INTERNATIONAL TRADE REGULATION

INTERNATIONAL TRADE REGULATION EDMOND MCGOVERN EXETER GLOBEFIELD PRESS

Globefield Press, Globefield, Exeter EX3 0NA, England Copyright Edmond McGovern Made and printed in Great Britain by Hobbs the Printers, Totton, Hampshire

Contents OUTLINE TABLE OF CONTENTS Contents Part A Chapter 1 Chapter 2 Chapter 3 Part B Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Part C Chapter 21 Part D Chapter 31 Foundations World Trade Organization WTO Dispute Resolution, Notification, Surveillance Other International Organizations Trade in Goods Basic Elements of Trade Regulation Tariffs and Quantitative Restrictions Non-Tariff Barriers I Non-Tariff Barriers II Discrimination Developing Countries Safeguard Measures Subsidies Anti-Dumping and Countervailing Measures General and Security Exceptions Agriculture Commodities and Sectors Intellectual Property Intellectual Property Trade in Services Services Tables Documents Issue 20 ix

Contents x Issue 20

1.11 CHAPTER 1 WORLD TRADE ORGANIZATION Issue 20 1.1 Function and legal structure 1.11 Historical introduction 1.11 The General Agreement on Tariffs and Trade (GATT) was one of the international organizations created in the wave of multilateral negotiations which followed the Second World War. In February 1946 the United Nations Economic and Social Council resolved to hold an international conference on trade and employment matters which would draft a convention establishing an International Trade Organization (ITO). A Preparatory Committee having met in London (1946) and Geneva (1947) and produced a preliminary draft, the UN Conference on Trade and Employment was held in Havana from November 1947 to March 1948. It adopted the text of the Charter for the International Trade Organization (the Havana Charter), 1 and set up an Interim Commission for the ITO (ICITO) consisting of 52 countries, with its own secretariat. The Commission established an Executive Committee which met several times, but by 1950 it had become apparent that the Havana Charter was not going to be accepted by the US, and efforts to establish the ITO were abandoned. While the work on ITO was proceeding, members of the Preparatory Committee together with some other countries engaged in tariff negotiations amongst themselves, and on 30 October 1947 23 countries signed a Final Act authenticating the text of the General Agreement on Tariffs and Trade. 2 This was based on the Commercial Policy provisions of the Havana Charter, and the text was amended in 1948 to reflect the final version of the Charter. Rather than adopt GATT by means of its provisions on acceptance, the eight principal participants in the negotiations concluded a Protocol of Provisional Application 3 by which they agreed to apply GATT from 1 January 1948, subject to certain conditions ( 1.131). The countries which joined after this date may be regarded, strictly speaking, as having joined the arrangement constituted by the combination of the Protocol and the General Agreement. The organizational elements of GATT may be distinguished from the substantive rules that placed restrictions on parties freedom to restrict or distort trade. 1 UN Conference on Trade and Employment, Havana Charter for an International Trade Organization and Final Act and Related Documents (Havana, 21 Nov. 1947 24 Mar. 1948), UN Doc. ICITO/1/4/1948. <http://www.wto.org/english/docs_e/legal_e/havana_e.pdf> 2 55 UNTS 194. 3 Geneva, 30 Oct. 1947, in force 1 Jan. 1948: 55 UNTS 308; BISD IV/77. Issue 20 PAGE 1.11-1

1.11 As an organization it successfully overcame the problem of having very few constitutional provisions. The principal decision-making power lay with the CONTRACTING PARTIES, that is to say the members ( contracting parties ) acting together (upper case letters are used to identify them when acting in this capacity). In practice the CONTRACTING PARTIES met only once a year for a few days, and most of their powers were delegated to the Council of Representatives. Those powers, such as that of waiver under Article XXV:5, which could not be delegated, were exercised by postal or telegraphic ballots. The Council met for a day or two in most months. Although most matters could be approved by either a simple or a two-thirds majority vote, a convention emerged of requiring a consensus, except for a few topics. The use of independent panels for dispute settlement developed early in GATT s life, but the adoption of panel reports was always subject to the consensus rule. The most public of GATT s activities were the eight Rounds of negotiations, each of which led to the adoption of new Schedules of tariff concessions. The seventh of these, the Tokyo Round of Multilateral Trade Negotiations, was notable for the inclusion of a number of agreements, usually known as Codes, dealing with non-tariff barriers. These constituted parallel agreements with their own institutions and procedures. Although as regards subject matter their links with GATT were in some cases very close, their legal status in relation to GATT was always obscure. Similar obscurity surrounded the relationship between GATT and the Multi-Fibre Arrangement which provided for import restrictions on textiles. PAGE 1.11-2 Issue 20

1.11 The Uruguay Round, the eighth in the series, culminated in the 1994 Marrakesh agreements under which the organizational aspects of GATT were replaced by a new body, the World Trade Organization (WTO). GATT s substantive rules, now called GATT 1994, modified and enlarged by a series of agreements and decisions, were joined by a parallel regime, the General Agreement on Trade in Services (GATS), and by the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). Most of the Codes were integrated into the new system, although a few were transformed into Plurilateral Trade Agreements (PTAs) with independent status and limited membership. In 1994 the CONTRACTING PARTIES terminated GATT as an organization (it is now referred to as GATT 1947). By 1997 all that formally remained of the old system was the Civil Aircraft Agreement ( 15.52). To facilitate the transition to the WTO, the Final Act included a Decision ( 33:28) establishing a Preparatory Committee, with various sub-committees, which made a number of important decisions pending the coming into force of the WTO on 1 January 1995 and handled negotiations with those countries which had not already submitted their schedules of concessions and commitments. An Implementation Conference was held in December 1994. The Ministerial Conference at Doha in 2001 initiated a new round of multilateral trade negotiations, known as the Doha Development Agenda ( 1.1322). Issue 20 PAGE 1.11-3

1.11 PAGE 1.11-4 Issue 20

1.121 1.12 Legal basis and principles 1.121 1.121 Sources of law Issue 21 The WTO agreements have no provision corresponding to Article 38 of the Statute of the International Court of Justice, which defines the sources of law that may be used by the Court. The following hierarchy can be suggested. 1. Jus cogens (peremptory norms of customary international law that cannot be overridden by treaty). There is little scope for this concept within the subject matter of WTO law. 2. Treaty law and customary international law. The WTO legal system contains many treaties. Their structure and interactions are examined in 1.1211. Customary international law plays only a small role in the WTO, except as regards the interpretation of treaties. One of the stated purposes of the Dispute Settlement Understanding (DSU) is to clarify the existing provisions of the WTO agreements in accordance with customary rules of interpretation of public international law ( 2.222). 1 1.1212 lists various principles of international law, mostly on the subject of treaty interpretation, that have been enunciated by dispute bodies. 3. Other sources. The substantial jurisprudence of GATT panels is being rapidly expanded by WTO dispute bodies. The legal status of such precedents is considered in 1.1213. Some other sources are examined in 1.1214. 1.1211 WTO treaties 1.1211 (a) Introduction 1.1211(a) The law of the WTO is almost entirely stated in or derived from treaties, the most important of which is the Marrakesh Agreement Establishing the World Trade Organization (WTO Agreement, below). Like all such law, it depends on certain rules of customary international law, in particular those concerning the interpretation of treaties. WTO dispute bodies have had frequent occasion to discuss treaty interpretation. Their views are examined in 1.1212. The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations ( 3:1), having been informally agreed in an almostcomplete form in December 1993, was signed on 15 April 1994 in Marrakesh. In signing this document the participating representatives of Governments and the European Community agreed that the WTO Agreement (to which all the other Agreements were annexed, 4:1), the Ministerial Declarations and 1 DSU, Art. 3.2. Issue 21 PAGE 1.12-1

1.1211(a) Decisions ( 33:1) and the Understanding on Commitments in Financial Services ( 34:1), embodied the results of the Uruguay Round negotiations, and formed an integral part of the Final Act. They also agreed to submit the WTO Agreement to their competent authorities for approval, and to adopt the Ministerial Declarations and Decisions. In Marrakesh 111 countries signed the Final Act, and 104 signed the WTO Agreement, of which 33 required no further ratification. The WTO came into existence on 1 January 1995, and is formally established by the first Article of the WTO Agreement. It is to provide a common institutional framework for the conduct of trade relations among its Members in matters related to the agreements and associated legal instruments included in the Annexes to the WTO Agreement. The agreements and instruments are listed in Annexes 1 to 4. Those in Annexes 1, 2 and 3 (Multilateral Trade Agreements, MTAs) are integral parts of the Agreement binding on all Members. 1 The agreements listed in Annex 4 (PTAs) are part of the Agreement for the Members that have accepted them. They are binding on these Members, and create no obligations or rights for others. 2 They evolved from Codes negotiated in the Tokyo Round. Four were envisaged during the Uruguay Round but only three emerged, no consensus having been reached on aircraft. Of these three, the International Dairy Agreement and the International Bovine Meat Agreement were terminated in 1997, leaving only the Agreement on Government Procurement ( 15.52). However, the Agreement on Trade in Civil Aircraft (of 1979, 15.52) remains in force, and is regarded as the agreement of that name that is listed in Annex 4. The English, French and Spanish texts of the WTO Agreement are authentic, and these are referred to as the official languages of the WTO. (In addition, the rules of procedure of the various WTO bodies define them as the working languages.) An ambiguity in one of the language versions does not give greater latitude to Members with that language; differences in meaning between the versions must be resolved in accordance with Article 33(4) of the Vienna Convention on the Law of Treaties ( 1.1212, 61). 3 Several WTO provisions have a limited life unless they are explicitly extended. For example, some rules on actionable ( 11.332) and non-actionable subsidies ( 11.34) and certain exceptions to the obligations of the Agriculture Agreement ( 14.223) lapsed in 2000. 1 WTO Agreement, Art. II:1 and 2. 2 Art. II:3. 3 Panel report Argentina Footwear (EC), par. 8.166, footnote 530. PAGE 1.12-2 Issue 21

1.1211(b) The various agreements and decisions that constitute WTO law are listed in the table at the end of this section. (b) GATT 1994 1.1211(b) Among the agreements listed in Annex 1A (those on trade in goods) is the General Agreement on Tariffs and Trade 1994 ( 6:1), known as GATT 1994. This is stated to be legally distinct from the General Agreement concluded in 1947 (as subsequently amended, etc., and known as GATT 1947 ), 1 and is defined in the Annex. GATT 1994 includes not only the General Agreement on Tariffs and Trade of 1947, as subsequently rectified, amended or modified, but also many other measures and decisions adopted under GATT 1947. The French and Spanish texts (which along with the English version, are authentic) were significantly amended during the Uruguay Round. 2 Issue 20 The WTO has continued the GATT practice of allowing rectification of errors in texts when no Member dissents. A specific procedure exists for tariff Schedules ( 5.133). The list of matters included in GATT 1994 ends with the phrase other decisions of the CONTRACTING PARTIES. A decision falls within the scope of this phrase only if it is a formal legal text which represented a legally binding determination in respect of the rights and/or obligations generally applicable to all contracting parties to GATT 1947. 3 The panel that made this ruling drew a distinction between decisions of this kind, and those which merely provide guidance and are addressed by WTO Article XVI:1 ( 1.1214). It can be assumed that such formal texts include those adopted by the GATT Council when exercising powers delegated by the CONTRACTING PARTIES. Among the most significant GATT decisions are four adopted in 1979: (a) Decision on Differential and More Favourable Treatment and Reciprocity and Fuller Participation of Developing Countries (the Enabling Clause, 9.213); (b) Declaration on Trade Measures for Balance-of-Payments Purposes ( 10.1); (c) Decision on Safeguard Action for Development Purposes ( 10.22); and (d) Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance ( 2.2). 1 Art. II:4. 2 WTO Agreement, Annex 1A, GATT 1994, Explanatory notes, par. 2(c). 3 Panel report US FSC, par. 7.63. Issue 20 PAGE 1.12-3

1.1211(b) GATT Article XXV:1 (which has been made irrelevant by the WTO Agreement, 1.21) empowered the GATT CONTRACTING PARTIES to act jointly to facilitate the operation and further the objectives of the Agreement. As an umbrella provision this authorized measures for which there was no explicit authority elsewhere in the General Agreement. However, not every exercise of this power qualifies as a decision. 1 The Appellate Body has denied that adopted panel reports are in themselves other decisions. 2 The status of such reports as precedents is examined in 1.1213. GATT Article XXIX:1 states that Members undertake to observe to the fullest extent of their executive authority the general principles of Chapters I to VI inclusive and of Chapter IX of the Havana Charter ( 1.11) pending their acceptance of it in accordance with their constitutional procedures. It was not unusual under GATT 1947 for dispute panels to refer to provisions of the Havana Charter when interpreting GATT articles, 3 but the practice is now uncommon. 1 Ibid., par. 7.56 footnote. 2 Appellate Body report Japan Alcoholic Beverages II, sec. E. 3 See, e.g., Panel report Canada FIRA, pars. 5.12 et seq. PAGE 1.12-4 Issue 20

1.1211(c) Although GATT 1994 contains a great deal more than the General Agreement, it is common practice to give citations in the form Article XX of GATT 1994. In this work that citation would normally appear as GATT Article XX, it being assumed that the reference is to the text of the General Agreement as that appears in GATT 1994. The GATT terms contracting party, less-developed contracting party, Executive Secretary and developed contracting party are to be deemed to read Member, developing country Member, Director-General and developed country Member, respectively. 1 The distribution of the roles previously played by the CONTRACTING PARTIES is discussed in 1.21. The integrated nature of the WTO system is mentioned in the WTO Agreement in the Preamble ( 1.122), and in Article II:2 (above), and has been stressed by the Appellate Body. 2 Article XVI:3 provides that the Agreement prevails in the event (and to the extent) of any conflict with the provisions of the MTAs. (c) Conflicting texts priorities 1.1211(c) The WTO agreements contain a number of rules setting out priorities between the various texts dealing with trade in goods, but no priorities are stated between these provisions and those contained in GATS and the TRIPS Agreement. Regarding the texts dealing with trade in goods, there is a general rule that in the event of conflict between a provision of GATT 1994 and a provision of another agreement the latter will prevail to the extent of the conflict. 3 For example, the acknowledgement of the objective of sustainable development in the WTO Agreement preamble ( 1.122) has changed the meaning of GATT Article XX(g) ( 13.154). 4 1 WTO Agreement, Annex 1A GATT 1994, Explanatory Notes, par. 2(a). 2 Panel report Brazil Desiccated Coconut, par. 242; Appellate Body reports: Brazil Desiccated Coconut, sec. IV.B; Argentina Footwear (EC), par. 79; Korea Dairy, par. 74. 3 General Interpretative Note to Annex 1A of the Agreement ( 6:1). This rule has no relevance for a claim that a GATT article conflicts with an entire WTO agreement. Panel report Indonesia Autos, par. 14.28, fn. 650. 4 Appellate Body report US Shrimp, par. 129. Issue 20 PAGE 1.12-5

1.1211(c) Likewise, there is a general rule that the provisions of the Agriculture Agreement prevail over those of other agreements on goods ( 14.21). 1 There are also specific rules dealing with the interaction of particular agreements. Thus, the Agriculture Agreement explicitly modifies certain provisions of GATT and the Subsidies Agreement ( 14.252). Rules in the Agreement on Sanitary and Phytosanitary Measures (SPS Agreement) limit the application of the Agreement on Technical Barriers to Trade (TBT Agreement, 14.41). A footnote in the Safeguards Agreement states, in effect, that the Agreement does not affect a GATT rule (yet to be authoritatively interpreted) on safeguards action and members of customs unions ( 10.212). Finally, as regards disputes procedures, certain special or additional rules and procedures in some of the agreements on trade in goods, and in GATS, prevail over the corresponding provisions in the DSU ( 2.21). The absence of more general rules of priority between the various Annex 1A agreements has been regarded as reinforcing the presumption against the existence of conflicts between their provisions (below). 2 There is no general rule preventing the application of more than one agreement in the same situation. Obligations can coexist, and overlaps in subject matter between GATT and GATS are inevitable (for example regarding GATT Article III and transportation and distribution services). 3 Neither GATS, 4 nor the TRIPS Agreement 5 ( 21.12) reduces the scope of application of GATT. 1 Agriculture Agreement, Art. 21.1.The Agriculture Agreement prevails over concessions made under GATT Article II since they are incorporated into GATT: Appellate Body report EC Export Subsidies on Sugar, par. 222. 2 Panel report Indonesia Autos, par. 14.49. 3 Appellate Body report Canada Periodicals, sec. IV (did not comment on overlaps); Panel reports: Canada Periodicals, par. 5.17; EC Bananas III (Ecuador); ibid. (Guatemala, Honduras); ibid. (Mexico), pars. 7.82 et seq. 4 Appellate Body report Canada Periodicals, sec. IV. 5 Panel report EC Trademarks and Geographical Indications (US), par. 7.227, footnote 238. PAGE 1.12-6 Issue 20

1.1211(d) The Bananas III panel considered that a conflict would exist between agreements where there were mutually exclusive obligations, or where a rule in one agreement prohibited what a rule in another agreement explicitly permitted. There would be no conflict where the agreements merely provided different or complementary obligations, and where all the obligations could be complied with at the same time without the need to renounce explicit rights or authorizations. 1 Another panel said that conflict would arise only where it was not possible for a single national measure to be consistent with both provisions. 2 It is said that, in accordance with the presumption against conflicts found in international law, any interpretation that would lead to a conflict between provisions should be avoided, to the extent possible. 3 WTO rules on the commitments and concessions that Members make in their Schedules invariably provide that these constitute integral parts of the relevant agreements. However, such commitments and concessions cannot reduce or conflict with obligations assumed under WTO agreements. 4 (d) Conflicting texts exceptions 1.1211(d) When the scope of application of one of two apparently conflicting provisions is narrower than that of the other the conflict may be avoided by treating the first as an exception to the second. Whether a provision is treated as an exception will depend in part on the concepts that are being invoked, and in part on the way in which the text is drafted. The issue seems to be whether a matter is regarded as consisting of a general rule, from which an exception is carved out, or of two distinct rules. 1 Panel reports: EC Bananas III (Ecuador); ibid. (Guatemala, Honduras); ibid. (Mexico), pars. 7.159 et seq. 2 Panel report EC Export Subsidies on Sugar (Australia), par. 7.155. 3 Panel reports: Turkey Textiles, par. 9.95; Indonesia Autos, pars. 14.28, 14.50. The nature of this presumption is not clear. If the situation is covered by one of the WTO priority rules (above), then the priority of the superior provision must be respected, and it is of little interest whether the inferior provision is re-interpreted to suit, or is found to be contradictory and is discarded. If there is no priority rule, and a Member is faced by apparently contradictory obligations, such an outcome is surely manifestly absurd and would therefore justify invoking Article 32 of the Vienna Convention ( 1.1212(a)) to find the correct, non-contradictory interpretation. 4 Appellate Body report EC Poultry, par. 98, endorsed the view that Article II of the GATT permits contracting parties to incorporate into their Schedules acts yielding rights under the GATT, but not acts diminishing obligations under that Agreement. See also Appellate Body report EC Bananas III, par. 154. Issue 20 PAGE 1.12-7

1.1211(d) The Appellate Body has grappled with the question on a number of occasions. It has said that: 1 In cases where one provision permits, in certain circumstances, behaviour that would otherwise be inconsistent with an obligation in another provision, and one of the two provisions refers to the other provision, the Appellate Body has found that the complaining party bears the burden of establishing that a challenged measure is inconsistent with the provision permitting particular behaviour only where one of the provisions suggests that the obligation is not applicable to the said measure. Otherwise, the permissive provision has been characterized as an exception, or defence, and the onus of invoking it and proving the consistency of the measure with its requirements has been placed on the responding party. However, this distinction may not always be evident or readily applicable. The application of these principles is not straightforward. 2 As this quotation indicates, the issue is significant in regard to the allocation of the burden of proof. The interpretation of exceptions is also considered in 1.1212(b). 1 Appellate Body report EC Tariff Preferences, par. 88 (footnotes omitted). The phrase where one of the provisions suggests that the obligation is not applicable to the said measure deserves consideration. If the obligation-provision suggests that it is not applicable to the measure then there is no need to consider the other provision. Likewise, to decide whether the other provision makes such a suggestion seems no different from deciding whether it constitutes an exception. In either case, it is not clear who has the burden of showing that the suggestion is made. The issues are discussed in regard to the status of the Enabling Clause ( 9.213) in Panel report EC Tariff Preferences, pars. 7.31 et seq. 2 See Appellate Body reports: Brazil Aircraft, pars. 139, 140; EC Hormones, par. 104. PAGE 1.12-8 Issue 20

1.1211(e) (e) Conflicting texts overlaps 1.1211(e) The issue of conflicting obligations is an aspect of the broader topic of overlaps between the scopes of the various WTO agreements. In particular, since many of the agreements are expressly intended to apply to or enlarge upon provisions in GATT, one should not be surprised to find duplications as regards their content or function. In some contexts the position is straightforward. Thus, there is little doubt that the waiver power that is formally stated in GATT Article XXV:5 has been replaced by that defined in the WTO Agreement ( 1.23). Issue 22 Where an individual WTO agreement addresses in an apparently comprehensive way a topic covered by a GATT article, it might be interpreted as abolishing the elements of that article that are not mentioned in the agreement. However, the Appellate Body has held that the provision in GATT Article XIX imposing a condition of unforeseeable developments on the imposition of safeguard measures, for which no corresponding condition is found in the scheme set out in the Safeguards Agreement, nevertheless remains effective ( 10.212). 1 Likewise, in the process of adding new rules, some WTO agreements briefly restate the relevant GATT obligations. It is unlikely that such provisions are intended to abolish significant aspects of those obligations that happen not to be mentioned. Thus, Article 2.1 of the TBT Agreement ( 7.2421) restates the main GATT non-discrimination rules, but the fact that it does not mention the exceptions contained in GATT Article XX should probably not be taken to imply that these no longer operate in the case of technical regulations. Where the applicability of a WTO agreement is linked to the purpose of the national measure, a measure having several purposes may be governed by more than one such agreement. It will be governed by a particular agreement to the extent that it is applied for the purposes covered by that agreement. 2 (f) Boundaries of WTO rules 1.1211(f) The boundaries of WTO rules are significant in at least two contexts. Firstly, the measure in question may be so remote from trade in goods or services, or from intellectual property rights, as to be beyond the scope of the WTO agreements. 1 Appellate Body reports: Argentina Footwear (EC), pars. 87 et seq.; Korea Dairy, pars. 82 et seq. 2 E.g., Panel report EC Approval and Marketing of Biotech Products, par. 7.165. Issue 22 PAGE 1.12-9

1.1211(f) The issue is most likely to arise in regard to rules of a catch-all or residual character, such as GATT Article XI:1 ( 5.21). In answering a claim under this provision a respondent might argue that the measure in question was not sufficiently closely related to an import to qualify as making effective a restriction on its importation. The same kind of question could arise under GATT Article III:4 ( 8.231) in deciding whether national measures affected the internal sale, etc., of products. The issue that is common to both situations is the remoteness of the measure from its consequences. In the Periodicals case the Appellate Body appears to have taken the view that the question whether a measure affects trade in goods, and is therefore subject to GATT, is one that a respondent can insist must be answered, prior to deciding the scope of individual GATT provisions that might be relevant. 1 However, it seems that no principles have emerged for providing an answer, and in that case the Appellate Body quickly turned to examining the scope of the particular provision that had been invoked. No doubt similar questions could be raised in GATS claims regarding the scope of trade in services. 2 The second context in which the boundaries of WTO rules have attracted attention is where the WTO concern for liberalizing trade comes into conflict with other human values, such as those concerning life, health, property, and the environment. Such values are explicitly recognized in WTO law, and both GATT and GATS contain specific provision for resolving conflicts. The GATT rules (which GATS largely follows, 31.153) are the subject of considerable jurisprudence, and the issues are examined in that context ( 13.1). 1 Appellate Body report Canada Periodicals, sec. IV. 2 In Canada Patent Term, par. 49, the Appellate Body said, regarding a claim under the TRIPS Agreement, addressed a broader issue, saying that in every appeal the first issue to be determined is whether the measure in question falls within the scope of a covered agreement. PAGE 1.12-10 Issue 22

1.1211 1.1211 Documents annexed to the Final Act (a) Agreement Establishing a World Trade Organization, to which are annexed: ANNEX 1A Various agreements, etc., on trade in goods 1 General Agreement on Tariffs and Trade 1994 (GATT 1994), which consists of: (a) the provisions of the 1947 text of the General Agreement as amended and modified; (b) the provisions of the following legal instruments which have entered into force under GATT 1947 before the entry into force of the WTO Agreement: (i) protocols and certifications relating to tariff concessions; (ii) protocols of accession (excluding the provisions concerning provisional application and its withdrawal, and the Grandfather clause); (iii) decisions on waivers granted under Article XXV of GATT 1947 and still in force on 1 January 1995; and (iv) other decisions of the CONTRACTING PARTIES to GATT 1947. (c) the following Understandings relating to GATT provisions: (i) Interpretation of Article II:l(b); (ii) Interpretation of Article XVII; (iii) Balance-of-Payments Provisions; (iv) Interpretation of Article XXIV; (v) Waivers of Obligations under GATT 1994; (vi) Interpretation of Article XXVIII. (d) Marrakesh Protocol to GATT 1994 Explanatory Notes relating to GATT 1994 Exception regarding coastal navigation ( Grandfather clause ) 2 Agreement on Agriculture 3 Agreement on Sanitary and Phytosanitary Measures 4 Agreement on Textiles and Clothing 5 Agreement on Technical Barriers to Trade 6 Agreement on Trade-Related Investment Measures 7 Agreement on Implementation of Article VI 8 Agreement on Implementation of Article VII 9 Agreement on Preshipment Inspection 10 Agreement on Rules of Origin 11 Agreement on Import Licensing Procedures 12 Agreement on Subsidies and Countervailing Measures 13 Agreement on Safeguards Issue 22 PAGE 1.12-11

1.1211 ANNEX 1B ANNEX 1C ANNEX 2 ANNEX 3 ANNEX 4 General Agreement on Trade in Services and Annexes Agreement on Trade-Related Aspects of Intellectual Property Rights, Including Trade in Counterfeit Goods Understanding on Rules and Procedures Governing the Settlement of Disputes Trade Policy Review Mechanism Plurilateral Trade Agreements (a) [Agreement on Trade in Civil Aircraft] (b) Agreement on Government Procurement [(c) International Dairy Arrangement terminated 1997] [(d) Arrangement Regarding Bovine Meat terminated 1997] (b) Ministerial Declarations and Decisions (arranged by subject) 1 Decision on Measures in Favour of Least-Developed Countries 2 Declaration on the Contribution of the WTO to Achieving Greater Coherence in Global Economic Policymaking 3 Decision on Notification Procedures 4 Customs Valuation: (a) Decision Regarding Cases where Customs Administrations have Reasons to Doubt the Truth or Accuracy of the Declared Value (b) Texts Relating to Minimum Values and Imports by Sole Agents, Sole Distributors and Sole Concessionaires 5 Technical Barriers to Trade: (a) Proposed Understanding on WTO-ISO Standards Information System (b) Decision on Review of the ISO/IEC Information Centre Publication 6 Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food- Importing Developing Countries 7 General Agreement on Trade in Services: (a) Decision on Institutional Arrangements for the General Agreement on Trade in Services (b) Decision on Certain Dispute Settlement Procedures for the General Agreement on Trade in Services (c) Decision concerning Paragraph (b) of Article XIV (d) Decision on Negotiations on Basic Telecommunications (e) Understanding on Commitments in Financial Services (f) Decision on Financial Services (g) Decision concerning Professional Services (h) Decision on Movement of Natural Persons PAGE 1.12-12 Issue 22

1.1211 Issue 22 8 Decision on Implementation of Article XXIV:2 of the Agreement on Government Procurement 9 Decision on the Application and Review of the Understanding on Rules and Procedures Governing the Settlement of Disputes 10 Decision on Improvements to the GATT Dispute Settlement Rules and Procedures 11 Agreement on Implementation of Article VI of GATT 1994 (a) Decision on Anti-Circumvention (b) Decision on Standard of Review for Dispute Settlement Panels 12 Decision on Dispute Settlement pursuant to the Agreement of Implementation of Article VI of GATT 1994 or Part V of the Agreement on Subsidies and Countervailing Measures 1994 Issue 22 PAGE 1.12-13

1.1212(a) 1.1212 Legal principles This section lists various rules and principles of international law that have been enunciated by panels and the Appellate Body. (a) Articles 31 and 32 of the Vienna Convention on the Law of Treaties 1.1212(a) WTO dispute settlement bodies have followed the example of the International Court of Justice 1 and accepted Articles 31 and 32 of the Vienna Convention on the Law of Treaties 2 ( 61) as statements of customary international law on the interpretation of treaties. 3 Respect for this law is explicitly endorsed by Article 3.2 of the DSU ( 2.222). 4 Article 31 General rule of interpretation 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. 2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 3. There shall be taken into account together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties. 4. A special meaning shall be given to a term if it is established that the parties so intended. 1 E.g., Sovereignty over Pulau Ligitan and Pulau Sipadan (Indonesia/Malaysia), ICJ Reports (2002), p. 625, par. 37. 2 Vienna, 23 May 1969, in force 27 Jan. 1980: 1155 UNTS 331; 8 ILM 679 (1969). 3 E.g., Appellate Body report US Carbon Steel, par. 61. The Convention has been described as containing the only rules for interpreting treaty provisions (Panel report Mexico Telecoms, par. 7.15). However, they were never intended to be comprehensive: I. Sinclair, The Vienna Convention on the Law of Treaties, 2nd ed. (Manchester University Press, 1984), p. 117. 4 Article 31 has also been applied to the interpretation of the words of the Appellate Body: Panel report Canada Dairy (Article 21.5 New Zealand and US II), par. 5.80. PAGE 1.12-14 Issue 22

1.1212(a) Article 32 Supplementary means of interpretation 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. Issue 23 Panels regularly invoke these provisions as the basis for their interpretations of WTO agreements. Although the Appellate Body initially encouraged this practice it has found less occasion to make reference to them in recent years. It has said that the purpose of treaty interpretation under Articles 31 and 32 is to ascertain the common intention of the parties. 1 As regards Article 31(1), it is a routine step for panels, and was a frequent one for the Appellate Body, to determine the ordinary meaning of terms in the agreements by quoting from dictionary definitions. The implicit justification for this process seems to be that an ordinary meaning must be one that occurs in at least one such definition. In some instances, all the elements of the definition are quoted, and occasionally it seems as if the panel regards the term as meaning all of these elements at the same time. More frequently, a choice is made from within a larger definition. It is not the practice to provide an explanation for this selection, but the justification no doubt lies in the context and in the object and purpose of the relevant agreement. Panels nevertheless usually undertake a separate, explicit examination of these factors. The Appellate Body has warned against excessive reliance on dictionaries in deriving the ordinary meaning. 2 Dispute bodies have made the following observations about paragraph 1: The good faith requirement in [Article 31(1)] suggests that a promise to have recourse to and abide by the rules and procedures of the DSU, also in one's legislation, includes the undertaking to refrain from adopting national laws which threaten prohibited conduct. 3 This was said in the context of the use of threats to coerce other states. Article 26 of the Vienna Convention 1 Appellate Body report US Gambling, par. 159. In the same dispute the panel said that such a common intention can exist even if one of the parties involved is known not to have had that intention, Panel report US Gambling, par. 6.136. This view appears to contradict the Appellate Body s ruling that the common intention cannot be ascertained on the basis of subjective and unilaterally determined expectations of one of the parties, Appellate Body report EC Computer Equipment, par. 84. 2 Appellate Body report US Gambling, par. 164. 3 Panel report US Section 301 Trade Act, par. 7.68. Issue 23 PAGE 1.12-15

1.1212(a) states the principle of pacta sunt servanda: Every treaty in force is binding upon the parties to it and must be performed by them in good faith. Breach of the good faith obligation does not flow automatically from violation of a treaty obligation. 1 The texts of international agreements (not limited to those to which WTO Members are parties) and other international texts may be explored in order to elucidate the ordinary meaning. 2 This paragraph does not require a panel to ignore the ordinary meaning of a term simply to accommodate a conflicting contextual interpretation. 3 There is no presumption of a preordained or systemic balance between articles (of the DSU). While other provisions in the WTO Agreement may usefully be considered as part of the context which informs the meaning of a given provision, the scope of that provision should not be assumed a priori to vary depending on the mere presence of other provisions which may have some relevance to the situation: the contours of a provision should flow from its terms, as read in context alongside the other provisions of the agreement. 4 The object and purpose is that of the treaty in its entirety, but account can be taken of the object and purpose of particular treaty terms. 5 The degree to which a provision is relevant context and the weight to be given to a contextual element will differ from case to case, and may depend, inter alia, on the relationship between the provision being interpreted and the provision being relied upon as context. 6 1 Appellate Body report US Offset Act (Byrd Amendment), par. 298. 2 Panel report EC Approval and Marketing of Biotech Products, par. 7.92 (but the WTO is not limited to the definitions made by other organizations, ibid., par. 7.241). 3 Panel report Canada Aircraft, par. 9.118. 4 Panel report India Autos, pars. 7.222 and 7.223. 5 Appellate Body report EC Chicken Cuts, par. 238. See also Appellate Body reports: US Gasoline, sec. III.B; EC Hormones, par. 104, but see par. 165. A reverse process was presented in Appellate Body report US Shrimp, par. 114. 6 Panel report US FSC, par. 7.90. PAGE 1.12-16 Issue 23

1.1212(a) Dispute bodies have made a number of observations concerning the other rules of interpretation in Articles 31 and 32: 1 Issue 20 Interpretation pursuant to the customary rules codified in Article 31 of the Vienna Convention is ultimately a holistic exercise that should not be mechanically subdivided into rigid components. 2 To qualify under Article 31(2) the agreement or instrument must be concerned with the substance of the treaty and clarify certain concepts in the treaty or limit its field of application. 3 Guidelines used in the negotiation of Schedules did not qualify under Article 31(2)(a) or (b) 4 (but they could form supplementary means under Article 32, below). For the purposes of Article 31(2), the context of a Member s Schedule consists in part of the Schedules of other Members, but to be relevant they should be coherent and consistent. 5 The broad consensus among the GATT Contracting Parties to use the Harmonized System ( 4.22) as the basis for their WTO Schedules, notably with respect to agricultural products, constitutes an agreement between WTO Members within the meaning of Article 31(2)(a). 6 1 E.g., Appellate Body report Canada Dairy, par. 138; Panel reports: US Shrimp (Article 21.5 Malaysia), par. 5.56; Korea Various Measures on Beef, par. 538; Chile Price Band System, par. 7.35. 2 Appellate Body report EC Chicken Cuts, par. 176. 3 Panel reports: US Section 110(5) Copyright Act, par. 6.45; US Gambling, par. 6.76. Both were quoting the Yearbook of the International Law Commission (1966-II), p. 221. 4 Appellate Body report US Gambling, par. 175. The case concerned a GATS Schedule ( 31.212). We do not accept that, simply by requesting the preparation and circulation of these documents and using them in preparing their offers, the parties in the negotiations have accepted them as agreements or instruments related to the treaty. Ibid., 176. 5 Panel report US Gambling, pars. 6.97, 6.98. The panel described those Schedules as Members practice. 6 Appellate Body report EC Chicken Cuts, par. 199. The Appellate Body assumed that the Chapter Notes and Explanatory Notes of the Harmonized System also constituted context, ibid., pars. 219 et seq. It noted that the Chapter Notes may have greater probative value, ibid. par. 224. Issue 20 PAGE 1.12-17

1.1212(a) Uncontested interpretations given at a conference, e.g. by a chairman of a drafting committee, may constitute an agreement forming part of the context. 1 A Member s court decision is not context. 2 Article 31(3)(b) says that account may be taken of any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation. The Appellate Body has said that: Generally, in international law, the essence of subsequent practice in interpreting a treaty has been recognized as a concordant, common and consistent sequence of acts or pronouncements which is sufficient to establish a discernible pattern implying the agreement of the parties regarding its interpretation. An isolated act is generally not sufficient to establish subsequent practice; it is a sequence of acts establishing the agreement of the parties that is relevant. 3 In another case it said that it would be difficult to establish a concordant, common and discernible pattern on the basis of acts or pronouncements of one, or very few parties to a multilateral treaty. 4 Mere lack of reaction could constitute acceptance of a practice if the treaty party has become or has been made aware of the practice of other parties, but does not react to it. 5 The existence of Article IX:2 of the WTO Agreement (concerning formal interpretations, 1.22) is not dispositive for resolving the issue of how to establish the agreement by Members that have not engaged in a practice. 6 1 Panel report US Section 110(5) Copyright Act, par. 6.46. 2 Panel report EC Bed Linen (Article 21.5 India), par. 6.90. 3 Appellate Body report Japan Alcoholic Beverages II, sec. E, p. 13. Footnotes omitted. See also Appellate Body report US Gambling, pars. 190 et seq. 4 Appellate Body report EC Chicken Cuts, par. 259. The Appellate Body acknowledged that where the issue concerned a product that was dealt with by only some Members the availability of acts and pronouncements would be reduced, ibid. It did not suggest relaxing the requirement. 5 Ibid., par. 272. Mere lack of protest against one Member s customs classification practice does not constitute agreement, ibid. 6 Ibid., par. 273. PAGE 1.12-18 Issue 20