Australia and WTO dispute settlement
Monthly Bulletin: April 2002
RESOLVING EXPORT ACCESS PROBLEMS THROUGH THE WTO SYSTEM
- Are you an exporter or intending to export?
- Do you export to one or more of the 144 markets that belong to the World Trade Organization?
- Are you experiencing access problems in one or more of those markets?
- Is the access problem caused by a regulation or directive of the importing government (at central, regional or local government level?)
If you have answered "yes" to those questions, the WTO Trade Law Branch of the Department of Foreign Affairs and Trade stands ready to assist in developing options for resolution of your access problems. Exporters can contact WTO legal specialists in the Department on the following numbers:
- Email: email@example.com
- Fax: 02 6273 1527
- Telephone: 02 6261 2617 or 02 6261 1890
WTO Dispute Settlement Training Seminar In Jakarta
The potential economic benefits that can flow to developing countries from participation in the WTO dispute settlement system were highlighted in a recent seminar held in Jakarta entitled The WTO Legal System Making It Work For Indonesia (organised by DFAT's WTO Trade Law Branch and funded by AusAID). The 8 April 2002 seminar looked at how the WTO dispute settlement system provides equal opportunities for all WTO members to enforce their WTO treaty rights, irrespective of their economic bargaining power. This levelling of the playing field' is particularly valuable for developing countries facing market access problems in larger trading partners.
Participants at the seminar heard how evidence of the possible WTO-inconsistency of another WTO Member's measure could provide useful leverage for developing countries in addressing bilateral trade and market access problems. Moreover, wins in the WTO by other countries can provide substantial benefits for developing countries with similar export interests (for example, in agriculture or textiles) given the WTO requirement that all measures be implemented on a Most-Favoured-Nation basis (i.e. equal treatment must be accorded to all trading partners that are WTO members).
Attached to this Bulletin is a copy of the presentation made at the seminar by Miss Joan Hird (Director, WTO Disputes Investigation Section, DFAT), which looks at examples of effective participation in the WTO dispute settlement system by developing countries and suggests the key inputs, skills and resources that might help increase the access of countries like Indonesia to the system.
With this issue, we introduce an occasional series looking at cases which have policy and/or systemic aspects of particular interest.
Some excerpts from the Panel Report in United States Sections 301-310 of the Trade Act of 1974 (WT/DS152, adopted 27 January 2000) are attached to this Bulletin. The European Communities claimed that sections 301-310 of the Trade Act of 1974 breached the United States' obligation under Article 23 of the Dispute Settlement Understanding (DSU) not to take unilateral action to resolve disputes concerning matters that were subject to WTO disciplines. The Panel's discussion of the relationship between WTO disciplines generally and the DSU in particular, and the provision of a secure and predictable multilateral trading system, includes some comments addressing the broad general relevance of the WTO system to individual businesses and companies. The Panel's discussion of the good faith interpretation requirement of the Vienna Convention on the Law of Treaties is also of interest. The full report is available through the WTO website at http://docsonline.wto.org/DDFDocuments/t/WT/DS/152R.DOC.
Australia as a Complainant (1)
United States: Continuing Dumping and Subsidy Offset Act of 2000 (Byrd Amendment) (WT/DS217 and WT/DS234)
No new developments. The eleven co-complainants (including Australia) are arguing that the United States Continued Dumping and Subsidy Offset Act of 2000 (the Byrd Amendment) is inconsistent with US obligations under GATT 1994, the Anti-Dumping Agreement and the Agreement on Subsidies and Countervailing Measures. This Act requires US customs authorities to distribute anti-dumping and countervailing duties assessed on imports to US domestic parties that supported the original petition for anti-dumping or countervailing duties to be imposed. Two oral hearings have been held. The Panel is expected to release its final report on 10 July 2002. Copies of Australia's submissions to the Byrd Amendment panel can be found at: http://22.214.171.124/trade/negotiations/disputes/wto_disputes-US_AD.html
Disputes involving Australia as a Third Party (8)
Mexico Measures Affecting Telecommunications Services (WT/DS204)
The US is arguing that Mexico has failed to implement its GATS commitments for the cross-border supply of basic telecommunications services. It alleges that certain measures largely embodied in Mexico's International Long Distance Rules breach Sections 1 and 2 of the basic telecommunications Reference Paper incorporated into Mexico's Schedule of Commitments, Section 5 of the GATS Annex on Telecommunications and GATS Article XVII. A Panel was established at the 17 April DSB Meeting. Australia, Canada, Cuba, the EC, Guatemala, Japan and Nicaragua have reserved their third party rights in this dispute.
Chile: Price band system and safeguard measures relating to certain agricultural products (WT/DS207)
No new developments. The Panel report is still not publicly available but is expected soon.
European Communities (EC): Measures affecting meat and meat products (Hormones) (WT/DS26)
No new developments. The EC is still facing WTO-authorised retaliation by the US and Canada because of its failure to implement within a reasonable period of time. We understand that the US and the EC are engaged in discussions on a compensation arrangement. Australia has registered its expectation that any compensation will be applied on a non-discriminatory basis.
Canada: Measures affecting the importation of milk and the exportation of dairy products (WT/DS103 and WT/DS113)
The Article 21.5 panel held its meeting with the parties (US and New Zealand) and third parties (Australia, Argentina and the EC) on 22-23 April. In Australia's statement we addressed the application in this matter of the elements of Article 9.1(c) of the Agreement on Agriculture on export subsidies, including payments and by virtue of governmental action. The parties to this dispute are arguing that, since the Appellate Body's Article 21.5 Report did not make any findings on the consistency of Canada's new measures, they continue to believe that Canada's implementation measures, introduced as a result of the DSB's original recommendations and rulings, are inconsistent with its WTO obligations. The final report is due by 22 May.
United States: Section 110(5) Copyright Act (Homestyle exemption) (WT/DS160)
No new developments. The arbitration over the level of suspension of obligations proposed by the EC following the US failure to bring its measures into conformity within the reasonable period of time remains suspended (but can be reactivated at the request of either party). The EC and the US continue to be engaged in discussions on a compensation arrangement, which it is understood would involve the US paying the EC US$1.1 million per annum over three years pending implementation of the Panel's findings. Australia has continued to register its expectation that any compensation will be applied on a non-discriminatory basis.
United States: Definitive safeguard measures on imports of circular welded carbon quality line pipe from Korea (WT/DS202)
The Appellate Body and Panel Reports were adopted at the 8 March DSB meeting. The Appellate Body largely found in favour of Korea's challenge to the February 2000 US line pipe safeguard. The US has indicated that it will require a reasonable period of time to implement the DSB's rulings and recommendations in this dispute.
United States: Tax Treatment for Foreign Sales Corporations (WT/DS108)
Arbitration is continuing on the EC's USD 4 billion retaliation claim. The US has objected to the level claimed by the EC and has argued that the annual retaliation by the EC should not exceed USD 956 million. The arbitrators' report was due on 29 April, but is now expected to be issued on 17 June. Following the circulation of the arbitration report, the EC can seek DSB authorisation to proceed with the retaliatory action against the US specified in the arbitrator's award.
Canada: Export credits and loans guarantees for regional aircraft (WT/DS222)
No new developments. Canada and Brazil remain engaged in discussions on implementation.
Disputes in which Australia has a policy or economic interest (8)
Japan: Measures affecting agricultural products (Varietal testing) (WT/DS76)
No new developments. Japan reached an agreement with the US on a mutually satisfactory solution last September. Australia has registered its expectation that the outcome will be applied in a non-discriminatory manner to the products of all WTO members.
United States: Section 129(c)(1) of the Uruguay Round Agreements Act (WT/DS221)
No new developments. Canada is challenging the legality of a specific aspect of the US statute controlling the US implementation of DSB rulings. A panel was established at the 23 August 2001 DSB meeting, and was constituted on 30 October. Third party rights were reserved by the EC, India, Japan and Chile.
United States: Section 211 Omnibus Appropriations Act (WT/DS176)
The US and the EC have reached a mutual agreement on the reasonable period of time for the US to implement the recommendations and rulings of the DSB in this dispute. The Panel and Appellate Body Reports adopted at the 1 February DSB meeting found that portions of the US legislation were inconsistent with US obligations under the WTO Agreement. In the light of these findings, which call for legislative action by the US Congress, the US and the EC have agreed that the reasonable period of time will expire on 31 December 2002, or on the date on which the current session of the US Congress adjourns, whichever is later, and in no event later than 3 January 2003.
EC: Generalized System of Preferences (WT/DS242)
No new developments. Thailand has requested consultations with the EC under Article XXIII of GATT 1994 in respect of measures under the EC' Generalized System of Preferences (GSP) scheme. Consultations took place on 14 February. Thailand is claiming that, through its GSP scheme as implemented, the EC fails to carry out its obligations under Article I of GATT 1994 (Most-Favoured-Nation Treatment) and the Enabling Clause, as incorporated into GATT 1994. Thailand has also made a non-violation claim. This dispute raises a number of systemic issues of interest/concern to Australia, including jurisprudence on GSP graduation, the application of non-economic conditionality to the grant of GSP preferences and the potential for this issue to be divisive for developing countries.
EC: Conditions for the Granting of Tariff Preferences to Developing Countries (WT/DS246)
No new developments. India has requested consultations with the EC on similar issues to Thailand's request above. India has cited Article I.1 of GATT 1994 (Most-Favoured-Nation Treatment) and the Enabling Clause as the legal basis for its concerns with regard to tariff preferences to selected countries under special arrangements for combating drug production and trafficking, and tariff preferences accorded under special incentive arrangements related to EC-determined standards on the protection of labour rights and the environment. Venezuela and Colombia have requested to be joined in the consultations but have no entitlement to be joined as India's request for consultations was made under Article XXIII GATT 1994. This dispute raises similar systemic issues for Australia as EC: Generalized System of Preferences (above).
Japan: Measures Affecting the Importation of Apples (WT/DS245)
Consultations were held on 18 April between the US and Japan over Japan's fire blight quarantine measures for imported apples. These measures include the prohibition of imported apples from orchards where fire blight is detected (or if it is detected within a 500 metre buffer zone), a requirement for three orchard inspections a year and post-harvest treatment of exported apples with chlorine. The US is claiming that these measures are inconsistent with Japan's obligations under Article XI of GATT 1994, several provisions of the SPS Agreement and Article 14 of the Agreement on Agriculture. The US has also made a non-violation claim. The US choice of Article XXIII of GATT 1994 as the procedural avenue for its request precludes third party participation in these consultations (but would not prevent third party participation in panel proceedings).
United States: Equalizing Excise Tax Imposed by Florida on Processed Orange and Grapefruit Products (WT/DS250)
Brazil has requested consultations with the US on the Equalizing Excise Tax imposed by the State of Florida on processed orange and grapefruit products produced from citrus fruit grown outside the US. Brazil is claiming that the exemption from this tax of products produced in whole or in part from citrus fruit grown within the US treats imported products less favourably than domestic products and is in violation of national treatment obligations under Article III.2 of GATT 1994. Brazil also makes other national treatment violation claims, including that the use of the proceeds of the tax to advertise and promote Florida grown citrus and citrus products with no promotion of imported citrus products violates Article III.4 and III.1 of GATT 1994.
US: Definitive Safeguard Measures on Imports of Certain Steel Products (WT/DS248, WT/DS249, WT/DS 251, WT/DS 252, WT/DS 253, WT/DS 254)
The EC, Japan, Korea, China, Switzerland and Norway held joint consultations with the US on 11-12 April concerning the definitive safeguard measures imposed by the US on imports of certain steel products. The US agreed to third party participation in the consultations by Canada, Mexico, New Zealand and Venezuela. The complainants argue that the definitive safeguard measures imposed by the US in the form of an increase in duties on imports of certain flat steel, hot-rolled bar, cold-finished bar, rebar, certain welded tubular products, carbon and alloy fittings, stainless steel bar, stainless steel rod, tin mill products and stainless steel wire and in the form of a tariff rate quota on imports of slabs (all effective as of 20 March 2002) are inconsistent with US obligations under the GATT 1994 and the Agreement on Safeguards.
Meetings of the Dispute Settlement Body: April 2002
The DSB, consisting of all the Members of the WTO, met on 5 April and 17 April 2002. The next regular DSB meeting will be held on 22 May 2002. Australia uses DSB meetings to monitor progress and to register its views on disputes of interest. The agendas of the April DSB meetings were as follows (any Australian interventions are indicated):
Special DSB Meeting 5 April 2002
1. Implementation of Recommendations adopted by the DSB
United States Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea (WT/DS202)
The US confirmed its intention to implement the DSB's rulings and recommendations, indicating that it would need a reasonable period of time to do so.
2. Adoption of the Report of the Panel
India Measures Affecting the Automotive Sector (WT/DS146 and WT/DS175)
The Panel report was adopted. (India's appeal had been withdrawn prior to the Appellate Body hearing).
The two complaining parties (the EC and US) welcomed the panel report and urged India to take the necessary action to resolve outstanding WTO inconsistencies.
India expressed systemic concerns with the Panel's approach in making its recommendations in the final part of the report because the Panel had looked at whether events that took place subsequent to the Panel's establishment might have affected the existence of any WTO inconsistencies identified in its report.
DSB Meeting 17 April 2002
1. Surveillance of Implementation of Recommendations adopted by the DSB
United States Section 110(5) of the US Copyright Act (WT/DS160)
- status report by the US
The US said that it continued to be engaged in discussions with the EC to find a positive and mutually acceptable resolution of the dispute.
The EC requested that the US include some informative elements about its progress toward compliance in its next status report.
Australia made the following points in our intervention:
At a number of previous DSB meetings, we have registered our concern about the continued delay in U.S. implementation in this dispute, and raised concerns about the discriminatory nature of the proposed compensation arrangements reached between the U.S. and EC
We take this opportunity to reiterate these concerns and to record, once again, our expectation that any compensation arrangement reached between the parties be applied on a non-discriminatory basis.
2. Surveillance of Implementation of Recommendations adopted by the DSB
United States Anti-Dumping Act of 1916 (WT/DS162)
- status report by the US
The US noted again its introduction into Congress of a bill to repeal the 1916 Act and prevent entry of judgments pursuant to that Act and said that it was continuing to work with the EC and Japan to reach a mutually satisfactory resolution to this dispute.
The EC called for the bill to repeal the act and terminate pending cases to be adopted before the end of the period agreed for suspension of the arbitration in this dispute.
3. Panel Request
Mexico Measures Affecting Telecommunications Services (WT/DS204)
- request by the US for the establishment of a Panel.
A Panel was established. Third party rights in this dispute were reserved at the meeting by Canada, Cuba, the EC, Guatemala, Japan and Nicaragua. Australia also subsequently reserved its third party rights.
Australia made the following point in our intervention:
we consider the issues that will be raised in this dispute to be of fundamental importance, both in the context of the GATS, and in relation to the telecommunications sector.
4. Panel Request
Argentina Definitive Anti-Dumping Duties on Poultry from Brazil (WT/DS241)
- request by Brazil for the establishment of a Panel.
A Panel was established.
5. Panel Request
United States Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan (WT/DS244)
- request by Japan for the establishment of a Panel.
Panel was not established as the US opposed the request. Panel request deferred to the next DSB meeting.
6. Request for Article 21.5 Panel
European Communities Anti-Dumping Duties on Imports of Cotton-type Bed Linen from India (WT/DS141)
- request by India for the establishment of an Article 21.5 implementation Panel.
India withdrew its panel request for the time being because of the EC's intention to oppose the request on the grounds that the mandatory 60 day consultation period had not expired.
PAPER FOR PRESENTATION TO HIGH-LEVEL SEMINAR: THE WTO LEGAL SYSTEM MAKING IT WORK FOR INDONESIA, JAKARTA
8 APRIL 2002
Paper presented by Joan Hird
Director, WTO Dispute Investigations Section
Office of Trade Negotiations
Department of Foreign Affairs and Trade
This paper is not intended to provide a full outline of the WTO dispute settlement system's rules and procedures, or an analysis of WTO jurisprudence. The WTO Secretariat publication Trading into the Future provides a detailed summary of the relevant WTO rules and procedures. The full legal texts can be found in the WTO publication The WTO Dispute Settlement Procedures. A summary of all WTO disputes can be found on the WTO home page.
The paper concentrates on the role of dispute settlement in the multilateral trading system and the way that it can serve the interests of individual WTO members.
The WTO dispute settlement system constitutes an equitable means of enforcing the multilateral trade treaty rights between 144 governments engaged in world trade. It is not based on relative economic or political power. It provides strong legal disincentives to unilateral actions by the more powerful trading countries and serves to prevent economic disputes from developing into political disputes.
While the larger economic countries are among the most active users of the system, other WTO members including many developing countries have used the system to their advantage in successful challenges - including against the major developed countries.
To date, 250 complaints have been initiated under the WTO dispute settlement system. Many of these complaints have been settled through consultations conducted within the framework of the system. There are probably very many more issues that have been settled informally, using the leverage of the compulsory, binding and enforceable nature of the system to encourage the other party to adjust its measures.
It is recognised that the benefits of the system may be dependent on the capacity of an individual WTO member to utilise the system to its advantage. In Australia's experience, recourse to dispute settlement does not depend on unlimited funds. It does however require the development and retention of a core of skilled resources and most importantly partnership with private sector exporters.
WHAT IS THE WTO DISPUTE SETTLEMENT SYSTEM?
1. The WTO dispute settlement system has a central place in the multilateral trade system. The dispute settlement system has legal character and has treaty status. It is embodied in the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes, otherwise known as the Dispute Settlement Understanding or DSU
2. The purpose of the WTO dispute settlement system is clearly expressed in the WTO treaty:
- The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. 
- The prompt settlement of situations in which a Member considers that any benefits accruing to it directly or indirectly under the covered agreements are being impaired by measures taken by another Member is essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members.
- ... The aim of the dispute settlement system is to secure a positive solution to a dispute. A solution mutually acceptable to the parties to a dispute and consistent with the covered agreements is clearly to be preferred...
3. The Dispute Settlement Understanding applies to all the WTO covered Agreements, including the thirteen Multilateral Agreements on Trade in Goods, the General Agreement on Trade in Services, the Agreement on Trade-Related Aspects of Intellectual Property Rights and the two Plurilateral Trade Agreements. A WTO member may invoke the Dispute Settlement Understanding if it considers that any of its rights under one of more of those Agreements is being impaired by the actions of another WTO member.
4. The WTO dispute settlement system has four distinct attributes:
- it is a system of compulsory jurisdiction for 144 WTO members
- its outcomes are binding on the parties to a dispute
- it is enforceable in the sense that failure to implement legally binding outcomes may involve compensation or WTO-authorised retaliation
- it discourages recourse to unilateral actions by more powerful economic trading partners against smaller trading countries
5. The system applies to those trade and trade-related actions of government signatories and of regional governments or other authorities within the territories of signatory governments that are covered by WTO rules. The system allows for joint or multiple complaints. Indonesia and Australia along with a number of other WTO members - are currently joint complainants in a dispute with the United States.
6. The dispute settlement system is structured in a way that encourages the mutually satisfactory resolution of disputes. The system effectively operates at seven levels:
- as leverage for the informal settlement of disputes at the bilateral level, in circumstances where a clear WTO legal basis is identified
- WTO dispute settlement consultations, which are bilateral in character, but which are a necessary procedural step to WTO litigation processes. It is common for WTO disputes to be settled at this stage of the process
- WTO panels, which examine the WTO-consistency of measures against the terms of reference specified by the complainant party. Adopted panel reports are binding on the parties
- Appeals to the WTO Appellate Body on questions of law. Adopted Appellate Body reports are binding on the parties
- Implementation within a reasonable period of time, which may be agreed between the parties or determined by binding arbitration
- Compensation agreed between the parties, or WTO-arbitrated retaliation, in the event of failure to implement within an agreed or arbitrated reasonable period of time
- Special accelerated legal processes in the event of disagreement about the WTO-consistency of the implementing measures.
7.As an alternative to the formal WTO-litigated processes of panels and appeals, the parties may agree on binding arbitration procedures, such as those provided for by Article 25 of the DSU. Such procedures generally involve a more rapid time-period for outcomes, but would exclude the right of appeal on questions of law. The time frame for outcomes from litigated disputes can range from 12 months to three years, taking into account appeal processes and implementation periods.
8.To date, the majority of disputes have resulted in WTO compliance within the reasonable period of time. The few exceptions involve non-implementation by the United States, the EC, Japan and Canada, which have given rise to negotiated compensation or WTO-authorized retaliation. In the case of Japan, short term compensation was negotiated pending legislative adjustments to its taxation regime for alcoholic beverages. In the case of the EC, WTO-authorised retaliation was applied in respect of continuing WTO-inconsistent measures applying to bananas and hormone-treated beef (the bananas regime has since been brought into WTO conformity, including through a WTO-authorized waiver). It is reported that the United States is providing monetary compensation to the EC for its failure to amend certain copyright legislation. The United States has withheld certain bilateral concessions to Canada in respect of Canada's measures on imported periodicals.
9.WTO rules allow for third parties to intervene in disputes where a substantial interest has been identified. At the consultation stage, the right to intervene requires the agreement of the respondent party, but third party rights to intervene in panel and appeal processes are automatic. Participation as a third party does not lead to any rights of enforcement, but rather provides an opportunity to argue certain legal points. Third party participation may also provide useful experience in WTO legal processes, in regard to access to the submissions of parties, the drafting of third party submissions and representation at oral hearings during panel and appellate processes.
DEVELOPING COUNTRY PARTICIPATION IN THE WTO DISPUTE SETTLEMENT
10. To date, more than 20 developing WTO members have initiated challenges under the WTO dispute settlement system, including a number of WTO members in Latin America and from the broader Asia region. Brazil is the most prominent of the Latin American countries. In the Asian region, India has been the most prominent complainant. ASEAN countries are well represented: Thailand, Malaysia, the Philippines and Indonesia have all initiated complaints, with Thailand the most prominent ASEAN user of the system.
11. Many of those challenges have secured successful outcomes for developing country exporters, including in the areas of trade remedies (anti-dumping, countervailing and safeguards), tariffs, non-tariff measures, discriminatory treatment, subsidies, as well as in important sectors such as agriculture and textiles and covering commodities of export interest to Indonesia (eg coffee, rice, fish, gasoline, timber and tropical fruit).
12. Cooperation between developing countries - and between developed and developing countries is evident from the range of joint or multiple complaints. These include complaints by the Philippines, Malaysia, Pakistan and Thailand against the United States shrimp import embargo, the complaints by a number of Latin American countries and the USA against the discriminatory EC banana import regime and the complaints by developing countries in Asia and Latin America - together with a number of developed countries against the United States Byrd Amendment arrangements.
13. As a demonstration of the robust nature of the WTO system, several cases have involved disputes between developing countries, many of them between Latin American countries, but also including complaints by the Philippines against Brazil, India against Turkey and Thailand against Egypt.
14. More developing countries have been involved in the initiation
of complaints than in the defence of measures. Around twelve developing
WTO members have been subject to complaints, some of these involving
disputes between developing countries. In the Asia region, the disputes
include complaints against Pakistan (export restrictions), Korea
(on beef and alcoholic beverages) the Philippines (national treatment,
anti-dumping) India (import licensing, tariffs, assistance to the
auto sector, quantitative import restrictions, patents) and Indonesia
(assistance to the auto sector).
ACCESS TO THE DISPUTE SETTLEMENT SYSTEM
15. There is no in-principle barrier to recourse to the dispute settlement system. As noted in the preceding section, developing countries have been active in the system and have successfully challenged measures applied by the major developed members of the WTO.
16. WTO documentation including all of the WTO panel and Appellate Body reports is readily accessible and is available on-line from the WTO website.
17. At the same time, the capacity to access the system may depend on the domestic infrastructure of the individual WTO member, including:
- the development and retention of a core of skilled resources (including legal analytical skills and proficiency in one of the WTO official languages of English, French and Spanish)
- adequate research tools, including on-line access to WTO dispute documentation and other reference material 
- the development of experience in WTO dispute processes, including through participation as a third party
- networking with experts in other WTO member countries, including in Geneva and capitals
- cooperation with like-minded WTO members in prosecuting export interests
- establishing a network of exporters to identify emerging trade problems
- substantial input from exporters in developing claims and arguments, including, as appropriate, the collection and translation of factual data and the funding of economic studies for use as evidence in complaints
18. The forgoing comments are based on experience as an Australian WTO practitioner. I look forward to gaining an Indonesian perspective on these issues.
The good faith requirement of the Vienna Convention on the Law
It is notoriously difficult, or at least delicate, to construe the requirement of the Vienna Convention that a treaty shall be interpreted in good faith in third party dispute resolution, not least because of the possible imputation of bad faith to one of the parties. We prefer, thus, to consider which interpretation suggests "better faith" and to deal only briefly with this element of interpretation.
Imagine two farmers with adjacent land and a history of many disputes concerning real and alleged mutual trespassing. In the past, self help through force and threats of force has been used in their altercations. Naturally, exploitation of the lands close to the boundaries suffers since it is viewed as dangerous terrain. They now sign an agreement under which they undertake that henceforth in any case of alleged trespassing they will abjure self help and always and exclusively make recourse to the police and the courts of law. They specifically undertake never to use force when dealing with alleged trespass. After the entry into force of their agreement one of the farmers erects a large sign on the contested boundary: "No Trespassing. Trespassers may be shot on sight".
One could, of course, argue that since the sign does not say that trespassers will be shot, the obligations undertaken have not been violated. But would that be the "better faith" interpretation of what was promised? Did they not after all promise always and exclusively to make recourse to the police and the courts of law?
The good faith requirement in the Vienna Convention suggests, thus, 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.
The relationship between WTO disciplines generally
and the Dispute Settlement Understanding in particular, and the provision
of a secure and predictable multilateral trading system
Providing security and predictability to the multilateral trading system is [a] central object and purpose of the system Of all WTO disciplines, the DSU is one of the most important instruments to protect the security and predictability of the multilateral trading system and through it that of the market-place and its different operators.
The security and predictability in question are of "the multilateral trading system". The multilateral trading system is, per force, composed not only of States but also, indeed mostly, of individual economic operators. The lack of security and predictability affects mostly these individual operators.
Trade is conducted most often and increasingly by private operators. It is through improved conditions for these private operators that Members benefit from WTO disciplines. The denial of benefits to a Member which flows from a breach is often indirect and results from the impact of the breach on the market place and the activities of individuals within it. Sections 301-310 themselves recognize this nexus. One of the principal triggers for US action to vindicate US rights under covered agreements is the impact alleged breaches have had on, and the complaint emanating from, individual economic operators.
When a Member imposes unilateral measures in violation of Article 23 in a specific dispute, serious damage is created both to other Members and the market-place. However, in our view, the creation of damage is not confined to actual conduct in specific cases. A law reserving the right for unilateral measures to be taken contrary to DSU rules and procedures, may as is the case here constitute an ongoing threat and produce a "chilling effect" causing serious damage in a variety of ways.
First, there is the damage caused directly to another Member. Members faced with a threat of unilateral action, especially when it emanates from an economically powerful Member, may in effect be forced to give in to the demands imposed by the Member exerting the threat, even before DSU procedures have been activated. To put it differently, merely carrying a big stick is, in many cases, as effective a means to having one's way as actually using the stick. The threat alone of conduct prohibited by the WTO would enable the Member concerned to exert undue leverage on other Members. It would disrupt the very stability and equilibrium which multilateral dispute resolution was meant to foster and consequently establish, namely equal protection of both large and small, powerful and less powerful Members through the consistent application of a set of rules and procedures.
Second, there is the damage caused to the market-place itself. The mere fact of having legislation the statutory language of which permits conduct which is WTO prohibited namely, the imposition of unilateral measures against other Members with which it is locked in a trade dispute may in and of itself prompt economic operators to change their commercial behaviour in a way that distorts trade. Economic operators may be afraid, say, to continue ongoing trade with, or investment in, the industries or products threatened by unilateral measures. Existing trade may also be distorted because economic operators may feel a need to take out extra insurance to allow for the illegal possibility that the legislation contemplates, thus reducing the relative competitive opportunity of their products on the market. Other operators may be deterred from trading with such a Member altogether, distorting potential trade. The damage thus caused to the market-place may actually increase when national legislation empowers individual economic operators to trigger unilateral State action, as is the case in the US which allows individual petitioners to request the USTR to initiate an investigation under Sections 301-310. This in itself is not illegal. But the ability conferred upon economic operators to threaten their foreign competitors with the triggering of a State procedure which includes the possibility of illegal unilateral action is another matter. It may affect their competitive economic relationship and deny certain commercial advantages that foreign competitors would otherwise have. The threat of unilateral action can be as damaging on the market-place as the action itself.
In conclusion, the risk of a unilateral determination of inconsistency as found in the statutory language of Section 304 itself has an apparent "chilling effect" on both Members and the market-place even if it is not quite certain that such a determination would be made. The point is that neither other Members nor, in particular, individuals can be reasonably certain that it will not be made. Whereas States which are part of the international legal system may expect their treaty partners to assume good faith fulfillment of treaty obligations on their behalf, the same assumption cannot be made as regards individuals.
 This publication is intended to provide a general update and the information within it should not be relied on as complete or definitive.
 The Results of the Uruguay Round of Multilateral Trade Negotiations The Legal Texts WTO Secretariat ISBN 92-870-11214, available on -line at www.wto.org
 part Article 3.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
 Ibid part Article 3.3
 Ibid part Article 3.7
 United States Continued Dumping and Subsidy Offset Act of 2000 (Byrd Amendment) WT/DS 234
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 This publication is intended to provide a general update and the information within it should not be relied on as complete or definitive.
The Monthly Bulletin is an overview of Australian involvement in WTO Dispute Settlement from the WTO Trade Law Branch of the Department of Foreign Affairs and Trade . It updates Australian involvement in specific WTO disputes and, more generally, in disputes in which Australia has a policy or economic interest. Also included are the agendas of meetings of the WTO Dispute Settlement Body (DSB), with specific reference to any Australian interventions.
For more information and copies of previous issues, visit Australia and WTO dispute settlement.
For more general information relating to the Doha Round of Trade negotiations, see the WTO Doha Round Bulletin.