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WTO Dispute Settlement Bulletin

Monthly Bulletin: April 2002

Australia and WTO dispute settlement

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  • 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
  • Is the access problem caused by a regulation or directive
    of the importing government (at central, regional or local government

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:


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
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

Some excerpts from the Panel Report in United
States Sections 301-310 of the Trade Act of 1974
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

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:

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

United States: Section 110(5) Copyright Act (Homestyle exemption)

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

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)

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

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

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

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

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

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

4. Panel Request

Argentina Definitive Anti-Dumping Duties on Poultry from Brazil

- 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

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.



8 APRIL 2002

Paper presented by Joan Hird
Director, WTO Dispute Investigations Section
Office of Trade Negotiations
Department of Foreign Affairs and Trade
Canberra, Australia


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[3].

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

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.


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[4]

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. [5]
  • 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.[6]
  • ... 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...[7]

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

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

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.


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[9],
the complaints by a number of Latin American countries and the USA
against the discriminatory EC banana import regime[10] 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.[11]

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).


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,

  • 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 [12]
  • 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
  • establishing a network of exporters to identify emerging trade
  • 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

18. The forgoing comments are based on experience as an Australian
WTO practitioner. I look forward to gaining an Indonesian perspective
on these issues.

(excerpts from the Panel Report)

The good faith requirement of the Vienna Convention on the Law
of Treaties
(paragraphs 7.64-7.68)

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
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
(paragraphs 7.75-

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.

[2] This publication is intended to provide a general
update and the information within it should not be relied on as complete
or definitive.


[4] The Results of the Uruguay Round of Multilateral
Trade Negotiations The Legal Texts WTO Secretariat ISBN 92-870-11214,
available on -line at

[5] part Article 3.2 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes

[6] Ibid part Article 3.3

[7] Ibid part Article 3.7

[8] United States Continued Dumping and Subsidy Offset
Act of 2000 (Byrd Amendment) WT/DS 234

[9] WT/DS58

id=ftn10[10] WT/DS27

[11] WT/DS234

[12] For example, on-line access to the WTO dispute
documentation ( and analyses of WTO disputes provided on and on

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[2] 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

Last Updated: 9 January 2013
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