and so certain ‘indicators’ are used to overcome this inconvenience. If one looks at State practice resulting from participation of WTO Members in WTO bodies and conferences creating, implementing or amending rules, significant elements can be inferred from the extent or scope of the ‘regional exception’.47 Rather than focusing on the individual WTO provisions relating to RTAs – each of which has its own role, meaning and scope within the WTO system – this chapter focuses on the overall legal significance and effect of all these treaty clauses on the multilateral trade legal system and, more generally, on the international legal order.

The concept of ‘regional exception’ The term ‘regional exception’ seems suitable to contextualise sociologically the WTO provisions concerning RTAs. Particularly, it gives expression to the fact that WTO Members (in the past, the GATT Contracting Parties) make the provisions. Since, as previously noted, all WTO Members but one are parties to one or more RTAs, the same States make the rules with which they have to comply. Apart from synthesis and depth, the concept of ‘regional exception’ has the advantage of comprehensiveness. It records and assimilates the effects of both categories of relevant WTO provisions, either those which expressly and directly ‘govern’ the formation of RTAs (the three basic sets of Article XXIV GATT, Article V GATS and the Enabling Clause) or those addressing themselves to RTAs implicitly and indirectly: examples are Article 6.3 of the Agreement on Technical Barriers to Trade (TBT), Article 4.2 of the Agreement on Sanitary and Phytosanitary Measures 46

47

See I. C. MacGibbon, ‘The Scope of Acquiescence in International Law’, British Yearbook of International Law, 31 (1954) 143, p. 150. This terminology does not belong properly to the language of international law. As noted by the ILC Study Group on the Fragmentation of International Law ‘the expression “regionalism” did not figure predominantly in treatises of international law and in the cases in which it was featured it rarely took the shape of a “rule” or a “principle”.’ See ILC, ‘Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law’, supra, note 27, para. 450.

The WTO and RTAs

129

(SPS), Article VII GATS and Article 5:2(b) of the Agreement on Safeguards (ASG). Commentary usually ignores the latter group of norms.48 Under WTO law, the extent of the ‘regional exception’ is measurable both in the positive and in the negative. A positive assessment can be approached both horizontally, in other words, from the point of view of its subject-matter coverage, and vertically, or through assessment of the recurrence with which the exception is invoked or restated. The extent of the exception also depends on a negative assessment of the ‘quantity’ and ‘quality’ of the specific requirements and criteria set down in WTO law, and this limits the possibility of concrete implementation of the exception to a restricted number of legitimate circumstances. However, given the above criticism on the effectiveness of GATT Article XXIV, this assessment will not be addressed in detail in the present chapter as it would likely lead to a deadlock.49 The evaluation of the enforceability of the WTO rules on RTAs will, in part, replace that discussion.

The horizontal dimension of the ‘regional exception’ As regards the horizontal dimension, the extent of the ‘regional exception’ goes beyond what can be deduced from the language and material scope of the specific WTO provisions concerning the RTAs. On the one hand, Article XXIV GATT coverage exceeds the sphere of application of the agreement to which it belongs. Since its origins in 1947, Article XXIV was conceived as a general exception from all GATT obligations and not an exemption only from the MFN rule.50 This is confirmed by the chapeau of paragraph 5 of Article XXIV which states that ‘the provisions of this Agreement shall not prevent …’. With the establishment of the WTO in 1995, WTO Members were persuaded that the provisions of this article would stretch to cover any kind of restriction in trade in goods referable to their participation in an RTA, no matter if the measure 48 49

50

A rare exception is offered by Cottier and Foltea, supra, note 4, pp. 50–1. With respect to the ‘quality’ of the requirements, suffice it to read the remarks already made by Dam in 1963: ‘Article XXIV appears, on first impression, to set forth a precise set of rules for determining the circumstances under which regional arrangements will be permitted. The apparent precision is quite illusory.’ K. W. Dam, ‘Regional Economic Arrangements and the GATT: the Legacy of a Misconception’, University of Chicago Law Review, 30 (1963) 615, p. 619. The opinion that Article XXIV is a particular exception is shared by A. Comba, Il neo liberismo internazionale (Milan, Giuff rè, 1995), p. 150; D. Carreau and P. Juillard, Droit international économique, 4th edn (Paris, LGDJ, 1998), p. 292; Picone and Ligustro, supra, note 15, p. 295.

130

Alberta Fabbricotti

in question was violating the GATT or a different, more specialised, WTO agreement.51 (This is confirmed by the travaux préparatoires of the Marrakech Agreement.) On the other hand, in the intent of the Uruguay Round negotiators, additional special regimes for RTAs, provided for in several treaty texts other than GATT, would have considerably expanded the sphere of applicability of the ‘regional exception’, to accommodate almost all the remaining practical needs and expectations of RTAs. These additional disciplines are envisaged by those provisions permitting mutual recognition arrangements among a limited number of WTO Members, such as Articles 6.3 TBT, 4.2 SPS and VII GATS, by those provisions allowing selective safeguards in order to exclude regional partners from restrictive measures, such as Article 5:2(b) ASG, and, even more significantly, by the ‘waiver’ provisions of Article IX.3 of the WTO Agreement. The domain of safeguards gives a clear example of the interaction between GATT Article XXIV and the additional preferences for the benefit of RTAs provided in other 1994 WTO Agreements. RTAs usually provide for detailed regulation of the use of safeguards as among the Contracting Parties of such agreements.52 Safeguards are a physiological outcome of Article XXIV, since it would be contradictory to require the WTO Members entering an RTA to liberalise trade almost completely with their regional partners and at the same time prevent Members from using the ‘safety valve’ of safeguards in case of emergencies in import surpluses. If Article XXIV does not per se prohibit intraregional safeguards, they are allowed implicitly. It is beyond the scope of this chapter to explain why GATT Article XIX53 is not listed among the

51

52

53

For a survey of the WTO agreements to which Article XXIV applies as an exception, see N. J. S. Lockhart and A. D. Mitchell, ‘ Regional Trade Agreements Under GATT 1994: An Exception And Its Limits’ in A. D. Mitchell (ed.), Challenges and Prospects for the WTO (London, Cameron May, 2005), pp. 217–52, especially pp. 228–31. On whether WTO Panels might interpret Article XXIV GATT as providing an exception from TBT Agreement, SPS Agreement or the Agreement on Safeguards obligations, see, respectively, J. P. Trachtman, ‘Toward Open Recognition? Standardization and Regional Integration Under Article XXIV GATT’, Journal of International Economic Law, 6 (2003) 459–92, and J. Pauwelyn, ‘The Puzzle of WTO Safeguards and Regional Trade Agreements’, Journal of International Economic Law, 7 (2004) 109. A few RTAs, like the EU, the ANZCERTA (CER Agreement) and the MERCOSUR, do not contain such a discipline, since they prohibit intra-regional safeguards, other than in exceptional and ‘of last resort’ circumstances. GATT Article XIX is the predecessor of the ASG. It has not been replaced by the discipline of the 1994 Agreement.

The WTO and RTAs

131

exceptions envisaged in paragraph 8 of Article XXIV.54 A problem with such intra-regional regimes is that they are more permissive and flexible than the WTO discipline on global safeguards. In some RTAs, there is a diversification of the legitimate objectives that the safeguards can pursue. In others, there is a relaxation of the requirements (for example, absence of the ‘causal link’ between the increase in imports and the serious injury to domestic producers). In others there is neither an obligation for compensation for the State adopting the restrictive measures nor a corresponding right to countermeasure or retaliation for the State affected by safeguards. In sum, RTAs usually pave the way for the use of intra-regional safeguards. Furthermore, arguably the effects of RTA safeguard regimes are tantamount to an inter se agreement to restrict trade between WTO Members falling under the prohibition of ASG Article XI:1(b).55 A second related issue is the selectivity of global measures. Can a WTO Member exclude its RTA partners from the application of a WTO safeguard?56 GATT Article XIX’s silence about the non-discriminatory nature of safeguards led panels (somewhat paradoxically)57 to exclude selectivity. The controversial question of selectivity has been resolved in WTO jurisprudence through the ‘invention’ of the criterion of parallelism. According to this criterion, the legitimacy of a selective safeguard measure must be assessed on the basis of a strict correspondence between the scope of investigation (in other words, the sphere of the supplier States taken into account for purposes of assessment of the ‘serious injury’ to the domestic producers of like products) and the scope of application of the safeguard restriction (the sphere of the States affected by the measure).58 As well as ‘parallelism’, which represents an unexpected 54 55

56

57

58

For this explanation, see Pauwelyn, supra, note 51, pp. 125–8. ASG Article XI:1(b) forbids ‘any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side. These include actions taken by a single Member as well as actions under agreements, arrangements and understandings entered into by two or more Members.’ See M. C. E. J. Bronckers, Selective Safeguard Measures in Multilateral Trade Relations (The Hague, T.M.C. Asser Institut, 1985). According to Pauwelyn, supra, note 51, p. 121, it is possible to deduce the selective character of safeguards from Article XIX’s requirements of ‘unforeseen developments’ and ‘effect of the obligations incurred under the GATT’. The criterion of parallelism was fi rst enunciated by the Panel in Argentina – Safeguard Measures on Imports of Footwear, (Argentina – Footwear), WT/DS121/R, adopted as modified by the Appellate Body, 12 January 2000, para. 8.80, and later confirmed by the Appellate Body.

132

Alberta Fabbricotti

outcome of the WTO jurisprudence,59 there is ASG Article 5.2(b). That article is an additional exception allowing discriminatory safeguards. It permits WTO Members, provided that consultations are conducted at the Committee on Safeguards, to allocate stricter import quotas to selected supplying countries when they can prove that imports from these countries have increased disproportionately to the total increase of imports of the product, ‘in the representative period’ (so-called criterion of proportionality). So far Article 5.2(b) has never been raised successfully in WTO dispute settlement.60 Both panels and the Appellate Body have discussed the merits of the selectivity issue only when choosing between the non-discriminatory rule of ASG Article 2.2 (‘safeguard measures shall be applied to a product being imported irrespective of its source’) and the parallelism rule. It seems, however, whether parallelism or proportionality is the basis of selectivity, that practical results do not change. WTO Members can either exclude their RTA partners from the application of the safeguard (parallelism) or allocate to them wider quotas of imports (proportionality). The real problem with either of these options might be that the requirements for applying the parallelism or the proportionality criteria could be ‘adjusted’, at the RTA level, through previous arrangements between contracting parties to temporarily restrict intra-regional trade or other kinds of understandings. NAFTA Article 802 is emblematic in this context. In principle, that Article, entitled ‘Global Actions’, reserves to each NAFTA Member the right to impose global safeguard measures allowed under GATT Article XIX and/or the ASG. However, as paragraph 1 of the Article makes clear, this right is excluded from action under WTO provisions regarding compensation or retaliation, to the extent that such provisions are inconsistent with the NAFTA Article. Also, any NAFTA Member taking a global action is obliged to exclude from its application imports from another NAFTA Member, unless these imports account for a substantial share of total imports and contribute 59

60

The theory of parallelism came out of the debate on the applicability of footnote 1 to ASG Article 2, concerning the applicability of a safeguard measure by a customs union either as a single unit or on behalf of a member State. For instance, the Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe From Korea (US – Line Pipe), WT/DS202/AB/R, adopted 8 March 2002, para. 173, noted that Article 5.2(b) was not applicable in the case at issue since this explicit exception would have been granted in the case of ‘serious injury’ but not in a situation where only the ‘threat of serious injury’ persisted (a circumstance which is expressly excluded from the scope of the Article).

The WTO and RTAs

133

importantly to the serious injury, or threat thereof, caused by imports. In United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, it is recorded that the US International Trade Commission61 excluded Canadian imports from the application of the US global safeguard because, although these accounted for a substantial share of US total imports, they did not play a significant role in causing serious injury or threat of injury.62 As a result, the terms and requirements of ASG Article 5.2(b) are overturned and presumably distorted.63 NAFTA Article 802 also disregards the parallelism rule. It provides for a NAFTA Member, in order to be excluded from the application of the safeguard, not to fall among the five principal suppliers of the product the restrictive measure affected after an investigation covering the last three years.

The vertical dimension of the ‘regional exception’ The appearance of a regional clause in WTO legal instruments from time to time (1947 GATT, 1979 Enabling Clause, 1994 WTO Agreements) occurred concomitantly with structural changes in the multilateral trading system (the ‘institutionalisation’ of non-reciprocity with respect to trade with developing countries and the replacement of the GATT with a fully-fledged international organisation). This reinforces the idea that the ‘regional exception’ is deeply rooted in State practice. The degree of RTAs’ autonomy in respect to the WTO legal order The three-level sequence of the analysis Looking at State practice resulting from participation of WTO Members in RTAs, the States’ actual behaviours and attitudes can vary considerably, showing a different degree of autonomy in respect to the WTO legal system.64 To capture the nuances and the dynamics of this phenomenon, 61 62

63

64

See Investigation No. TA-201–67 (publication 3088; March 1998). See Panel Report, US – Wheat Gluten, WT/DS166/R, adopted 19 January 2001, paras. 8.162–8.184. According to the second paragraph of NAFTA Article 802, ‘Substantial Share of Total Imports’ will be assigned only to the top five suppliers of the good subject to the proceeding, and ‘Important Contribution to the Serious Injury or the Th reat Thereof’ will not be assessed if the growth rate of imports from the other NAFTA Party is appreciably lower than the growth rate of total imports from all sources over the same period. Consistent with the bottom-up approach suggested in this chapter, it is here preferred to use the expression ‘RTAs’ autonomy’ instead of ‘RTAs’ compatibility’.

134

Alberta Fabbricotti

the ideal method of analysis involves three sequential levels, which reflect the progressive relaxation of the interdependence between WTO rules and States’ concrete behaviours. First, the autonomous conduct of RTAs (and that of their member states) is appraised through the relevant positive WTO rules. Second, the analysis aims to assess whether RTA Members’ autonomy depends on the existence of gaps in the WTO legal system or on obscure or controversial WTO rules. Third, an RTA’s autonomy is only observed empirically and described as a sociological, political and economical phenomenon. There are two important points about these three levels. First, the threshold between the first and the second level of the analysis is often missing or undefined. Since it is often unclear what exactly the WTO rules require in respect to a number of implementation issues, such as ‘substantially all the trade’, a considerable portion of State practice falls within a ‘grey area’ hardly capable of appraisal from a legal point of view. Therefore, the same RTA measure can easily be interpreted either as unlawful or as permitted under WTO law. Second, in strict legal terms, it is commonly understood that autonomy in State practice is measurable only if the relevant practice deviates from the positive rules of the State’s legal system. It is only within this narrow interpretation that autonomy in State practice may be considered of relevance for the ascertainment of customary law and/or for identification of other features of the international legal order. There are, however, grounds for suggesting that WTO Members’ conduct resulting from participation in RTAs, which are not directly referable to subjective legal situations under WTO law, and thus come into the second and third level of the analysis, can be of concern as well. The ‘grey area’ conduct is the result of gaps or misconceptions in the WTO rules which are, in turn, ascribable to the WTO Members themselves.65 Also, these grey areas often conflict with the spirit of WTO law and undermine its objectives and outcomes.66 It seems, therefore, unavoidable that these grey areas can be taken into account when framing the interplay between the WTO and RTAs. Importantly, such grey area conduct can be challenged under the non-violation complaint or the situation complaint procedures in Article 26 DSU, since they can nullify or impair the benefits accruing to other WTO Members. Under the former 65 66

See above, at sub-section ‘The concept of “regional exception”’. See, for instance, views illustrated above (at sub-section ‘The horizontal dimension of “regional exception”’) à propos intra-regional safeguards and the prohibition on voluntarily restricting trade among WTO Members.

The WTO and RTAs

135

GATT dispute settlement system, Citrus was a non-violation complaint about injurious effects resulting from an RTA. The Panel report was not adopted.67 The main issue was that the United States had a legitimate expectation over certain benefits accruing from MFN, GATT Article I, and that these benefits had been impaired to the extent that preferential agreements of ‘unresolved GATT legality’ had caused damage.68

The first level Attention will now be focused on some examples of State practice. The first level of the analysis considers, through comparison to positive WTO law, State practices implementing the ‘substantially all the trade’ requirement of GATT Article XXIV:8. This might appear somewhat provocative since, as it is widely known, this requirement raises a number of interpretative issues. The most relevant interpretation issue is assessment of the threshold, from 85 per cent to ‘all the trade’, and the choice of a formula or technique to calculate the threshold. The 1994 Understanding on Interpretation of GATT Article XXIV suggests that this requirement should be assessed both quantitatively (in other words, the liberalisation should affect almost all the volume of intra-RTA trade) and qualitatively (as the intra-RTA liberalisation should affect all main trade sectors).69 State practice shows, however, that States do not regard the ‘substantially all’ threshold and its method of calculation as a problem. An overwhelming majority of RTAs exclude from liberalisation both a significant volume of trade and one or more important trade sectors. This is done in several ways, some of which are self-declaratory (such as the use of exemption lists of products and/or of sectors annexed to the RTA deal); others are disguised under permitted procedures with other stated purposes (such as those for the protection of non-trade values or those envisaging a different liberalisation speed among contracting parties in asymmetrical RTAs). Therefore, it seems that, wherever the threshold is placed or whatever the method of calculation chosen, the outcome is always a deviation from GATT Article XXIV:8.70 67

68

69 70

See Panel Report, EEC – Tariff Treatment of Citrus Products from Certain Mediterranean Countries, Doc. L/5776, unadopted 7 February 1985. R. E. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT Legal System (Salem NH, Butterworth, 1993), p. 160. Fourth recital of the Understanding Preamble. For a similar conclusion, see J. H. Mathis, ‘Regional Trade Agreements and Domestic Regulation: What Reach for ‘Other Restrictive Regulations of Commerce’?’ in Bartels and Ortino (eds.), supra, note 3, pp. 79–108, at p. 82.

136

Alberta Fabbricotti

The second level The most evident example of State measures, showing the significant autonomy enjoyed by RTAs (mainly Free Trade Areas) with respect to the WTO legal system, is given by the preferential rules of origin. These rules allow RTA Members, through implementation of an often complex economic ratio or formula, to distinguish among RTA countries and nonRTA countries in order to apply preferential treatment only to the former. Preferential rules of origin are not prohibited, therefore they are permitted under WTO law. Nevertheless, they can have serious diverting effects on trade flows and can implicitly undermine the real purpose of the WTO requirements for RTAs. The third level Finally, the empirical observation of regionalism evidences a variety of phenomena which suggest potentially innumerable situations where RTAs’ autonomous behaviours de facto undermine the WTO legal order. A thorough description of these factual developments is beyond the scope of the present chapter.71 It suffices here to list the main features of modern regionalism: proliferation of RTAs; achievement of patterns of economic integration more advanced than free trade areas and customs unions; performance of hybrid modalities of economic integration; enlargement of the subject-matter coverage to include WTO-plus issues; augmentation of North-South RTAs; formation of regional groupings not based on a treaty and devoid of institutional structure; overlapping of RTAs; conclusion of RTAs between RTAs; and creation of RTAs between countries geographically distant.

The degree of enforceability of the WTO rules on RTAs Perhaps the only true innovation relating to RTAs has been the clarification contained in paragraph 12 of the Understanding on the Interpretation of GATT Article XXIV, stating that ‘the Dispute Settlement Understanding may be invoked with respect to any matters arising from the application of those provisions of Article XXIV relating to customs unions, free-trade 71

For a comprehensive survey, see R. V. Fiorentino, L. Verdeja and C. Toqueboeuf, ‘The Changing Landscape of Regional Trade Agreements: 2006 Update’, (WTO Discussion Paper No. 12, 2007).

The WTO and RTAs

137

areas or interim agreements leading to the formation of a customs union or free-trade area’. From this step, panels became clearly competent to judicially review RTAs.72 In the past, the GATT machinery that monitored the conformity of RTAs with Article XXIV was exclusively political. Ad hoc GATT Working Parties were entrusted with the scrutiny of individual RTAs. From 1996 the monitoring of all RTAs notified to the WTO was transferred to a permanent Committee on Regional Trade Agreements (CRTA). Like the former Working Parties, the CRTA has systematically failed to check RTAs. The fi rst case in which a Panel and the Appellate Body took jurisdiction over RTAs was Turkey – Restrictions on Imports of Textile and Clothing Products (Turkey – Textiles) in 1999.73 On the merits, the Appellate Body found that Article XXIV justified the regional economic organisation’s adoption of a measure that was inconsistent with other GATT provisions, provided that two conditions are fulfi lled: (1) Only if the measure is introduced upon the formation of a customs union which fully meets the requirements of paragraphs 8 and 5 of Article XXIV (timing), and (2) only to the extent that the formation of the customs union would be prevented if the measure were not allowed (necessity). It is beyond the scope of this chapter to reopen a debate on this report. However, in general the Appellate Body did not escape criticism. Th is included, for example, that the timing and necessity requirements led to absurd results and that the Appellate Body had practised ‘judicial activism’. 74 There is an argument which deserves to be highlighted. The compromise reached in the Appellate Body’s decision on Turkey – Textiles has resulted in taking out of their traditional context the overall RTA compatibility conditions laid down in Article XXIV (that is to say, the internal and external requirements).75 They are now subsumed, for adjudication purposes, into a category of prerequisites. This leaves the conditions upon 72

73

74

75

In the 1947 GATT era, the jurisdiction of Panels and Working Parties had been systematically rejected. Panel Report, Turkey – Restrictions on Imports of Textile and Clothing Products, WT/ DS34/R; Appellate Body Report, WT/DS34/AB/R, adopted 19 November 1999. This case has greatly attracted the attention of commentators. Pauwelyn, supra , note 51, pp. 132–5; L. Bartels, ‘The Separation of Powers in the WTO: How to Avoid Judicial Activism’, International and Comparative Law Quarterly, 53 (2004) 861; Devuyst and Serdarevic, supra, note 5, pp. 65–72. See supra, note 2.

138

Alberta Fabbricotti

which Article XXIV can justify concrete RTA measures prima facie inconsistent with WTO law. (These conditions are the timing and the necessity tests.) The problem with this sequence is that WTO judicial bodies are technically unequipped to perform the task of assessing the overall compatibility of RTAs with WTO law.76 As a result, the second step of the procedure, that is, the evaluation of legitimacy of specific RTA measures, does not occur because the overall compatibility amounts to a prerequisite for deciding the concrete measure’s legitimacy. There have been several WTO disputes invoking GATT Article XXIV since Turkey – Textiles. In most of these instances, the issue was the discriminatory (selective) application of global safeguards. By introducing the concept of parallelism, the panels and the Appellate Body have avoided answering the question of whether Article XXIV can justify a violation of the non-discrimination rule of ASG Article 2.2.77 In one case, the Panel concluded that the United States had demonstrated that the NAFTA was consistent with Article XXIV; however, the Appellate Body found it unnecessary to address this issue and considered the Panel’s relevant conclusions as ‘moot’ and without ‘legal effect’.78 In the other reports, panels have, whenever possible, made use of the principle of judicial economy and, thus, have not scrutinised either the RTA in its entirety or the specific measure. In Brazil – Measures Affecting Imports of Retreaded Tyres, the specific RTA measure at issue was a MERCOSUR exemption from an import ban on retreaded tyres.79 The European Communities requested the Appellate Body to reverse the Panel’s decision to exercise judicial economy and to complete the legal analysis under GATT Article XXIV. This request was not fulfi lled because it was conditioned upon the Appellate Body upholding the Panel’s 76

77

78 79

Also, in a WTO dispute it is up to the member state invoking the defence of GATT Article XXIV to demonstrate the full consistency of the relevant RTA with the requirements of paragraphs 5 and 8 of the Article (Panel Report, Argentina – Textiles and Apparel, WT/DS56/R, adopted as modified by the Appellate Body 22 April 1998, paras. 6.34–6.40). The satisfying of the burden of proof is always the subject of further dispute. See Panel Report, Brazil – Measures Affecting Imports of Retreaded Tyres (Brazil – Tyres), WT/DS332/R, adopted as modified by the Appellate Body, 17 December 2007, paras. 4.378–4.402. See, for instance, Appellate Body Report, Argentina – Footwear, WT/DS121/AB/R, adopted 14 December 1999, para. 109. See Appellate Body Report, US – Line Pipe, supra, note 60, para. 199. Panel Report, Brazil – Tyres, supra, note 76, paras. 7.453–5.

The WTO and RTAs

139

fi nding that the MERCOSUR exemption did not result in the import ban being applied inconsistently with the requirements of the chapeau of Article XX and, instead, the Appellate Body reversed this conclusion of the Panel.80

VI

Conclusion

In this chapter an attempt has been made to demonstrate that the interplay between the WTO and RTAs, which is usually approached doctrinally either as a challenge to WTO primacy or as a matter essentially political in nature, can equally be interpreted as a practical case of interrelation between different sources of international law. Those sources are the treaty law of the WTO and the customary law deriving from the formation of RTAs as evidenced by State practice and accepted as law. Th is reasoning was stimulated by the remark that RTAs usually do not conform to the requirements of GATT Article XXIV and other similar WTO provisions. How should one interpret this negligence and disregard with respect to WTO rules? Given the generalised spread of this attitude, it seems reasonable, from an international law perspective, to question whether non-compliant State practice could be interpreted as a tacit performance of an international custom instead of being considered simply as a generalised behaviour that is wrong under WTO law. The indicators this chapter employs to survey State practice relating to RTAs, viz. the extent of the ‘regional exception’ and the degree of RTAs’ autonomy in respect to the WTO legal order, provide some evidence of an international custom which might have the shape and content of a right or freedom of States to reciprocate trade preferences by way of agreement. The de facto non-enforceability of the WTO rules pertaining to RTAs, as a result of the systematic failure, which is likely to be seen as acquiescence, of the relevant WTO authorities to check regional agreements, confirms this. Prior to GATT 1947, the idea prevailed that the ‘regional exception’ to the most-favoured-nation clause was a part of international customary law. Th is deserves close consideration, not only to reinforce the

80

Appellate Body Report, Brazil – Tyres, WT/DS332/AB/R, adopted 17 December 2007, paras. 255–6.

140

Alberta Fabbricotti

customary law argument, but also as a suggestion for future further analysis of the relationship between the WTO and RTAs.81 81

Some of the issues discussed in this chapter have been further developed by the author in Fabbricotti, ‘The Interplay Between the WTO and the RTAs: Is It a Question of Interrelation Between Different Sources of International Law?’, (SIEL Online Proceedings Working Paper No. 12/08, 2008), available at http://ssrn.com/abstract=1151386 (accessed 10 May 2010).

7 ‘Gambling’ with sovereignty: complying with international obligations or upholding national autonomy Henning Grosse Ruse-Khan

I

Introduction

A significant number of prominent WTO disputes, including EC – Hormones, US – Shrimp and US – Foreign Sales Corporations, have raised questions over state sovereignty in exercising control over important matters.1 Both anti-globalisation advocates and hard-core free traders often blame the WTO dispute settlement system for allowing its actors, especially the WTO Appellate Body, to allegedly go beyond their mandate and create new rules rather than applying existing ones.2 The US – Gambling dispute between the tiny Caribbean island nation of Antigua and Barbuda (Antigua) and the United States involved sovereignty-related issues over the extent the WTO judiciary may ‘interfere’ with US perceptions of public order and morality. However, this dispute points to further aspects affecting national autonomy and the reach of international obligations, which are this chapter’s focus. The continued US failure to comply with the recommendations and rulings of the Dispute Settlement Body (DSB) has led to arbitration over Antigua’s right to retaliate by suspending its obligations under the TRIPS Agreement in order to induce compliance. Rather than discussing the technical details of cross-retaliation, I focus 1

2

State sovereignty in this chapter is primarily understood as determining the scope of domestic freedom from outside interference. In this regard, I prefer to use the term autonomy, since it focuses on this particular aspect of state sovereignty within a wider understanding of the latter; see D. Sarooshi, ‘Sovereignty, Economic Autonomy, the United States, and the International Trading System: Representations of a Relationship’, European Journal of International Law, 15(4) (2004) 651. S. Esserman and R. Howse, ‘The WTO on Trial’, Foreign Affairs Magazine, 82 (2003) 130; see also R. Z. Lawrence, ‘The United States and the WTO Dispute Settlement System’, Council on Foreign Relations, (Special Report No.25, March 2007), available at www.cfr. org/ (accessed 11 May 2010).

141

142

Henning Grosse Ruse-Khan

on the sovereignty aspects this type of retaliation raises. To what extent can the WTO dispute settlement system provide trade heavyweights and small economies with an effective mechanism to enforce international obligations under WTO law? Does the notion of suspending intellectual property (IP) protection give developing countries an effective tool, given the economic importance IP has for most industrialised economies? US – Gambling sets a precedent for another development which potentially has strong implications for the reach of international obligations and national autonomy. In order to avoid implementing the recommendations of the DSB, retaliation from Antigua or further disputes initiated by other, more powerful trading partners, the US wishes to modify its international obligations affecting its domestic policies on (online) gambling and betting. What does this imply for the obligation to comply with the DSB recommendations in US – Gambling? Which – if any – possible responses allow the respective modification procedures under the General Agreement on Trade in Services (GATS)? Again, I will focus on the implications for state sovereignty and WTO obligations. Is the option to modify existing WTO obligations an approach which should be broadened to give effect to crucial domestic policies and values whenever these conflict with WTO law?

II

General links between WTO dispute settlement and sovereignty

Panel and Appellate Body reports are frequently described as ‘automatically binding’. This has been hailed as one of the core features of the WTO and a key improvement over the former GATT system.3 There is no doubt about the important role of the negative consensus rule and the adoption of (Panel or Appellate Body) reports. However, adopting a report does not necessarily imply an international obligation to comply, let alone any effective method of enforcement in case of non-compliance. Nevertheless, the binding character of the WTO dispute settlement system has been a key issue in the claims by several observers and interest groups which allege undue interference with national sovereignty. This often takes the form of allegations that the Appellate Body is engaging in judicial activism or overreaching.4 3

4

A. F. Lowenfeld, ‘Remedies Along with Rights: Institutional Reform in the New GATT’, American Journal of International Law, 88 (1994) 477, pp. 479 and 481. See Esserman and Howse, supra, note 2; C. Barfield, ‘WTO Dispute Settlement System in Need of Change’, Intereconomics, 37 (2002) 131, pp. 131–5.

‘Gambling’ with sovereignty

143

Against the background of this debate on judicial activism, this section looks briefly at the legal foundations of WTO dispute settlement and how they might impact on state sovereignty.

Judicial activism and overreaching The most prominent claims relating to national autonomy and the WTO dispute settlement system allege that the WTO quasi-judicial organs create new rights and obligations rather than preserving and clarifying existing ones.5 The Uruguay Round negotiators addressed this fear in Art. 3.2 of the Dispute Settlement Understanding (DSU) which provides: The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.6

Against this safeguard, one might ask if there is any room for deviation from a literal interpretation of WTO law under the dispute settlement rules. John Jackson has observed: If a nation has consented to a treaty and the norms it contains, why should it object to an external process which could rule on the consistency of nations’ actions with the treaty norms? It might be argued that such objections manifest a lack of intent to follow the norms, sort of accepting the treaty with fi ngers crossed behind the back … However, it could also be suggested that nervousness about international dispute procedures reflects a government’s desire to have some flexibility to resist future strict conformity to norms in certain special circumstances, particularly circumstances that could pose great danger to the essential national objectives. Th is is sort of an ‘escape clause’ idea where a nation could accept norms with sincere intent to follow them except in the 5

6

Esserman and Howse, supra, note 2; Barfield, supra, note 4; see also US Council on Foreign Relations, ‘Online debate: Is the WTO Dispute Settlement System fair?’, available online at www.cfr.org/publication/12665/is_the_wto_dispute_settlement_system_fair.html (accessed 11 May 2010). DSU, 1869 UNTS. 401, (15 April 1994), Article 3.2. With almost identical wording, DSU Article 19.2 states, ‘in accordance with paragraph 2 of Article 3, in their fi ndings and recommendations, the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements’.

144

Henning Grosse Ruse-Khan most severe and egregious cases of danger to the nation or to its political system.7

The need to safeguard vital interests evokes discussion about undue restraints on state sovereignty in WTO dispute settlement practice – especially in high-profi le cases decided by the Appellate Body,8 such as that pertaining to the Byrd Amendment (the Continued Dumping and Subsidy Offset Act of 2000).9 These complaints on overreaching have been associated with ‘constitutional flaws stemming from the imbalance between the powerful judicial system and the weak and ineffective rulemaking procedures’.10

Implementation of dispute settlement rulings and recommendations Yerxa describes WTO dispute settlement as ‘an adjudication process that respects national sovereignty yet gives Members a compelling reason to comply with its decisions’.11 This addresses the basic paradox between needing the negotiated and internationally agreed rules to mean something, while trying to avoid the transfer of control over domestic policies to an international body. Yerxa notes that the ‘unique feature of the WTO is that, unlike many international regimes, it has an adjudication process that is mandatory and binding’.12 But what does this binding character imply – in a world where national autonomy is safeguarded against direct effect and where there is ‘no WTO jail, and … no power to levy fines or other monetary sanctions’?13 Yerxa sees the answer in the system’s functioning on the basis of contractual remedies: What this means is that the violation of WTO rules by one Member gives adversely affected Members the right to withdraw some equivalent value of commitments in order to rebalance their respective rights 7

8

9 10 11

12

J. H. Jackson, ‘Dispute Settlement in the WTO: Policy and Jurisprudential Considerations, Research Seminar in International Economics’, (University of Michigan School of Public Policy Discussion Paper No. 419, 1998), p. 15. Such claims have been made in disputes involving sensitive domestic policies such as EC – Hormones and US – Shrimp as well as in recent trade remedy cases involving various controversial US antidumping practices; compare also Barfield, supra, note 4. US Council on Foreign Relations, supra, note 5. Barfield, supra, note 4. R. Yerxa, ‘The power of the WTO Dispute Settlement System’ in R. Yerxa and B. Wilson (eds.), Key Issues in WTO Dispute Settlement: The First Ten Years (Cambridge University Press, 2005), p. 3, at pp. 3–4. Ibid., p. 3. 13 Ibid.

‘Gambling’ with sovereignty

145

and obligations … However, the decision to ‘retaliate’ is entirely up to the aggrieved Member itself, just as the decision to correct a violation rests on the sovereign decision of the violator.14

He therefore concludes that ‘in essence, sanctions, just like compliance, must come from sovereign actions of the WTO’s Members’. The provisions of the DSU support these observations. There is arguably an obligation to implement the recommendations and rulings of the DSB. First, Art. 3.7 states that ‘in the absence of a mutually agreed solution, the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements’. When a panel or the Appellate Body finds such inconsistencies, Art. 19.1 provides ‘it shall recommend that the Member concerned15 bring the measure into conformity with’ the relevant WTO agreement. Art 21.1 then states that ‘prompt compliance with recommendations or rulings of the DSB is essential in order to ensure effective resolution of disputes to the benefit of all Members’. It follows that an adopted panel or Appellate Body report16 becomes binding for the Member concerned.17 Art. 21 further requires the Member to ‘inform the DSB of its intentions in respect of implementation’ and generally allows ‘a reasonable period of time in which to do so’.18 If a Member does not comply, the DSU allows the suspension of concessions or other obligations as the last and temporary resort, unless both parties mutually agree on compensation. Also, Art. 22.3(a) establishes the general principle that the retaliating Member should consider suspending concessions or other obligations deriving from the same sector19 of the same agreement20 which the other Member violated. Under the further 14 15

16

17

18

19

Ibid., p. 4 (emphasis added). The ‘Member concerned’ is the party to the dispute to which the recommendations are directed. Adoption is – by virtue of the negative consensus rule – generally automatic. See DSU Articles 16.4 and 17.14. P. Van den Bossche, Th e Law and Policy of the World Trade Organization: Text , Cases and Materials (Cambridge University Press, 2005), p. 217; M. Matsushita, T. J. Schoenbaum and P. C. Mavroidis, Th e World Trade Organization (Oxford University Press, 2003), p. 25. Under Article 21.5, any disagreement ‘as to the existence or consistency with a covered agreement of measures taken to comply’ shall be decided ‘through recourse to these dispute settlement procedures, including wherever possible resort to the original panel’ (so-called 21.5 compliance panels). Defined in DSU Article 22.3(f). 20 See DSU Article 22.3(g).

146

Henning Grosse Ruse-Khan

conditions in Art. 22.3(b) and (c), the retaliating Member can suspend obligations under other sectors or even under distinct WTO Agreements. Art. 22.4 requires the retaliating country to ensure equivalence between the level of concessions or other obligations suspended and the level of nullification or impairment of benefits.21 The non-complying Member can challenge the consistency of a request for retaliation through binding arbitration proceedings. The DSU enforcement mechanism limits the options of the retaliating country when responding to a perceived violation of WTO rules. Art. 23 prohibits any unilateral determination regarding (1) whether national measures are inconsistent with WTO law; (2) whether reasonable periods for implementation have been exceeded; or (3) how to retaliate against non-compliance. These limitations are likely intended to protect the national autonomy of the non-complying Member, which a strict enforcement regime would threaten.

The DSU, international obligations and national autonomy The DSU was carefully drafted to not interfere directly with a noncomplying Member’s autonomy to uphold or withdraw the WTOinconsistent measure. A Member can refuse to comply and choose to live with the retaliation – if implemented – without further consequences.22 Instead, the DSU provides for a rule-based system which allows affected Members to challenge national measures and – if they are found to be WTO-inconsistent – to respond to these inconsistencies in specific ways. These DSU provisions, limiting the options of other states to respond to (perceived) violations of WTO law, can be viewed as much stronger restrictions of the autonomy of the responding state than on the noncomplying state. Overall, the provisions of the DSU do not guarantee the enforcement of WTO obligations. Instead, this is left to the sovereign decisions of WTO Members. As a last resort, the DSU allows suspension of concessions or other WTO obligations. This provides a remedy which can be used to induce 21

22

The DSU offers no further guidance and arbitrators have generally taken an ‘equality-of-harm’ approach by comparing the detrimental effect of the inconsistent measure of the non-complying state with the detrimental effect of the retaliatory measure; see T. Sebastian, ‘World Trade Organization Remedies and the Assessment of Proportionality: Equivalence and Appropriateness’, Harvard International Law Journal, 48(2) (2007) 337, section V. Lawrence, supra, note 2, p. 14.

‘Gambling’ with sovereignty

147

compliance or to rebalance the reciprocity of negotiated commitments.23 Apart from other considerations,24 the risk of retaliation and its potential impact on domestic interests can be a key factor in deciding whether to implement the DSB recommendations. Therefore, the ‘enforcement mechanism’ has an indirect effect on that decision and thereby on the autonomy of the non-complying state. It offers an opportunity to enforce WTO obligations. However, this has to be assessed in the context of political and economic realities of the world trading system. The key question is whether opportunities for enforcement are equally open to, and effective for, all WTO Members. The WTO dispute settlement rules have been hailed as being rule-based instead of relying on (power-oriented) diplomacy. However, the lack of effective enforcement tools works against small economies and (most) developing countries.25 Can the DSU give equal opportunities to all WTO Members to induce compliance in a way that minimises the impact of trade, economic and political power on the ability to enforce WTO law?26 Using US – Gambling as an example, the next section examines the 23

24

25

26

Both rebalancing and inducing compliance fi nd support in the DSU and other mechanisms for retaliation in the WTO. While some relics of the traditional GATT system (such as the equality of harm approach in Article 22.4) emphasise a need for upholding the agreed bilateral balance of concessions, the rule-based approach in the WTO system aims to secure compliance with WTO rules and DSB rulings. See H. Grosse RuseKhan, ‘A Pirate of the Caribbean? The Attractions of Suspending TRIPS Obligations’, Journal of International Economic Law, 11(2) (2008) 313, pp. 325–30; compare also R. Malacrida, ‘Towards Sounder and Fairer WTO Retaliation: Suggestions for Possible Additional Procedural Rules Governing Members’ Preparation and Adoption of Retaliatory Measures’, Journal of World Trade, 42(1) (2008) 3, p. 5; Y. Fukunaga, ‘Securing Compliance through the WTO Dispute Settlement System: Implementation of DSB Recommendations’, Journal of International Economic Law, 9(2) (2006) 383, pp. 416–17; and M. Bronckers and N. van den Broek, ‘Financial Compensation in the WTO: Improving the Remedies of WTO Dispute Settlement’, Journal of International Economic Law, 8(1) (2006) 101, p. 102. A key motivation for compliance, even in sensitive disputes, may be a willingness to ensure, for all domestic commercial actors, security and predictability of the international trading system which could well be undermined by (continuous) noncompliance; see Jackson, supra, note 7, p. 17. Th is has been described as a power paradox in the DSU enforcement system which aims to overcome power-based economic relations and establish security, predictability and the rule of law on the one hand, but relies on economic state power for the enforcement of dispute settlement rulings; see N. van den Broek, ‘Power Paradoxes in Enforcement and Implementation of World Trade Organization Dispute Settlement Reports: Interdisciplinary Approaches and New Proposals’, Journal of World Trade, 37(1) (2003) 127, pp. 127–36. See DSU Article 3.2.

148

Henning Grosse Ruse-Khan

effectiveness, especially for small economies, of WTO dispute settlement in general and the notion of suspending IP protection in particular to enforce WTO obligations.

III Suspending WTO obligations – a viable way to enforce international obligations? The ‘traditional’ form of trade retaliation was withdrawing tariff concessions, effectively raising tariffs for specific imports from the noncomplying country.27 Using US – Gambling as an example, I will show that this tool is inadequate, harmful and inefficient. The question is whether suspending obligations to protect IP under the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is a meaningful alternative.

US – Gambling and the inadequacy of traditional retaliation US – Gambling concerned the denial of access to the US market for foreign internet gambling service operators.28 It pitted one of the smallest WTO Members, Antigua,29 against the United States, the world’s largest single economy. WTO judicial organs have consistently sided with Antigua – first finding the US measures inconsistent with its GATS obligations,30 then 27

28

29

30

Compare S. Charnovitz, ‘The WTO’s Problematic Last Resort Against Noncompliance’, (14 August 2003), pp. 9–10, available at www.worldtradelaw.net/articles/ charnovitzlastresort.pdf (accessed 11 May 2010); and W-M. Choi, ‘To Comply or Not to Comply? – Non-Implementation Problems in the WTO Dispute Settlement System’, Journal of World Trade, 41(5) (2007) 1043, pp. 1049–53; for statistics on retaliation in the GATT/WTO see Malacrida, supra, note 23, pp. 56–60 (Annex B). Antigua challenged the consistency of various US measures that had the cumulative effect of preventing the cross-border supply of its gambling and betting services, even though the US had made market access commitments in its schedule annexed to (and an integral part of) the General Agreement on Trade in Services (GATS). For commentary on the dispute see M. Krajewski, ‘Playing by the Rules of the Game?: Specific commitments after US – Gambling and Betting and the Current GATS Negotiations’, Legal Issues of Economic Integration, 32(4) (2005) 417; and F. Ortino, ‘Treaty Interpretation and the WTO Appellate Body Report in US– Gambling : A Critique’, Journal of International Economic Law, 9(1) (2006) 117. Antigua’s economy is dependent upon tourism and the provision of banking and other fi nancial services. See United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services – Recourse by Antigua and Barbuda to Article 22.2 of the DSU (United States – Gambling), WT/DS285/22, 22 June 2007, p. 3. Appellate Body Report, United States –Gambling, WT/DS285/AB/R, adopted 20 April 2005.

‘Gambling’ with sovereignty

149

holding that the US had failed to implement the DSB recommendations.31 To fi nally induce a change in US law, Antigua requested suspending equivalent WTO obligations against the US.32 Antigua did not ask for a right to raise tariffs, but instead primarily opted for suspending IP protection under TRIPS.33 This must be judged in light of the perception that traditional retaliation is an ineffective tool for small economies and developing countries. Due to the asymmetry in market size, suspending tariff concessions is unlikely to induce compliance, as a larger trading partner will not be harmed.34 Traditional retaliation, therefore, cannot offer a realistic option to enforce obligations.35 Further, suspending tariff concessions leads to more expensive and potentially fewer supplies for the domestic market; leading to less competition and price increases, which in turn negatively affect consumers and economic welfare.36 This applies not only to small economies, but also (to a lesser extent) to large trading nations. Raising tariffs amounts to trade contraction, and goes against WTO trade liberalising principles.37 Therefore, the use of retaliatory suspension of tariff concessions is arguably ‘shooting oneself in the foot’.38 Th is is particularly true for small economies. Consequently, although the WTO dispute settlement system aimed to enshrine the rule of law, the threat and use of sanctions reinforces the primacy of power.39 Lawrence has observed that ‘while all WTO members are formally equal, the system’s design gives some countries more power than others’.40 All these – and

31

32 34

35

36

37 38

39

Panel Report, United States – Gambling – Recourse to Article 21.5 of the DSU by Antigua and Barbuda, WT/DS285/RW, adopted 22 May 2007. 33 United States – Gambling, supra, note 29. Ibid. Compare the Decision by the Arbitrator, European Communities – Regime for the Importation , Sale and Distribution of Bananas (EC – Bananas III ) – Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/DS27/ARB/ ECU, 24 March 2000, para. 95, and A. Subramanian and J. Watal, ‘Can TRIPS Serve as an Enforcement Device for Developing Countries in the WTO?’, Journal of International Economic Law, 3(3) (2000) 403, p. 404. See also Charnovitz, supra , note 27, pp. 22–3; Bronckers and van den Broek, supra , note 23, p. 102. UNCTAD-ICTSD, Resource Book on TRIPS and Development, (Geneva, UNCTAD/ ICTSD, 2005), ch. 32, 7.6.1, available at www.iprsonline.org/unctadictsd/ ResourceBookIndex.htm (accessed 11 May 2010); EC – Bananas III (Ecuador) (Article 22.6 – EC), supra, note 34, para. 91. Bronckers and van den Broek, supra, note 23, p. 103. Subramanian and Watal, supra, note 34, p. 405; Bronckers and van den Broek, supra, note 23, p. 103. Charnovitz, supra, note 27, p. 28. 40 Lawrence, supra, note 2, p. 15.

150

Henning Grosse Ruse-Khan

other41 – flaws of traditional trade retaliation lead to the conclusion that the mechanism not only fails to effectively enforce international obligations, but implies additional harm for a country attempting to retaliate. Antigua’s situation in US – Gambling confirms these general observations. With only ‘negligible natural resources’, very few exports and about 50 per cent of all goods and services being imported from the US, raising tariffs on US goods would have a disproportionately negative impact on Antigua.42 As a suspension of all trade with the US would affect less than 0.02 per cent of all US exports,43 such measures stand very little chance of inducing and forcing the US to comply with WTO obligations.

Cross-retaliation under TRIPS – a feasible alternative? Because of the continued US failure to implement the DSB recommend ations in US – Gambling , arbitrators awarded Antigua the right to retaliate by suspending obligations under TRIPS with an annual value of US$21 million.44 This raises the question whether suspending TRIPS obligations is a feasible and effective alternative to traditional retaliation. Generally speaking, the form of retaliation chosen should have the potential to inf lict (economic) loss on the noncomplying WTO Member – thereby providing an incentive to comply – and further should be beneficial (or at least not harmful) to the retaliating country.45 My analysis will not delve into the specific DSU legal conditions 46 nor address other issues of conf licting international obligations 47 or difficulties in implementing IP cross-retaliation in 41

42 44

45 46

47

See Bronckers and van den Broek, supra, note 23, pp. 103–4 (which stress the harm done to affected exporters as innocent bystanders and the lack of remedies for the industries affected by the initial WTO violation); see further Charnovitz, supra, note 27, pp. 10–14 and 23–4 (who discusses various other negative effects on third countries, the WTO as a whole and other international organisations). United States – Gambling, supra, note 30, pp. 2–3. 43 Ibid. Decision by the Arbitrator, United States – Gambling – Recourse to Arbitration by the United States under Article 22.6 of the DSU, WT/DS285/ARB, 21 December 2007, para. 6.1 For a more detailed analysis of the Article 22.6 arbitration see Grosse Ruse-Khan, supra, note 23, pp. 315–18). Subramanian and Watal, supra, note 34, pp. 405–6. See in particular the conditions set out in Article 22.3 DSU. Overall, the existing arbitral awards in EC – Bananas III, supra, note 34 and US – Gambling, supra, note 44 do not indicate significant legal hurdles. See Grosse Ruse-Khan, supra, note 23, pp. 340–7. As international IP regulation is fragmented, a right to suspend IP protection may confl ict with an obligation to protect the same subject matter under another multilateral, regional or bilateral agreement. See Subramanian and Watal, supra, note 34; and H. Grosse Ruse-Khan, ‘Suspension of Obligations under TRIPS as an Effective Means to

‘Gambling’ with sovereignty

151

national law.48 These aspects are dependent on individual circumstances and do not directly affect the general potential of IP crossretaliation to enforce international obligations. In order to evaluate the potential that IP cross-retaliation may offer, one must consider the role IP plays in the international trading regime, particularly for most industrialised and knowledge-based economies. Countries with a sector-specific comparative advantage49 in developing technological inventions and producing related innovative high-tech goods, engaging in creative activity on an industrial scale or in performing other kinds of innovation which require significant investment of time, money or labour but are easy to imitate or copy, generally favour stronger IP protection than those which are ‘net importers’ of IP-protected goods or services. In global trade, however, strong IP rights at home are not sufficient: effective IP protection in existing and potential markets is a central concern for industries wishing to trade their IP-protected products and services globally without risk of copying or imitation. For protection of IP assets on a global scale, TRIPS is the most important multilateral agreement.50 The value IP protection has for companies in industrialised countries, even in cases of asymmetric market size, means that suspending TRIPS obligations is likely to serve as an effective tool in inducing these countries to comply with DSB recommendations. While there is no precedent for suspending TRIPS obligations (and thus none for its effectiveness in practice),51 the potential harm withdrawing IP protection entails for

48

49

50

51

Induce Compliance?’, presented at the 7th BIICL/IIEL WTO Conference (London, May 2007), available at www.ip.mpg.de/shared/data/pdf/suspension_of_obligations_under_ trips_(h_grosse_ruse_-_khan_21_05_2007).pdf (accessed 19 June 2009). As IP rights flow from national laws, any authority to suspend IP protection must be accompanied by appropriate domestic regulation; for examples see Subramanian and Watal, supra , note 34; M. Basso and E. Beas, ‘Cross-retaliation through TRIPS in the Cotton Dispute?’, Bridges Monthly Review, 9(5) (2005) 1, pp. 19–20, available at http:// ictsd.org/downloads/bridges/bridges9-5.pdf (accessed 13 May 2010); and Grosse RuseKhan, supra, note 47. A discussion of comparative advantage can be found in Van den Bossche, supra, note 17, pp. 19–24. For an economist’s perspective see S. Brakman, H. Garretsen, C. van Marrewijk and A. van Witteloostuijn, Nations and Firms in the Global Economy (Cambridge University Press, 2006), pp. 63–95. It is the only international IP agreement which (1) contains provisions on IP rights; (2) integrates the other several international IP Agreements by reference; (3) includes enforcement of IP rights; and (4) binds more than 150 countries to the WTO’s dispute settlement system. Ecuador, the only country which (before Antigua in US – Gambling) had been awarded the right to suspend IP protection (see EC – Bananas III, supra, note 34), never resorted

152

Henning Grosse Ruse-Khan

all IP-dependent industries strongly suggests its compliance-inducing effect on countries relying on such industries.52 Non-complying WTO Members for whom IP protection is a key asset are more likely to adhere to their international obligations – even if this requires acting against the interests of other important domestic stakeholders. Also, suspending IP protection may have positive welfare effects for a (developing) economy, especially in education and health. It can increase the availability of IP-protected goods or services in the domestic market and enable domestic research institutions and industry to access, experiment with and utilise protected technology and foster domestic innovation. These general observations suggest that a withdrawal of TRIPS obligations can serve as an effective enforcement tool. On this basis, it has been hailed as the perfect ‘retaliatory weapon in trade disputes’53 for developing countries and small economies. However, a closer look at the domestic economic feasibility and the retaliatory impact abroad calls this evaluation into question. Both positive enforcement and welfare effects identified above as the core rationale and attraction of IP cross-retaliation depend in large part on various factors in the retaliating country. First, sufficient domestic market size and consumer demand are crucial for IP suspension to have a significant impact on the non-complying country. Since withdrawal of TRIPS obligations is limited to the territory of the retaliating Member, exports to other countries where the products or services are IP-protected are, in principle, infringing.54 If, therefore, the domestic market is small or not

52

53 54

to retaliation as it reached a mutually agreeable solution with the EC in June 2001. Th is may be because it was not economically feasible to suspend IP protection, but could also indicate the bargaining power it gained (i.e. the threat to suspend IP rights). See, for example, United States – Subsidies on Upland Cotton – Recourse to Article 7.9 of the SCM Agreement and Article 22.2 of the DSU by Brazil, WT/DS267/26, 7 October 2005. Subramanian and Watal, supra, note 34, p. 403. The principle of territoriality in IP law means protection results not from international agreements such as TRIPS but from national laws implementing these agreements. See L. Bently and B. Sherman, Intellectual Property Law, 2nd edn (Oxford University Press, 2004), pp. 5 and 929; A. Ilardi and M. Blakeney (eds.), International Encyclopaedia of Intellectual Property Treaties (Oxford University Press, 2004), p. 3; P. Katzenberger and A. Kur, ‘TRIPS and Intellectual Property’ in F-K. Beier and G. Schricker, From GATT to TRIPS: the Agreement on Trade-Related Aspects of Intellectual Property Rights, IIC Studies (New York, Max Planck Institute, 1996), vol. XVIII, p. 5; C. Arup, The New World Trade Organization Agreements (Cambridge University Press, 2000), p. 30. The existence and scope of protection is always limited to the domestic territory. Compare, for example, Article 5(2) of the Berne Convention, 25 UST 1341, 828 UNTS. 221, (9 September 1886), revised at Paris (24 July 1971). The arbitrators in EC – Bananas III arrived at the same

‘Gambling’ with sovereignty

153

relevant for IP industries of the non-complying country, the potential economic loss inflicted by free exploitation of IP-protected products or services on that market will be limited. The second relevant factor is the retaliating country’s technical capability to engage in quick and large-scale domestic production of copies. While digital technology makes this relatively easy for the soft ware or movie and music industries, this is not the case for producing pharmaceuticals (as demonstrated by the long debate about TRIPS and public health).55 Importing such competing goods/services is a feasible option only from countries where the respective good/service is not IP-protected. The third determining factor is the need for certainty that related investments for private sector based production of copies can be recouped.56 This requires certainty about the duration of IP suspension and could be seriously hampered if the non-complying Member complies, or the disputing parties agree to resolve the matter by other means. One way to tackle this problem would be to rely on state-owned enterprises, or state guarantees issued to private sector producers. Nevertheless, applying these three factors to Antigua, it has few chances to induce US compliance. There are, however, some options to extend the effect of suspending TRIPS obligation beyond the borders of the retaliating country and thus detach that effect from the size of the domestic market.57 First, the retaliating country may always export to countries where no IP protection applies58 to the goods produced under suspension, so that sales in these markets would increase the economic harm inflicted on the right holders. Also, any importing country could rely on the doctrine of international exhaustion of IP rights59 in order to (parallel) import goods which have

55

56 57 58

59

result by pointing to the obligations under TRIPS Article 51 to offer border measures against certain types of IP infringing imports, see EC – Bananas III (Ecuador) (Article 22.6 – EC), supra, note 34, paras. 153–6. See Ministerial Conference, ‘Doha Declaration on the TRIPS Agreement and Public Health’, (WTO Doc. WT/MIN(01)/DEC/2, 2001), para. 6 and the subsequent negotiations leading to the ‘paragraph six solution’. See General Council, ‘Decision of 30 August 2003’, (WTO Doc. WT/L/540 and Corr.1, 2003); and General Council, ‘Decision of 6 December 2005’, (WTO Doc. WT/L/641, 2005). Subramanian and Watal, supra, note 34, p. 409. See Grosse Ruse-Khan, supra, note 23, pp. 354–62. For example, because the right holder did not apply for a patent or a trade mark or because the country is still benefiting from the extended transition periods for LDCs with regard to pharmaceutical product patents. Under this doctrine, certain first sales in one country allow the resale in another country. TRIPS Article 6 insulates domestic policies on (international) exhaustion from WTO challenge.

154

Henning Grosse Ruse-Khan

been produced under IP suspension in the retaliating country.60 However, it is doubtful whether this doctrine can be expanded to cover goods produced under a WTO authorised suspension regime.61 Retaliating countries may consider utilising the global nature of the Internet by offering otherwise protected content for download online. The result is automatic worldwide availability, where no effective border control would limit the exploitation of that content.62 To ensure equivalence of harms under Art. 22.4 DSU, the retaliating country would need a sophisticated system which controls the number of downloads and places an economic value on them.63 One can conclude that, despite the options for legal exports, the size of the domestic market will significantly impact the economic harm inflicted on the non-complying country and thus its willingness to implement unpopular rulings. While IP cross-retaliation functions significantly better to enforce international obligations than raising tariffs, it is not the perfect retaliatory weapon for small economies. Judging the DSU retaliation mechanism in general, one sees a system failing significantly; for small economies, it neither offers security or predictability regarding other Members’ international trade obligations, nor does it give these countries an effective chance to enforce those obligations. However, IP cross-retaliation has potential value beyond inducing compliance. The retaliating country may experience positive welfare effects by utilising the authority to suspend TRIPS to increase domestic policy space and promote its comparative advantage in the innovationimitation paradigm. This is probably the most important and distinctive 60 61