India: Cross-Retaliation Under The World Trade Organizations (WTO-DSM)

INTRODUCTION

The World Trade Organization's (hereinafter WTO) dispute settlement system has been called a major achievement of the WTO agreement. The Dispute Settlement Resolution is a process wherein member nations are empowered to retaliate against the recalcitrant nations for violation of WTO obligations. The Dispute Settlement Understanding (hereinafter DSU) seeks to ensure an improved prospect of compliance, given its provisions on compensation and retaliation.

Nevertheless, participating in the WTO Dispute Settlement Mechanism (hereinafter DSM) creates challenges for developing countries, as the traditional retaliation process is more a bane than a boon. Under the traditional retaliation process a WTO member can enforce a ruling of the Dispute Settlement Body (hereinafter DSB) by suspending trade concessions enjoyed by the non-compliant member in the same sector. However the WTO members who are economically more powerful are not likely to be harmed by the suspension of trade concessions in goods or services by substantially less powerful members. In solution to the above problem 'cross retaliation' is proposed and adopted by the DSM. Under cross retaliation the complainant member country can suspend the intellectual property rights of the noncompliant nation. 'Cross retaliation' has better potential for compliance by the defaulting Countries and specifically developed countries, as it create deterrence among the developed Countries regarding the protection of Intellectual property rights.

The cross-retaliation has already sanctioned in three cases: the Ecuador Bananas case; the Brazil Cotton Subsidies case and most recently, the Antigua Gambling case. But this remedy is not automatic and has to be pleaded for in every separate case.

WTO & DISPUTE SETTLEMENT UNDERSTANDING UNDER WTO: A HISTORICAL PERSPECTIVE

The creation of WTO in 1994 by the Marrakesh agreement is one of the milestones in the development of international trade. The WTO is successor of General Agreement on Tariff and Trade (hereinafter GATT). It has ratified and replaced various provisions of the GATT in order to cure the inefficiencies that makes the former system redundant.

The system for dispute settlement under GATT was based on the consensus decision making under which all the processes of dispute settlement was dependent on the consent of all WTO members, but with the creation of WTO, DSU this mechanism became more effective because of the binding force of its rulings. Despite improving the dispute settlement mechanism, it lacked in playing an active role, specifically in respect to the developing countries.

Trade Related Aspects of Intellectual Property Rights (TRIPS) TRIPS is an international agreement administered by WTO. It sets down minimum standards for many forms of intellectual property for member nations to comply with in various transition periods depending upon whether Members were developed, developing or least developed countries.

TRIPS was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994. Article 64 of TRIPS provides that the dispute settlement understanding will be applied, for the settlement of disputes under TRIPs.

UNDERSTANDING RETALIATION AND CROSSRETALITATION UNDER WTO

When a member of the WTO failed to comply with the decision of the panel or the recommendations, then the complaining member will be authorized by the DSB to suspend the concession equivalent to the level of nullification which forms the part of retaliation process. The WTO dispute settlement understanding deals with the compensation and the suspension of concessions in Article 221. It also provides the procedure for the cross- retaliation.

As per the principles, the complaining member should seek to suspend concession in the same sector as the area of non-compliance. But if the complaining party feels so, or analyzes that suspension of concession will not be effective, than complaining party may suspend the concession under any other covered agreement. Against this the opposite or non-complaint member may demand arbitration, regarding the issue that whether the complaining party has complied with the prescribed principles and procedures for making its determination. Then once the arbitrators authorize the complaining party, by rendering their determination, the complaining member then may secure the formal authorization for suspension from the DSB. This DSB authorization is automatically granted for the crossretaliation, if request is made by the complaining member2.

CROSS RETALIATION- AN ANALYSIS

There are cases where cross- retaliation has been approved by the WTO dispute settlement. The cases in which cross- retaliations are granted are discussed are discussed as below.

EC – Bananas III – Article 22.6 DSU Arbitration with Ecuador3, this was the first time, when a WTO memberrequested DSB authorization to suspend theconcessions under the TRIPS agreement as a matter ofcross-retaliation. Ecuador requested authorizationpursuant to Article 22.2 of the DSU to suspendconcessions or other obligations under the TRIPSAgreement, GATT and GATS, with respect to findings ofinconsistencies regarding the EC's banana regimeunder the GATT and GATS. The EC thereupon requestedarbitration pursuant to Article 22.6 of the DSU. On theobservations made in the case by the arbitrators, thearbitrators authorized Ecuador to request suspensionof concessions under the TRIPS Agreement from theDSB. The DSB authorized the suspension. However;following successful negotiation of a settlement withthe EC, Ecuador did not implement the suspension.

US – Gambling – Article 22.6 DSU Arbitration with Antigua and Barbuda4: In this case Antigua prevailedagainst the United States on its claim that US restrictionson cross-border gambling services were inconsistentwith US commitments under the GATS, and the US wasdetermined by a panel pursuant to Article 21.5 of theDSU to have failed to implement the decision adoptedby the DSB. Antigua thereupon requested authorizationto suspend concessions under the GATS and TRIPSAgreement. Further the arbitrators authorized Antiguato request suspension of concessions under the TRIPS.Antigua has not yet requested authorization from theDSB to proceed with this suspension. Antigua and theUnited States have not yet reached an accommodationregarding compliance in the US – Gambling case.

The other landmark case in relation to the crossretaliation is The Brazil – United States – Upland Cotton5 case is regarding prohibited and actionable subsidies provided to US producers, which is inconsistent with the obligations and regulations under WTO. Brazil has therefore successfully induced compliance of a scofflaw state through effective implementation of this TRIPS flexibility in their domestic regime, even though they didn't actually need to enforce it.

CONCLUSION

Based on the prevailing scenario it can be concluded that under the traditional retaliation economically powerful member nations are not affected by the withdrawal of tariff concessions or an imposition of import quotas by the less developed nations. In other words it can be said that the traditional retaliation process is very much dependant on the size and importance of retaliating country's domestic market. This inability on the part of the less developed and least developed nations to enforce the sanctions against the economically powerful, non-complaint country raised many issues.

Therefore to combat such inefficiency, "Cross-retaliation" is used as a powerful means against the non-complaint developed countries, by the less developed countries. On the observation of the above mentioned cases, the Cross –retaliation is proved to be an effective medium of enforcing the sanctions or compliance as the case may be, against the non-complying developed nation.

Although cross-retaliation is a effective means, however the same is subject to certain conditions prescribed under Article 22of the DSU like such suspension must be temporary and must last only until the defaulting party complies with the DSB's decision, or until the measure found to be inconsistent with the WTO agreement is removed or until the parties find a mutually agreed solution to the dispute, and according to Article 22 of the DSU, the level of suspension of rights and obligations authorized by the DSB must be equivalent to the damage suffered by the complainant in the dispute. This is based on the principle of justice and equity, by balancing the conditions of both the parties to the dispute.

Therefore it can be concluded that the world trade organisations dispute settlement mechanism should be promoted among the developing nations against the recalcitrant nations. The developing nations has paid a huge price the same during the Uruguay rounds of WTO and accession process. Further the developing countries should actively engage themselves in the DSU negotiations and reviews in order to ensure proper functioning and to make the system more effective.

Footnotes

1 Article 22: Compensation and the Suspension of Concessions (https://www.wto.org/english/docs_e/legal_e/28-dsu_e.htm )

2 Frederick M.Abbotterick, "Cross Retaliation in TRIPS: Option For Developing Countries", Issue Paper No. 8, International Center for Trade & Sustainable Development.

3 DS27 - European Communities — Regime for the Importation,

4 DS285 - United States — Measures Affecting the Cross-Border Supply of Gambling and Betting Services.

5 DS267 - United States — Subsidies on Upland Cotton.

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