WTO20LATAM: Regionalism vs Multilateralism

By Emilio Arteaga*

Recently, the World Trade Organization (WTO) celebrated its 20th anniversary, and several events were held in different places around the globe commemorating this historic event. One of them being a round of conferences held in Cancun, Mexico, from December 2nd to December 4th called “Latin American and the Future of International Trade Law” also known as WTO20LATAM. The event reunited trade lawyers, academics and government officials from Latin America, US, and Europe, as well as five Appellate Body Members. The discussions were of a very high quality, as experts gave powerful insights that were later complemented with the opinions of an appellate body member.

regionalism-multilateralism-cancun-latin-america-and-future-of-regional-trade

The event was divided in the following sections:

  • International Trade Law in the Latin American Region: Challenges and Opportunities
  • International Trade Law Practice in Latin America: Evolution and New Trends.
  • The Prospect of the Trade Facilitation Agreement in Latin America
  • TPP and its impact on Latin America
  • WTO litigation and its influence on Latin America
  • WTO Dispute Settlement after 20 years: where do we go from here?

Regionalism was a recurrent topic in the tables of discussions. At the beginning of the event, an Appellate Body member made an interesting comment. The multilateral trade regime is based on the principle of non-discrimination, one of WTO’s most important pilar, while regionalism goes completely in the opposite direction, discrimination.

Experts noted that Free Trade Agreements (FTAs) are a response to the impasse of the Doha round. FTAs are thus viewed as new paths to regulate international trade. One must bear in mind that the multilateral trade rules were adopted 20 years ago and few agreements have been made ever since. The global economy has evolved in such a manner that is not recognizable. The traditional theory of competitive advantage is quite debatable because it is rare that in today’s economy a final product is produced in only one country. Economies are closely integrated due to Global Value Chains (GVCs), FTAs is a factor for this phenomenon. Services are of growing importance in today’s economy as their share in world trade is about 42% when measured in value-added terms[1].

The Transpacific Partnership Agreement (TPP) is a clear example of how an FTA introduces new trade rules on State-Owned Enterprises (or competition), Intellectual Property, Digital Commerce, among other matters. Rules embraced in FTAs may go beyond WTO disciplines, or even conflict with thereof. To date, at least 423 FTAs are in force,[2] and there is a serious issue that arises as a result of the multiplicity of international trade rules: the fragmentation of law.[3] WTO members that are party to an FTA are bound to both WTO Law and the FTA. What happens if a dispute arises between WTO Members that are parties to an FTA? What is the role or function of the FTA in the multilateral dispute settlement?

Although this is a hypothetical scenario, it is a real problem that is expected to be more common at the multilateral fora. Peru––Agricultural Products already exhibits this issue where an FTA provision conflicted with WTO Law. In the aforementioned case, Peru and Guatemala had signed an FTA that had not yet entered into force (in fact, Peru did not ratify the FTA). The FTA ‘allowed’ Peru to maintain a Price Range System, which was eventually found not to be compliant with article 4.2 of the Agreement on Agriculture and article II:1(b) of the GATT 1994.[4]

The Appellate Body rejected some of Peru’s arguments because they amounted to the modification of the relevant WTO provisions between Peru and Guatemala, and not to an interpretative exercise.[5] For other arguments, the Appellate Body found that neither the FTA and the ILC’s Articles are relevant regarding the interpretation of the WTO provisions, nor that the FTA is an agreement regarding the interpretation of article 4.2 AoA and II:1(b) GATT.[6] Accordingly, the Panel had to discern the meaning of the terms used in the WTO provisions, concluding that the FTA and ILC’s Articles did not provided interpretative guidance because they did not bear specifically upon (i) the same subject matter or (ii) the interpretation of the provisions.[7]

To consider whether a subsequent agreement ‘bears specifically’ upon the interpretation of a term or provision, the interpreter must analyze the “degree” that a subsequent agreement relates to the interpretation and application of a term or provision in a specific case.[8] If the subsequent agreements explicitly builds upon a term or provision and informs its meaning, it is easier to justify that it ‘bears specifically’ upon the interpretation of a term or provision. In WTO jurisprudence, the Doha Ministerial Decision, paragraph 5.2, and a TBT Committee Decision have been considered subsequent agreements within the meaning of article 31(3)(a) VCLT for different terms that are used in the TBT agreement.[9]

Whether a provision of an FTA can meet the threshold to be considered a subsequent agreement regarding the interpretation of a term or provision of the WTO is a complicated test. FTAs do not deal generally deal with interpretative issues, rather they aim at creating binding rules. Even if an FTA dealt with interpretative issues, such interpretation would reflect the intention of the parties to the FTA and not all other WTO members.

In appeal, the AB reserved its opinion as to whether an FTA may modify the legal relationship between WTO Members through an interpretative exercise of article 31(3) VCLT.[10] Nevertheless, the AB seems to have taken the position that subsequent agreements and relevant rules of international law that are contrary to the natural meaning of a provision cannot be used to undermine the common intention of the parties.[11] Moreover, the AB held that the interpretation of a treaty must apply to all the parties to the treaty, not only to those in the dispute.[12] Does this entail that FTAs are very unlikely to be considered as a subsequent agreement within the meaning of article 31(3) VCLT? Or is there still a slight possibility that FTAs can lead to a special meaning applicable to the disputing parties?

regionalism-multilateralism-cancun-latin-america-and-future-of-regional-trade

WTO law allows its members to depart pursuant the Enabling Clause and Article XXIV GATT, when an FTA meets two cumulative conditions.[13] One may assume, however, that it is more likely that if an FTA departs and conflicts with WTO Law such departure can only be justified pursuant the conditions set forth in article XXIV GATT, and not through an interpretative exercise in accordance with article 31(3) VCLT.

The above mentioned decision sheds light that WTO law will most likely prevail in the multilateral fora, even if parties to an FTA seem to have the intention to go in an opposite direction, thus functioning as lex superior.[14] The latter because FTA must facilitate trade in accordance with article XXIV GATT, and any amendment to the WTO Law must be made pursuant the WTO Agreement. Also, Article 3.2 of the Dispute Settlement Understanding reinforces this position, as it provides that the WTO’s dispute settlement serves to protect a Member’s right and obligation. WTO Law, however, does not exist in isolation of other trade rules or other fields of international law.[15]

In light of the above, it is clear that the multiplicity of international trade rules, commonly referred as a ‘spaghetti bowl’, only complicates things. Mega-regional deals, such as the TPP, further complicates the situation, as it goes beyond matters covered by the WTO agreement. The coexistence of multiple rules and dispute settlement mechanisms may create confusion and legal uncertainty for economic operators and States. For instance, if the TPP enters into force between Canada, Mexico and the USA, it would have to coexist with other two legal instruments that govern their trade relations (i.e. WTO and NAFTA).

In WTO20LATAM, experts joked about this problem by saying that the current state of international trade law is no longer a spaghetti bowl, instead it should be named as a taco-arepa-gaspacho-spaghetti bowl because as time passes by more FTAs are added to the bowl, increasing the complexity of the situation. Fragmentation of law is indeed a messy and natural problem in every legal system. WTO members need to reach meaningful agreements within the WTO that address today’s issues in a comprehensive manner. Failure to do so, States would be leaving important decisions to courts. In other words, it would be up to a jurisdictional bodies to remove the ‘taco’ from the ‘spaghetti’, and the consequences may be costly.

It might be a matter of time for another dispute like Peru—Agricultural Products to appear in the multilateral fora.

 

* (The author is a Mexican licensed lawyer. He recently completed his LL.M. in International Trade and Investment Law from Maastricht University. His areas of  interests are International Economic Law, particularly International Trade Law. He can be contacted at emilio.arteaga.vaz@gmail.com)

__________________________________

[1] https://www.wto.org/english/res_e/statis_e/its2013_e/its13_highlights4_e.pdf

[2] https://www.wto.org/english/tratop_e/region_e/region_e.htm

[3] The Fragmentation of International Law has also been studied in depth by the International Law Commission.

[4] For a summary of the Peru—Agricultural Products, visit: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds457_e.htm

[5] The AB made interesting statements concerning the interpretation under article 31 VCLT and the role and importance of the ‘context’ in treaty interpretation. In essence, the natural meaning of the text is given more weight when the text is clear and unambiguous, while the purpose and context of the treaty, as well as other means (article 32 VCLT), gain more relevance when the meaning is difficult to discern. One must note, however, that article 31 VCLT does not give a higher hierarchy value to the text, and, in fact, the text, context and purpose are considered to have equal grounds in the academia ibid at para 5.94-5.96

[6] By doing so, the AB did not analyzed whether the FTA and the ILC’s Articles are “rules of international law applicable in the relations between the parties” or whether the FTA is a subsequent agreement ‘regarding the interpretation’ of the treaty (or a provision) within the meaning of article 31(3)(a) and (c) VCLT, respectively.

[7] As for Guatemala’s consent and waiver, the AB noted that the FTA was ambiguous because, on the one hand, the parties reaffirmed their WTO rights and obligations (fn. 297), and, on the other hand, they stated that in the event of any inconsistency the FTA shall prevail (para. 5.109). Moreover, the PSR mechanism seemed to be an exception (fn. 297). It thus concluded that it was not clear whether the FTA should necessarily be construed as allowing Peru to maintain a WTO-inconsistent PRS (para. 5.109) see Peru—Agricultural Products, para 5.84

[8] ibid at fn. 294

[9] ABR, US –– Clove Cigarettes, para. 266 and ABR, US—Tuna II (Mexico) para. 372

[10] 5.106 […] Moreover, we express reservations as to whether the provisions of the FTA (in particular paragraph 9 of Annex 2.3), which could arguably be construed as to allow Peru to maintain the PRS in its bilateral relations with Guatemala, can be used under Article 31(3) of the Vienna Convention in establishing the common intention of WTO Members underlying the provisions of Article 4.2 of the Agreement on Agriculture and Article II:1(b) of the GATT 1994. In our view, such an approach would suggest that WTO provisions can be interpreted differently, depending on the Members to which they apply and on their rights and obligations under an FTA to which they are parties.

[11] ibid at para. 5.94 “[…]We do not consider that Article 31 can be used to develop interpretations based on asserted subsequent agreements or asserted “relevant rules of international law applicable in the relations between the parties” under Article 31(3)(a) and (c) that appear to subvert the common intention of the treaty parties as reflected in the text of Article 4.2 and Article II:1(b).”

[12] ibid at para. 5.95

[13] ibid at para 5.115 “[…](i) The party claiming the benefit of this defence must demonstrate that the measure at issue is introduced upon the formation of a customs union or FTA that fully meets the requirements of Article XXIV; and (ii) that party must demonstrate that the formation of that customs union or FTA would be prevented if it were not allowed to introduce the measure at issue.”

[14] Ralf Michaels & Joost Pauwelyn, Conflict of Norms or Conflict of Laws?: Different Techniques in the Fragmentation of International Law, available at p. 26 [http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=2933&context=faculty_scholarship ]

[15] US –– Gasoline, at p. 17

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s