Dispute Settlement Under the WTO and RTAs

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Electronic copy available at: http://ssrn.com/abstract=2674893

Dispute Settlement Under the WTO and RTAs:

An Uneasy Relationship

Armand C. M. de Mestral

^†

*

†Armand de Mestral, Emeritus Professor, Jean Monnet Professor of Law, McGill University

*Corresponding author. E-mail: [email protected]

A B S T R A C T

The proliferation of RTAs is a recognized feature of our time. While such agreements are permitted under Article XXIV of the GATT, this has not been without controversy and one aspect which remains unclear concerns the role decisions rendered by RTA dispute settlement bodies play in WTO cases. Are RTA dispute settlement systems in competition with and possibly even in contradiction to the WTO DSU or are they complementary? Can they co-exist or are they cast in eternal opposition? Are they equal or are they inherently subordinate to the WTO DSU? The article considers the WTO’s treatment of RTAs in GATT and WTO case law, and weighs arguments for and against the consideration of RTA decisions by the DSB. The article submits that the DSB should not be blind to the equities of a situation where two states have reached an agreement in an RTA selecting dispute settlement under that body. This is more than a theoretical argument, it has happened, and the increasingly complex co-existence of the WTO with some 400 RTAs suggests that similar problems can arise in the future. Furthermore, these issues deserve a much more open and careful analysis than they have had to date.

I . I N T R O D U C T I O N

The proliferation of international dispute settlement procedures is a recognized feature of our time.¹ Some have viewed this phenomenon with alarm fearing the

1 International Law Commission,Fragmentation of International Law: Difficulties Arising from the Diversifica- tion and Expansion of International Law—Report of the Study Group of the International Law Commission, UNGAOR, 58th Sess, A/CN.4/L.682 (2006) (Fragmentation of International Law). For a recent analysis of regional trade agreement dispute settlement mechanisms, see Clause Chase et al., ‘Mapping of Dispute Settlement Mechanisms in Regional Trade Agreements—Innovative or Variations on a Theme?’ (2013) World Trade Organization: Economic Research and Statistics Division, http://www.wto.org/english/

res_e/reser_e/ersd201307_e.pdf(working paper) (Chase et al.).

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doi: 10.1093/jiel/jgt032 Article

at McGill University Libraries on October 6, 2015http://jiel.oxfordjournals.org/Downloaded from 2013 CanLIIDocs 237

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Electronic copy available at: http://ssrn.com/abstract=2674893

disintegration and fragmentation of international law.² Others have taken a more relaxed position, based on the assumption that additional dispute settlement procedures should on balance promote greater variety and sophistication in the rules of international law.³Nowhere is this phenomenon more pronounced than in the field of international economic law. We have witnessed the astonishing emergence of the World Trade Organization’s (WTO) Dispute Settlement Body⁴(DSB) since 1994 as one of the most successful forms of compulsory international dispute settlement of all time.⁵ Investor-state arbitration, under bilateral investment treaties, has emerged as a significant form of international arbitration focusing on both public and private interests. Modern treaties in fields as diverse as environmental protection,⁶communications,⁷intellectual property,⁸air transportation,⁹and international health protection¹⁰ all contain some form of dispute settlement mechanism. Major new tribunals have been created to deal with international criminal law¹¹and the law of the sea.¹²

2 Judge Stephen M. Schwebel, ‘Address to the Plenary Session of the General Assembly of the United Nations’, (26 October 1999), http://www.icj-cij.org/court/index.php?pr¼87&pt¼3&p1¼1&p2¼3&

p3¼1(visited 20 September 2013); Judge Gilbert Guillaume, ‘The Proliferation of International Judicial Bodies: The Outlook for the International Legal Order’, (27 October 2000),http://www.icj-cij.org/

court/index.php?pr¼85&pt¼3&p1¼1&p2¼3&p3¼1(visited 20 September 2013).

3 Jonathan I. Charney, ‘The Impact on the International Legal System of the Growth of International Courts and Tribunals’, 31 New York University Journal of International Law and Politics (1999), at 679;

Thomas Buergenthal, ‘Proliferation of International Courts and Tribunals: Is it Good or Bad?’ 14 (2) Lei- den Journal of International Law (2001) 267.

4 The DSB is governed by theUnderstanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Marrakesh Agreement Establishing the World Trade Organization, Annex 2, The Legal Texts:

The Results of the Uruguay Round of Multilateral Trade Negotiations, 33 ILM 1226 (1994).

5 Carlos M. Va´squez and John H. Jackson, ‘Some Reflections on Compliance with WTO Dispute Settle- ment Decisions’, 33 (4) Law and Policy in International Business (2002) 555; Bruce Wilson, ‘Compli- ance by WTO Members with Adverse WTO Dispute Settlement Rulings: The Record to Date’, 10 (2) Journal of International Economic Law (2007) 397; David Palmeter and Petros C. Mavroidis,Dispute Set- tlement in the World Trade Organization(Cambridge: Cambridge University Press, 2004) 305 (Mavroi- dis). Palmeter and Mavroidis note that the ‘addition of the DSU, and its important thickening of legality, has resulted in the most active and most advanced legal system in the larger field of public international law’.

6 For example, seeUnited Nations Convention on the Law of the Sea, 10 December 1982, 1833 UNTS 3 397, 21 ILM 1261 (entered into force 16 November 1994);Montreal Protocol on Substances that Deplete the Ozone Layer, 16 September 1987, 1522 UNTS 3, 26 ILM 1550 (entered into force 1 November 1989);

Kyoto Protocol to the United Nations Framework Convention on Climate Change, 11 December 1997, UN Doc FCCC/CP/1997/7/Add.1, 37 ILM 22 (entered into force 16 February 2005).

7 International Telecommunications Union,Final Acts of the World Administrative Telegraph and Telephone Conference, 1988, WATTC-88.

8 Agreement on Trade-Related Aspects of Intellectual Property Rights, 15 April 1994, 1869 UNTS 299, 33 ILM 1197 (entered into force 1 January 1995).

9 Convention on International Civil Aviation, 7 December 1994, 61 Stat. 1180, 15 UNTS 295 (entered into force 4 April 1947).

10 WTO Agreement on the Application of Sanitary and Phytosanitary Measures, 15 April 1994, 1867 UNTS 493 (entered into force 1 January 1995).

11 Rome Statute of the International Criminal Court, 17 July 1998, 2187 UNTS 90, 37 ILM 1002 (entered into force 1 July 2002).

12 Statute of the International Tribunal for the Law of the Sea(Annex VI), 10 December 1982, 1833 UNTS 3, 21 IL 1261 (entered into force 16 November 1994).

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Recourse to dispute settlement plays a significant part in the law governing regional trade agreements (RTAs). Some 393 such agreements have been notified to the WTO¹³ since the inception of the transparency procedure;¹⁴at least one hun- dred more are known to exist.¹⁵Almost without exception these agreements include some form of dispute settlement. In the majority of cases, these agreements¹⁶adopt a panel procedure based on the WTO Dispute Settlement Understanding (DSU) model.¹⁷In most cases, the process is weaker than the WTO DSU since the outcome is generally weaker than the compulsory and binding process of the WTO DSB. This may happen in several ways. RTA dispute settlement provisions often leave it up to the two state parties to determine how the panel decision is to be implemented. It may be possible for one party to frustrate the dispute settlement process by not nam- ing their panelist. In some cases, the actual commitment to enter into dispute settlement may not be compulsory. Even where the decision is binding, as with Chapter 19 of NAFTA, there may be ways of challenging or prolonging the process.¹⁸

The last decade has witnessed the emergence of a number of major ‘regional’

agreements made by significant groups of states. These range from the four MERCOSUR states¹⁹to the ten ASEAN states.²⁰ Other examples are the Andean

13 World Trade Organization, ‘Regional Trade Agreements: Facts and Figures,’http://www.wto.org/english/tratop_e/region_e/regfac_e.htm(visited 20 September 2013).

14 World Trade Organization, ‘Transparency Mechanism for RTAs’,http://www.wto.org/english/tratop_e/

region_e/trans_mecha_e.htm(visited 20 September 2013).

15 World Trade Organization, ‘Historical Background and Current Trends’, inWorld Trade Report 2011—

The WTO and Preferential Trade Agreements: From Co-Existence to Coherence(Washington, DC: World Bank, 2011) at 54 (World Trade Report).

16 Examples include the Association of Southeast Asian Nations (ASEAN) Free Trade Area Agreement, the North American Free Trade Agreement (NAFTA), and the Southern Common Market (MERCOSUR) Agreement. See David Morgan, ‘Dispute Settlement under PTAs: Political or Legal?’ (2008) University of Melbourne Legal Studies Research Paper No. 341.

17 See DSU, above n 4.

18 For example, decisions by the NAFTA Chapter 20 Panels are ‘non-binding in the sense that they have no direct effect on United States law, and neither federal or state governments are bound by findings or recommendations’. See David A. Gantz, ‘Dispute Settlement under the NAFTA and the WTO: Choice of Forum Opportunities and Risks for the NAFTA Parties’, 14 (4) American University International Law Review 1025 (1999) at 1042–1043. Similar concerns arise under dispute resolution for AD/CVD NAFTA Chapter 19. As noted in the Senate Report on the North American Free Trade Agreement Implementation Act: ‘a US court is not bound by (but may take into consideration) a final decision of a binational panel or extraordinary challenge committee.’ S. Rep. No. 103–189 at 45 (1993). Also see Don- ald McRae and John Siwiec, ‘NAFTA Dispute Settlement: Success or Failure?’, in Arturo Oropeza Garcia (ed.),Ame´rica del Norte en el siglo XXI(Mexico City: Corporacio´n Industrial Gra´fica, 2010) 363. On the other hand, a report adopted by the DSB requires State action and accompanied by the threat of compen- sation/retaliation, if required. See John H. Jackson, ‘The WTO Dispute Settlement Understanding—Mis- understandings on the Nature of Legal Obligation’, 91 (1) American Journal of International Law (1997) 60–64. That being said, the North American Agreement on Environmental Cooperation (NACEC) pro- vides a dispute resolution system allowing the suspension of benefits where a Party fails to pay a monetary enforcement assessment. SeeNorth American Agreement on Environmental Cooperation Between the Government of the United States of America, the Government of Canada, and the Government of the United Mexican States, 13 September 1993, 28 ILM 1480 (entered into force 1 January 1994).

19 Additional Protocol to the Treaty of Asuncio´n on the Institutional Structure of Mercosur, 26 March 1991, 34 ILM 1244 (entered into force 29 November 1991) (MERCOSUR).

20 ASEAN Free Trade Agreements, 28 January 1992, S/C/N/463 (1992),http://www.worldtradelaw.net/fta/

agreements/afta.pdf(visited 20 September 2013).

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Community of Nations,²¹ the various African RTAs,²² and the ASEAN-India Free Trade Area.²³ Still larger and more ambitious agreements are under negotiation in the form of a Trans-Pacific Partnership²⁴ or an eventual EU—USA FTA.²⁵ The most ambitious RTA, the European Union, has been profoundly influenced by the work of its Court of Justice,²⁶a true court composed of 28 independent judges who have broad exclusive and compulsory jurisdiction to rule on a host of trade and related non-trade matters arising under European Union law.²⁷

What are we to make of the existence of these many dispute settlement procedures existing under various RTAs? Do they stand alone, relevant to their parties only, or are they part of a larger pattern of dispute settlement, which is emerging at the present time? In particular, what is the relationship of these agreements to the WTO DSU?

At first blush, there is an extraordinary paradox in the fact that we have witnessed the development of many procedures in the same timeframe that has seen the emergence and consolidation of a considerable body of new substantive and procedural law under the WTO DSU, one of the few compulsory and binding procedures to exist in the world today. This is all the more extraordinary in that many of the legal issues arising under RTAs are similar in principle to those arising under the law of the WTO. Most RTAs affirm their fidelity to the law of the WTO or explicitly state

21 Codification of the Andean Subregional Integration Agreement (Cartagena Agreement), 25 June 2003, L/6737 (2003),http://www.worldtradelaw.net/fta/agreements/cartagenafta.pdf(visited 20 September 2013).

22 South African Development Community (SADC) Free Trade Agreement,17 August 1992, WT/REG176 (entered into force 5 October 1992),http://www.worldtradelaw.net/fta/agreements/sadcfta.pdf(visited 20 September 2013);Common Market for Eastern and Southern Africa (COMESA), 5 November 1993, WT/COMTD/N/3 (1994), http://www.worldtradelaw.net/fta/agreements/comesafta.pdf (visited 20 September 2013);East African Community Free Trade Agreement, WT/COMTD/N/14 (2000),http://

www.worldtradelaw.net/fta/agreements/eacfta.pdf(visited 20 September 2013);Economic Community of West African States (ECOWAS) Revised Treaty, WT/COMTD/N/21 (2005),http://www.worldtradelaw.

net/fta/agreements/ecowasfta.pdf(visited 20 September 2013);Economic and Monetary Community of Central Africa (CEMAC), WT/COMTD/N/13 (1999),http://www.worldtradelaw.net/fta/agreements/

cemacfta.pdf(visited 20 September 2013).

23 Framework Agreement on Comprehensive Economic Cooperation between the Republic of India and the Associ- ation of Southeast Asian Nations (2003), http://wtocenter.vn/sites/wtocenter.vn/files/1-Framewor- k%20Agreement%20on%20Comprehensive%20Economic%20Cooperation%20ASEAN-India.pdf (visited 20 September 2013).

24 The original Trans-Pacific free trade agreement is between Brunei, Chile, New Zealand, and Singapore:

Trans-Pacific Strategic Economic Partnership, 18 July 2005, WT/REG229 S/C/N/294 (entered into force 28 May 2006),http://www.worldtradelaw.net/fta/agreements/TransPac_SEP_FTA.pdf(visited 20 Sep- tember 2013). The Trans-Pacific Partnership proposes to expand this treaty to include Brunei, Chile, New Zealand, Australia, Canada, Malaysia, Mexico, Peru, the United States, Vietnam, and potentially Japan.

25 BBC News, ‘EU and US free-trade talks launched’,BBC News, 13 February 2013,http://www.bbc.co.uk/

news/business-21439945(visited 20 September 2013).

26 Consolidated Version of the Treaty on the Functioning of the European Union, 2008/C 115/01 (2007), http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri¼OJ:C:2010:083:0047:0200:en:PDF(visited 20 September 2013) (TFEU).

27 Ibid, at art 344.

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that they should be interpreted in a manner conformable to that law.²⁸This is true to the point that one can affirm that most RTAs, even the European Union in the trade sphere, have the same deep structure and are based on the same fundamental principles as the WTO. Yet, each agreement has its own system of dispute settlement and no effort has ever been made to establish or even envisage the establishment of a general world trade court, which might receive complaints arising under all forms of trade law disputes.²⁹This being the case, are the dispute settlement systems established under RTAs in competition with and possibly even in contradiction to the WTO DSU, are they complementary to the WTO DSU, or do they regulate essentially the same disputes? Can they co-exist or are they cast in eternal opposition? Are they equal or are they inherently subordinate to the WTO DSU?³⁰As is illustrated below by the cases reviewed, the questions posed by the co-existence of RTA dispute settlement systems and the WTO DSU arise in a variety of contexts and reflect a range of different legal issues. But the overriding question is whether WTO panels and the Appellate Body have the authority to consider other dispute settlement systems and then act in consequence, or whether they must give precedence to WTO law in all cases.

These questions are part of a broader debate that was opened by the adoption of Article XXIV of the GATT in 1947. Without Article XXIV, preferential agreements violate the fundamental tenets of non-discrimination, which are at the core of the GATT and were carried forward into the WTO in 1994. A decision was made in 1947 to permit the continuation and future formation of customs unions. This was not surprising, given the fact that customs unions were well understood by politicians and economists as a significant form of regional integration³¹and had even played an important role in the emergence of several European states.³²But the founders of the GATT did not limit themselves to customs unions. Under quiet pressure from the USA and Canada and several other countries,³³it was decided also to allow the

28 North American Free Trade Agreement, 17 December 1992, 32 ILM 289 (entered into force 1 January 1994) at Preamble, art 103, art 301, art 2005.1 (NAFTA);Free Trade Agreement between the Government of New Zealand and the Government of the People’s Republic of China(2008),http://www.chinafta.govt.nz/

1-The-agreement/2-Text-of-the-agreement/0-downloads/NZ-ChinaFTA-Agreement-text.pdf (visited 20 September 2013) at Preamble, art 1, art 3 (NZ—China FTA).

29 The only area where there has been a call to establish a general court is in the area of international investor-state arbitration. So far these efforts have proven fruitless. There have recently been calls for a comprehensive South American trade dispute tribunal.

30 This article focuses specifically on one aspect of RTAs and the WTO. In particular, it considers the impact of a decision rendered by an RTA dispute resolution body on a subsequent WTO dispute. In doing so, this article largely sets aside other issues that could arise under RTAs.

31 The original treating founding the Benelux Customs Union was signed on 5th September 1944. SeeCus- toms Convention between the Netherlands, Belgium and Luxembourg, 5 September 1944, Jaargang 1944-77, 1954-117, 1958-21, 1947-282 (entered into force 1 January 1948).

32 For example, the German Zollverein, formed in 1834, was a step towards the political unification of Ger- many. See Soamiely Andriamananjara, ‘Customs Unions’, in Jean-Pierre Chauggour and Jean-Christopher Maur (eds),Preferential Trade Agreement Policies for Development: A Handbook(Washington, DC: World Bank, 2011) at 111.

33 See World Trade Report 2011, above n 15, at 51. For a general history of the evolution of RTAs under the GATT, see John H. Jackson,World Trade Law and the Law of GATT(Indianapolis, IN: Bobbs-Mer- rill, 1969) (Jackson); Kerry Chase, ‘Multilateralism Compromised: The Mysterious Origins of GATT Article XXIV’, 5 (1) World Trade Review 1 (2006) at 2 (Chase).

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formation of ‘free trade areas’ (FTAs), a new and undefined form of economic integration, the essence of which involves states reducing trade barriers with one or more countries, but maintaining the freedom to deal directly with third countries.³⁴ Both forms of trade association were made subject to the conditions that they be notified to the GATT Contracting Parties, that they cover ‘substantially all trade’ and that they lead to ‘trade creation’ rather than ‘trade diversion’.³⁵Article XXIV also created the general obligation of parties to notify their customs unions and FTAs to the GATT Contracting Parties.³⁶

The substantive and procedural ambiguities of Article XXIV soon became evi- dent:³⁷ so much so that, for many years, commentators and GATT diplomats considered that the article was essentially political and hortatory in nature.³⁸ As the GATT customary dispute settlement procedure evolved, many continued to consider that Article XXIV was inherently non-justiciable.³⁹However, this did not stop a small number of disputes involving complaints against customs unions or FTAs being taken to GATT panels.⁴⁰Further complexity was added in 1979 when the Contract- ing Parties to the GATT adopted the ‘Enabling Clause’, which relaxed the requirements for customs unions and FTAs for developing countries with a view to fostering their more rapid economic development.⁴¹ The increasing numbers of FTAs in the 1980s focused the attention of GATT negotiators engaged in the Uru- guay Round of Multilateral Trade Negotiations on the failure of the Contracting Par- ties or dispute settlement panels to clarify the meaning of the substantive conditions permitting the formation of customs unions and FTAs. Equally troubling was the failure to clarify the procedural requirements inherent in the obligation to notify the Contracting Parties to the GATT of the formation and entry into force of such agreements. Indeed, it appeared at the time that the obligation was being respected more in the breach than in the observance. The result was that among the decisions emerging from the Uruguay Round in 1994 was the Understanding on the

34 See Jackson, above n 33, at 575–580.

35 General Agreement on Tariffs and Trade 1994, 15 April 1994, 1867 UNTS 187, 33 ILM 1153 (1994) at art XXIV, paras 5 and 8 (GATT 1994). Kenneth Dam discusses RTAs and ‘trade diversion’ versus ‘trade creation’ in light of US economic interests in Kenneth Dam,The Rules of the Global Game: A New Look at US International Economic Policymaking(Chicago: University of Chicago Press, 2001) at 134. For a criti- cism of the standard set by Article XXIV, see Kenneth W. Dam, ‘Regional Economic Arrangements and the GATT: The Legacy of a Misconception’, 30 (4) University of Chicago Law Review (1963) 615 (Dam).

36 See GATT 1994, above n 35, at XXIV, para 7(a).

37 See Jackson, above n 33, at 575–623 (specifically 588 and 621). Jackson describes the criteria for establishing permissible regional arrangements under the GATT as ‘ambiguous’ and ‘difficult to apply’.

38 See Dam, above n 35; see Chase, above n 33, at 2.

39 See Dam, above n 35.

40 GATT Panel Report,European Community—Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region (EC–Citrus),L/5776,7 February 1985, unadopted; GATT Panel Report,European Economic Community—Payments and Subsidies Paid to Processors and Procedures of Oil- seeds and Related Animal-Feed Proteins (EEC—Oilseeds),L/6627-37S/86, adopted 25 January 1990.

41 Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries, L/4903 (1979), http://www.wto.org/English/docs_e/legal_e/enabling_e.pdf (visited 20 September 2013) at art 2(c). The ‘Enabling Clause’ has only once been the subject of dispute settlement: WTO Appellate Body Report,European Communities—Conditions for the Granting of Tariff Preferences to Devel- oping Countries (EC—Tariff Preferences),WT/DS246/AB/R, adopted 7 April 2004.

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Interpretation of Article XXIV of the GATT 1994 (1994 Understanding), which con- tains various interpretative provisions designed to clarify substantive and procedural obligations of WTO Members.⁴²The Interpretation also removes one central uncer- tainty by affirming that disputes under Article XXIV are justiciable and subject to the procedures of the DSU.⁴³

In the years immediately after 1994, it became clear that the number of RTAs was increasing rapidly. It also became clear that the procedural requirements of Article XXIV and the1994 Understandingneeded careful administration in order to ensure that they were respected. To bring greater discipline to the review of RTAs once notified, the WTO created the standing Committee on Regional Trade Agreements (CRTA) in 1996.⁴⁴ Despite the good intentions of WTO Members, the CRTA did not prove equal to the task of providing a disciplined review process of the many RTAs notified to the WTO in the subsequent years. By 2006, it was clear that the CRTA had failed those who expected that there might be a substantive review of RTAs leading to a principled evaluation of the fidelity of each agreement to the requirements of Article XXIV, the Enabling Clause and the 1994 Understanding. By that point, only one agreement had actually been formally approved,⁴⁵the factual de- scription had been prepared for 19 agreements,⁴⁶but no agreement could be reached on ‘systemic’ issues.⁴⁷ In other words, despite the good intentions of many, WTO Members present in the CRTA could not bring themselves to act as judges of each others’ conduct, for fear of being the object of condemnation of their own agreements at a later date. The only way out was to agree to separate the process of judgment upon substantive and procedural issues. To achieve this objective, WTO Members adopted the Transparency Mechanism for Regional Trade Agreements in 2006, which sets out in much greater detail than previous documents the procedural duties of WTO Members to notify the WTO Secretariat of the agreements they plan to negotiate, of the conclusion of the negotiations and of the working of the RTAs.⁴⁸

42 Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994, LT/UR/A-1A/1/GATT/U/4 (1994), http://www.wto.org/english/docs_e/legal_e/10-24_e.htm (visited 20 September 2013) (1994 Understanding).

43 See1994 Understanding, above n 42, at para 12. The1994 Understandingprovides that Article XXII and XXIII of the GATT ‘…may be invoked with respect to any matters arising from the application of those provisions of Article XXIV relating to customs unions, free-trade areas or interim agreements leading to the formation of a customs union or free-trade areas’.

44 World Trade Organization, Work of the Committee on Regional Trade Agreements (CRTA), http://

www.wto.org/english/tratop_e/region_e/regcom_e.htm(visited 20 September 2013).

45 Petros Mavroidis,Trade in Goods(Oxford: Oxford University Press, 2007) at 167. He notes, ‘Schott (1989) identifies four cases where PTAs were judgedbroadlyconsistent with the GATT. Since his study there has been one case where there has been a definitive and unambiguous acceptance, at the CRTA level, that the notified PTA was GATT consistent: the CU between the Czech and the Slovak republics.

We are simply in the dark as to the consistency of the remaining 99% of all PTAs currently in place’.

46 World Trade Organization, Factual Abstracts, http://www.wto.org/english/tratop_e/region_e/factua- l_abstracts_e.htm(visited 20 September 2013).

47 Jo-Ann Crawford, ‘New Transparency Mechanism for Regional Trade’, 11 Singapore Year Book of Inter- national Law 133 (2007) at 135.

48 Transparency Mechanism for Regional Trade Agreements, WT/L/671 (2006),http://www.wto.org/english/tratop_e/region_e/trans_mecha_e.htm(visited 20 September 2013) (2006 Transparency Mecha- nism). The WTO’s RTA Database is accessible here:http://rtais.wto.org/UI/PublicMaintainRTAHome.

aspx(visited 20 September 2013).

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The Secretariat is required to set up a major database of RTAs and is even em- powered to make inquiries into the existence of agreements, which have not been notified to the WTO.⁴⁹ Adoption of reports is now limited to a one day meeting where the factual report prepared by the Secretariat is studied and questions asked of the parties in the CRTA.⁵⁰No judgment is passed on potential conflict with the law of the WTO.⁵¹This is now clearly left to complaint procedures under the DSU.

The2006 Transparency Mechanismapplied to all RTAs, but, to ensure that preferential agreements made under the Enabling Clause or otherwise by the WTO col- lective membership were not neglected, the WTO also adopted the Transparency Mechanism for Preferential Trade Agreements in 2010.⁵² Publicity requirements for preferential trade agreements are similar but review is before the WTO Committee on Trade and Development.

The result of these developments is that the ball has been sent squarely into the dispute settlement court. The process of review of regional and preferential trade agreements in the WTO now functions, but does not produce reasoned judgments of different agreements, still less does it produce answers to potential disputes between parties. This is deferred entirely to the procedures established under the DSU after a WTO Member has referred a complaint to the DSB. This has advantages and disadvantages. The principal advantage is that the DSU creates a compulsory and a binding procedure, which is open to all WTO Members and can be invoked regard- less of economic or political strength. The disadvantage is that it may have placed the attention of dispute settlement panels and the Appellate Body too much on the strict terms of the DSU rather than on the broader framework of the totality of WTO law. What follows is a plea to panellists and the Appellate Body to consider the problems posed by the troubled relationship of RTAs and the WTO from the broader perspective of the unity of international trade law rather than forcing all through the prism of the DSU.

To complete this introduction, it is important to remember that this debate on the relationship between dispute settlement procedures of RTAs and the WTO DSU is part of a broader debate on the legitimacy of recourse to bilateral and regional preferential arrangements. Many commentators see these agreements as a threat to the integrity of the WTO, while others see RTAs as a means of promoting trade liberalization as well as experimenting with forms of economic integration not envis- aged in WTO law. The literature on the issue is vast; it encompasses analysis by

49 Ibid, at paras 20 and 21.

50 Ibid, at para 11.

51 Lorand Bartels disagrees with this position. He distinguishes between ‘full’ and interim agreements. While the degree of control by WTO Members over ‘full’ agreements is ‘rather vague’, this is not the case for interim agreements. He argues that Article XXIV:7(b) allows WTO Members to recommend that an interim agreement not be considered reasonable. Consequently, there is an obligation on the parties to that agreement not to maintain the agreement unless modifications are made. See Lorand Bartels, ‘Interim agreements under Article XXIV GATT’, 8 (2) World Trade Review 339 (2009) at 342.

52 Transparency Mechanism for Preferential Trade Arrangements, WT/L/806 (2010),http://www.wto.org/

english/news_e/news12_e/rta_13mar12_e.htm (visited 20 September 2013) (2010 Transparency Mechanism).

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economists,⁵³political scientists,⁵⁴and lawyers.⁵⁵The 2011 Report of the WTO ably reviews many aspects of the question.⁵⁶ The general consensus is probably best summed up in a report by the World Bank suggesting that trade liberalization is al- ways more efficient for the global economy if it results from multilateral agreement but that, in many circumstances, RTAs may offer an attractive second best solution from the economic and political perspectives.⁵⁷ Suffice it to say that these agreements are permitted by the GATT Article XXIV and the law and practice of the WTO and that the great majority of WTO Members have had, and continue to have, recourse to RTAs. For the time being, the WTO has to deal with the problems posed by RTAs and cannot ignore them.

I I . T H E D I S P U T E S A. GATT cases

While questions had been raised concerning the legal implications of the GATT Article XXIV process and the possibility of submitting disputes arising out of RTAs to GATT panel reviews in the years following 1947,⁵⁸few GATT Contracting Par- ties were eager to put these questions to the test. There appeared to be a general reluctance to put such disputes before GATT panels. Thus the 1962-63 ‘Chicken War’, which arose between the USA and the EEC, was fought by retaliation and ultimately solved by negotiation.⁵⁹For over twenty years, GATT diplomats used their skills to keep disputes potentially involving Article XXIV from dispute settlement panels. In the 1976 case arising out of Canada’s dissatisfaction at the allegedly inadequate ad- justments made by the European Economic Community (EEC) to its tariff, resulting from its enlargement, the panel refused to hear Canada’s complaint under GATT Article XXIV.6 on the grounds that the complexity of the issues involved made a panel procedure inappropriate.⁶⁰A similar dispute, mentioned above, between Can- ada and the EEC on the issue of Canada’s ordinary and quality wheat rights dating from the Article XXIV.6 negotiations on 29 March 1962 was submitted to an Arbi- trator and resolved in 1990.⁶¹

53 Viet D. Do and William Watson, ‘Economic Analysis of Regional Trade Agreements’, in Lorand Bartels and Frederico Ortino (eds),Regional Trade Agreement and the WTO Legal System(Oxford: Oxford Uni- versity Press, 2006) 7.

54 Andrew Moravcsik,The Choice for Europe: Social Purpose and State Power from Messina to Maastricht(Ith- aca, NY: Cornell University Press, 1998).

55 Leon Trakman, ‘The Proliferation of Free Trade Agreements: Bane or Beauty?’ 42 Journal of World Trade Law (2008).

56 See World Trade Report 2011, above n 15.

57 Ibid, at 198.

58 InUS—Margins of Preference, the Contracting parties decided ‘the determination of rights and obligations between governments arising under a bilateral agreement is not a matter within the competence of the CONTRACTING PARTIES’.US—Margins of Preference(1949), BISD 11/11,http://www.worldtradelaw.net/reports/gattpanels/marginspreference.pdf(visited 20 September 2013).

59 Herman Walker, ‘Dispute Settlement: The Chicken War’, 58 American Journal of International Law (1964) 671 (Walker).

60 Ibid, at 673–677.

61 Award by the Arbitrator,Canada/European Communities—Article XXVIII Rights (Article XXVIII Rights), DS12/R-37S/80, published 26 October 1990.

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By the 1980s, the EEC had granted a range of tariff preferences to different categories of countries under a variety of trade agreements; furthermore, the success of the Common Agricultural Policy (CAP) in encouraging the production of crops in the EC, which subsequently supplanted imports from other GATT Contracting Par- ties, gave rise to several major disputes in which the EEC sought to defend its legal position, in part, by invoking Article XXIV.

The EEC/EC was the object of several other complaints by the USA and other GATT Contracting Parties. Some involved so-called non-violation complaints in which the EC did not invoke Article XXIV as a defence. But, in others, it did invoke Article XXIV. In the 1985 EEC—Production Aids Granted on Canned Peaches proceeding, the USA alleged that subsidies under the CAP resulted in nullification and impairment of exports to the EEC.⁶²The panel issued a non-binding recommenda- tion that the EEC take steps to restore the competitive relationship between EEC produce and the imported goods in question.

In theEC—Citruslitigation, the USA alleged that its exporters of citrus fruits had suffered nullification and impairment of their rights as a result of the grant of preferential tariff treatment of citrus fruit imports by the EU under its trade agreements.⁶³ The agreements involved ‘association’ agreements with future EU members such as Spain and Greece, former members of the French Customs Territory, Algeria, Mo- rocco and Tunisia and Mediterranean partner countries such as Malta, Cyprus, Tur- key, Israel, and Lebanon. Objection was also taken to the change in tariff treatment of citrus products in the UK, Ireland, and Denmark after their adhesion to the EC in 1973. The USA argued that the tariff preferences constituted violations of GATT Article I, which required compensatory adjustment. The USA also argued that the various agreements did not meet the requirements of Article XXIV in that none appeared to involve a binding commitment to form a customs union or an FTA and further that such agreements being exceptions from Article 1 required a restrictive interpretation.⁶⁴The EC responded that the preferences were contemplated by various paragraphs of Article XXIV as being interim agreements leading to FTAs or customs unions and, in the case of the UK, Ireland, and Denmark, as part of the process of enlargement of the EC itself. The EC also argued that Article XXIV should not be seen as derogating from Article I, but that the two articles constituted ‘principles of equal validity’ under the GATT.⁶⁵ The EC argued that since all these agreements had been notified to the GATT and that since the process of review by working parties established by the Contracting Parties had led to no recommendations either positive or negative, the issue of compatibility with Article XXIV could not be before the panel thus implying that the EC was free to grant these preferences.⁶⁶ Finally,

62 GATT Panel Report, European Economic Community—Production Aids Granted on Canned Peaches, Canned Pears, Canned Fruit Cocktail and Dried Grapes (Complaint by the United States) (EEC—Canned Fruit),L/5778, 20 February 1985, unadopted.

63 Panel Report,EC—Citrus, above n 40, para 3.3.

64 Ibid, at para 3.8.

66 Panel Report,EC—Citrus, above n 40, paras 3.9–3.10. Also see para 3.11: ‘To examine the consistency of the agreements with Article XXIV in the context of a violation complaint under Article XXIII would run counter to the highly pragmatic attitude the CONTRACTING PARTIES had taken towards interim agreements.’

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the EC argued that American citrus exporters could not in fact prove that preferences were the cause of any of the adverse commercial effects that they claimed to have suffered. The USA maintained its point that nothing stopped it from arguing a violation of Article XXIV, but concentrated on adducing evidence that its citrus exports had suffered nullification and impairment under Article I.⁶⁷

The five panel members appeared to accept that the issue of compatibility with Article XXIV was not before them, partly because of the drafting of the terms of ref- erence, and because there had been no consensus during the process of review of each agreement and no direction had been given to the EC to withdraw its measures;

in consequence, the panel considered that there was no issue ofprima facieviolation of the GATT but only an issue of factual nullification and impairment. Whether the reasoning of the panel in this case was legal or diplomatic, readers must judge for themselves. At the end of a very lengthy and complex report, the panel held that, on the basis of the evidence available to it, the USA had suffered nullification and impairment of its rights in respect of potential exports of fresh oranges and lemons as a result of the EC’s granting of preferences under various agreements. The evidence adduced respecting many other categories of citrus fruit and juices was not deemed sufficient to warrant a similar finding. This being the case, the USA was entitled to compensatory adjustment in proportion to the nullification and impairment suffered.⁶⁸

TheCitrus report displayed the reluctance of panels to make firm recommendations on alleged violations of Article XXIV. This reluctance was displayed in several subsequent GATT proceedings. TheCitrusreport was not adopted.

EEC—Oilseedswas the major non-violation case in which the USA alleged that subsidies to the production of oilseeds by the EEC under the CAP compromised the tariff bindings previously agreed to between the two Contracting Parties under Article II.⁶⁹This case was vigorously argued and the EEC’s subsequent implementing action was subject to a second proceeding.⁷⁰The panel held that the result of CAP subsidies had in fact compromised the original expectations of producers in the USA that they would be able to export oilseeds to the EEC market when tariffs had first been bound. The panel thus found that there had been non-violation nullification and impairment resulting from the EEC agricultural subsidies. The complaint of the USA in this case was based on the failure of consultations under Article XXIV.6.

However, the EC did not base its defence on Article XXIV but rather suggested that the original commitments had been superseded by other commitments made in later enlargement negotiations.⁷¹

Interestingly, in the case of a dispute between Canada and the EC on the issue of Canada’s ordinary and quality wheat rights, which originated in Article XXIV.6 negotiations, Canada based its complaint against the EC on bilateral agreements

69 Panel Report,EEC—Oilseeds, above n 40.

70 GATT Panel Report,Follow-up on the Panel Report ‘European Economic Community—Payments and Subsi- dies Paid to Processors and Producers of Oilseeds and Related Animal-Feed Proteins, DS28/R-39S/91, adopted 31 March 1992.

71 Panel Report,EEC—Oilseeds, above n 40, paras 54, 71, 75.

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concluded on 29 March 1962.⁷²In response to the argument as to the propriety of raising this bilateral agreement, the Arbitrator agreed to consider it appropriate in the circumstances.⁷³The Contracting Parties adopted this report.

TheEEC—Bananascase was the final, and ultimately unadopted, litigation under the GATT—before the creation of the WTO and the entry into force of the DSU—

in which Article XXIV issues were argued between the USA, with support of other states, and the EEC.⁷⁴In these cases, the EEC sought to justify its system of import quotas and other measures governing the importation and marketing of bananas from all sources around the world, including both former EU Members’ colonies and the major Central American producing countries. The USA argued that the EEC quotas were a violation of Article I, tariff bindings under Article II, as well as Article XI. Among the many arguments advanced by the EEC was the position that the quotas were justified under Article XXIV. In particular, the EEC argued that theLome´

Conventiontrade and aid agreement with the ACP countries was an FTA justified under article XXIV⁷⁵ and that it was also a commodity agreement equally justified under the GATT.⁷⁶ The panel rejected both arguments. The panel noted that the Lome´ Conventionwas not a trade agreement based on reciprocity, but rather an essentially unilateral agreement offered by the EU to ACP countries. Hence, it could not be justified under the Article XXIV as a customs union or a FTA.⁷⁷The same position was taken by the panel with respect to the argument that the Bananas Pro- tocol of theLome´ Conventionwas a commodity agreement.⁷⁸In the opinion of the panel, the protocol did not meet the requirements of the GATT for commodity agreements.⁷⁹

72 A 1990 complaint by Canada under Article XXIV.6, but not raising article XXIV issues, was dismissed by an Arbitrator. Award by the Arbitrator,Article XXVIII Rights, above n 61.

73 The Arbitrator noted: ‘In principle a claim based on a bilateral agreement cannot be brought under the multilateral dispute settlement procedures of the GATT. An exception is warranted in this case given the close connection of this particular bilateral agreement with the GATT, the fact that the Agreement is consistent with the objectives of the GATT, and that both parties joined in requesting recourse to the GATT Arbitration procedures.’Article XXVIII Rights, above n 61, at 5.

74 GATT Panel Report,EEC—Member States’ Import Regimes for Bananas (EC—Bananas I), DS32/R, 3 June 1993, unadopted; GATT Panel Report,EEC—Import Regime for Bananas (EEC—Bananas II), DS38/R, 11 February 1994, unadopted.

75 Panel Report,EC—Bananas I, ibid, at para 217.

76 Panel Report,EC—Bananas II, above n 74, para 165.

77 Panel Report,EC—Bananas I, above n 74, paras 358, 372; Panel Report,EC—Bananas II, above n 74, paras 156–164. The Panel also rejected the EEC’s argument that Article XXIV was subject to non- reciprocity under Article XXXVI:8. The Panel concluded that Article XXIV was ‘not specifically mentioned in the Note to Article XXXVI:8 and that the participants in the negotiations of a free trade area in the sense of Article XXIV, although involved in a process of tariff reduction, did not derive their negotiat- ing status from the General Agreement, nor were they bound to follow procedures set out under the Gen- eral Agreement for the conclusion of the agreement’. The Panel concluded that ‘the wording and underlying rationale of the note to Article XXXVI:8 thus suggested to the Panel that Article XXXVI:8 and its Note were not intended to apply to negotiations outside the procedural framework of the General Agreement, such as negotiations of a free trade area’. Panel Report, EC—Bananas II, above n 74, para 161.

78 Panel Report,EC—Bananas II, above n 74, paras 165–166.

79 The Panel held that ‘in order to benefit from the exception in Article XX(h), such criteria or agreements had to be submitted to the CONTRACTING PARTIES with an explicit invocation of that provision’.

Ibid, at para 166.

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The significance of this litigation was not easy to establish on the eve of the establishment of the WTO. Most reports, except the EEC—Oilseeds panel reports, had been too controversial to adopt. There was also an obvious reluctance of GATT Contracting Parties to submit the issue of compatibility of particular RTAs, or measures taken pursuant to RTAs to a clear legal test under Article XXIV. The view was widely held that review of customs unions and FTAs was essentially a policy exercise or that the criteria of Article XXIV were too imprecise to apply and that their implementation was best left to negotiation between Contracting Parties. But the fact remains that on several occasions these issues were pleaded and argued before GATT panels, so that the matter was certainly nottabula rasawhen it was put to the newly formed WTO. The affirmation of the1994 Understandingthat Article XXIV was subject to dispute settlement rested on solid, but hotly contested ground.

B. WTO cases

Since 1994, the DSU has dealt with at least 13 cases in which the existence of an RTA has been pleaded or argued in one way or another.⁸⁰ As the following discus- sion of these cases demonstrates, arguments have been raised in many different contexts: GATT Article XXIV,⁸¹ the corresponding Article V of the GATS,⁸² the

80 WTO Appellate Body Report,Turkey—Restrictions on Imports of Textile and Clothing Products (Turkey—

Textiles), WT/DS34/AB/R, adopted 22 October 1999; WTO Appellate Body Report,Argentina—Safe- guard Measures on Imports of Footwear (Complaint by the EC) (Argentina—Footwear),WT/DS121/AB/R, adopted 14 December 1999; WTO Appellate Body Report,United States—Definitive Safeguards Measures of Wheat Gluten Products from European Communities (Complaint by the EC) (US—Wheat Gluten), WT/

DS166/AB/R, adopted 22 December 2000; WTO Appellate Body Report,Canada—Certain measures affecting the Automotive Industry (Complaint by the United States) (Canada—Autos), WT/DS139/AB/R &

WT/DS142/AB/R, adopted 22 December 2000; WTO Appellate Body Report,United States—Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea (Complaint by Korea) (US—Line Pipe), WT/DS202/AB/R, adopted 15 February 2002; WTO Panel Report,Argen- tina—Definitive Anti-Dumping Duties on Poultry from Brazil (Argentina—Poultry), WT/DS241/R, adopted 22 April 2003; WTO Appellate Body Report,United States—Definitive Safeguard Measures on Imports of Certain Steel Products (Complaint by Brazil) (US—Steel Safeguards), WT/DS259/R, adopted 10 Novem- ber 2003; Appellate Body Report, EC—Tariff Preferences, above n 41; WTO Panel Report,United States—Investigation of the International Trade Commission in Softwood Lumber from Canada—Recourse to Article 21.5 of the DSU (Complaint by Canada) (US—Softwood Lumber), WT/DS277/R, adopted 22 March 2004; WTO Panel Report,Mexico—Tax Measures on Soft Drinks and Other Beverages (Complaint by the United States) (Mexico—Soft Drinks),WT/DS308/R, adopted 7 October 2005; WTO Appellate Body Report, Brazil—Measures Affecting Imports of Retreaded Tyres (Brazil—Retreaded Tyres), WT/

DS332/AB/R, adopted 3 December 2007; WTO Consultations,European Communities—Measures Affect- ing the Tariff Quota for Fresh or Chilled Garlic (EU—Tariff Garlic), DS/349 (this dispute is still in consultations phase see http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds349_e.htm (visited 20 September 2013)); WTO Panel Report,Dominican Republic—Safeguard Measures on Imports of Polypropy- lene Bags and Tubular Fabric (Dominican Republic—Polypropylene Bags), WT/DS415/R, adopted 31 Janu- ary 2012; In WTO Appellate Body Report,United States—Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products (US—Tuna II), WT/DS381/AB/R, adopted 16 May 2012, the USA had originally requested consultations under NAFTA with Mexico on the basis that Mexico should move the case from the WTO to NAFTA. Ultimately, the existence of an RTA was not pleaded.

81 Appellate Body Report,Turkey—Textiles, ibid.

82 General Agreement on Trade in Services, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations, 15 April 1994, 1869 UTS 183, 33 IM 1167 (1 January 1995) at art 7 (GATS).

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Enabling Clause,⁸³safeguards under an FTA,⁸⁴seeking justification of a special tariff regime under an FTA,⁸⁵attempts to preclude review of a measure under the DSU,⁸⁶ invocation of GATT Article XX to justify decisions by dispute settlement bodies of RTAs allegedly not in conformity with other provisions of the GATT,⁸⁷arguments offorum non conveniens that the dispute before the DSB in fact involves a dispute under an RTA,⁸⁸as well as the invocation of Article XXIV.6 to challenge the grant of new tariff-rate quotas to a third party resulting from EU enlargement.⁸⁹The invoca- tions of RTAs have been used as both a shield and a sword,⁹⁰in justification and defence. There are some relatively straightforward cases where RTAs were used to argue exemptions from general safeguard measures granted under many FTAs or to halt WTO proceedings in favour of proceedings under an FTA. The most complex and controversial cases are those in which the State Parties to an RTA have sought to plead decisions taken pursuant to their agreements before panels established under the DSU.⁹¹ Most of these decisions have dealt with substantive legal arguments and few have clarified the procedural rights and duties arising under Article XXIV, Article V, or the Enabling Clause. The result is a body of decisions that have clarified some of the relevant law, but which leave many questions unresolved.

The most tantalizing issue emerging from these cases is clearly the matter of the right to plead RTA decisions before the DSB. Does the DSU create a monopoly and give absolute priority to the DSB? Or is it possible to imagine a dialogue between the WTO and RTAs? TheBrazil—Retreaded Tyresdecision may lead to some clarifi- cations, but many significant issues remain unresolved.

1. Turkey Textiles

True to its mission to bring greater order to GATT law, the AB took on the challenge posed by RTAs as soon as it was offered. The Turkey—Textilesdecision remains the most important single decision rendered by the AB in this area.⁹²In this litigation, Turkey argued that it was justified in reintroducing quotas on textile imports from India, despite having bound commitments to India to the contrary, on the grounds that the subsequent establishment of a customs union with the EC pro- vided justification under GATT Article XXIV. The panel, like the AB, accepted that

83 WTO Appellate Body Report,India—Patent Protection for Pharmaceutical and Agricultural Chemical Prod- ucts (India—Patents (US)), WT/DS50/AB/R, adopted 19 December 1997.

84 Appellate Body Report,US—Wheat Gluten, above n 80; Appellate Body Report,US—Line Pipe, above n 80; Appellate Body Report,US—Steel Safeguards, above n 80.

85 Appellate Body Report,Canada—Autos, above n 80.

86 Panel Report,Argentina—Poultry, above n 80; Panel Report,Mexico—Soft Drinks, above n 80.

87 Panel Report,US—Softwood Lumber, above n 80; Appellate Body Report,Brazil—Retreaded Tyres, above n 80.

88 Panel Report,Mexico—Soft Drinks, above n 80; Panel Report,Dominican Republic—Polypropylene Bags, above n 80.

89 Consultations,EU—Tariff Garlic, above n 80.

90 If seen as a pure exception Article XXIV can only be a shield. However, it has also been seen and argued as a justification. This reflects the tension between those who construe Article XXIV as only an exception and those who hold it to be equal to the opening articles of the GATT.

91 Panel Report,US—Softwood Lumber, above n 80; Appellate Body Report,Brazil—Retreaded Tyres, above n 80.

92 Appellate Body Report,Turkey—Textiles, above n 80.

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Article XXIV allowed a plea that the introduction of a customs union might permit the parties to take measures which were normally contrary to the GATT. However, in rejecting Turkey’s arguments, the panel held that Article XXIV only justified measures contrary to GATT Article I.⁹³The AB took a broader approach in principle and held that Article XXIV contemplated measures covered by a wide range of the GATT beyond the mere scope of the Most Favoured Nation (MFN) provisions of Article I.⁹⁴ To do this, the AB gave weight to the general provisions of Article XXIV.4 as well as the preamble to paragraph 5 and the requirements of paragraph 8.

According to the AB, a party invoking the benefit of Article XXIV had the burden of showing that the contravening measures have been introduced on the formation of the customs union and that it respects the substantive requirements of paragraphs 5 and 8.⁹⁵The AB also stressed the requirement of paragraph 2 of the 1994 Under- standingthat the measures ‘must avoid creating adverse effects upon the commerce of other Members’.⁹⁶Most significantly, the AB read into Article XXIV a condition that to be justified any measure must be ‘necessary’ for the formation of the customs union. In effect, according to the AB, for the measure to be justified the party invoking it must demonstrate that it meets the tests of paragraphs 5a and 8a of Article XXIV and the party ‘must demonstrate that the formation of the customs union would be prevented if it were not allowed to introduce the measure’.⁹⁷

As Trebilcock and Howse note, the approach taken by the AB with respect to the scope of Article XXIV is in principle a broad one, but at the same time the AB imposed a severe burden of justification in the form of the necessity test.⁹⁸Clearly, theTurkey Textilesdecision was not designed to open the floodgates. Furthermore, this case deals with a customs union; there has yet to be a fully comparable case dealing with an FTA.

2. Safeguards and Article XXIV

Several cases have dealt with the relationship between the application or exemption of safeguards under RTAs and Article XXIV.⁹⁹A genuine customs union like the EU

93 WTO Panel Report,Turkey—Restrictions on Imports of Textile and Clothing Products (Turkey—Textiles), WT/DS43/R, adopted 31 May 1999, para 9.208.

94 Even so, the AB concluded that Turkey was not required to apply the quantitative restrictions at issue in the appeal in order to form the customs union and therefore it failed to satisfy the necessity requirement of Article XXIV. Appellate Body Report,Turkey—Textiles, above n 80.

95 Ibid, para 46.

98 Michael Trebilcock, Robert Howse and Antonia Eliason,The Regulation of International Trade, 4th ed.

(New York: Routledge, 2012) at 117 (Trebilcock, Howse, and Eliason). Joost Pauwelyn is particularly critical of the ‘necessity’ requirement in the context of safeguards. He argues that the Appellate Body’s requirements for Article XXIV justification, spelled out inTurkey—Textiles, are ‘supported by neither the text nor the spirit of Article XXIV’ and that they ‘ought to be overturned’. He argues that that the necessity requirement ‘should be replaced with the requirement that (the exclusion of regional imports) is “part of” the formation of a regional arrangement in line with Article XXIV’. This would allow for the exclusion of imports from a safeguard measure under Article XXIV. See Joost Pauwelyn, ‘The Puzzle of WTO Safe- guards and Regional Trade Agreements’, 7 (1) Journal of International Economic Law 109 (2004) at 141 (Pauwelyn, Puzzle of WTO Safeguards).

99 Appellate Body Report,Argentina—Footwear, above n 80; Appellate Body Report,US—Wheat Gluten, above n 80; Appellate Body Report,US—Line Pipe, above n 80; Appellate Body Report,US—Steel Safe- guards, above n 80.

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formally prohibits safeguards and similar measures between member states,¹⁰⁰and a surprising number of FTAs, like NAFTA¹⁰¹provide for the exclusion of other member states of an FTA from the application of general safeguard measures adopted by any one of them. The first complaint arising out of safeguards involved a plea by Ar- gentina invoking MERCOSUR in justification of a safeguard measure that it had taken.¹⁰²Other cases involved complaints against the USA in circumstances where it had exempted Canada and Mexico from general safeguards measures pursuant to Chapter 8 of NAFTA.¹⁰³Interestingly, the panels in theArgentina—Footwear¹⁰⁴and theUS—Wheat Gluten¹⁰⁵cases considered arguments based on Article XXIV exten- sively, while the Appellate Body showed much greater reserve on the same issues.

The basis of the safeguards exemption was the same in theUS—Line Pipeand the US—Steel Safeguardscases, the Article XXIV justification was argued at some length in the former and briefly in the latter case before the panels, but was given little weight by the AB in either case.¹⁰⁶

In theArgentina—Footwearcase, Argentina, after investigating imports and finding injury resulting from imports from all sources, imposed safeguard duties only on imports from non-MERCOSUR countries. The panel concluded that GATT Article XIX and Articles 2 and 4 of theSafeguards Agreementrequired that the assessment of the sources of injury and the imposition of duties must be done in parallel and, for this reason, found that Argentina had violated its commitments by considering all sources of injury but then excluding its MERCOSUR partners. Argentina argued in further justification of its measures that Article XXIV.8 had the effect of prohibiting the imposition of safeguards against partners in a customs union because Article XIX was not listed among the ‘duties and other regulations of commerce’ that might be maintained under Article XXIV.8(a)(i) or (b). The panel noted that the footnote to Article 2.1¹⁰⁷of theSafeguards Agreementdid not appear to be an absolute ban on re- taining safeguards and, in any case such a restriction might be maintained during the transitional period of establishment of the customs union, or might be accepted under the ‘substantially all trade’ requirement.¹⁰⁸The panel also speculated on the possible difference between the treatment of a customs union and an FTA, particularly if the customs union chose to impose safeguards as a single unit.¹⁰⁹But, in the circumstances, where Argentina had found injury arising out of sources in and

100 Treaty on European Union, Treaty of Maastricht, 7 February 1992, C 325/5 (entered into force on 1 No- vember 1993).

101 See NAFTA, above n 28, at art 802.

102 Appellate Body Report,Argentina—Footwear, above n 80.

103 Appellate Body Report,US—Wheat Gluten, above n 80; Appellate Body Report,US—Line Pipe, above n 80; Appellate Body Report,US—Steel Safeguards, above n 80.

104 WTO Panel Report,Argentina—Safeguards Measures on Imports of Footwear (Argentina—Footwear), WT/DS121/R, adopted 25 June 1999.

105 WTO Panel Report,United States—Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities (US—Wheat Gluten), WT/DS166/R, adopted 31 July 2000, paras 8.178–8.181.

106 See generally Trebilcock, Howse, and Eliason, above n 98.

107 Panel Report,Argentina—Footwear, above n 104, at para 8.95: ‘Nothing in the (Safeguards) Agreement prejudges the interpretation of the relationship between Article XIX and paragraph 8 of the Article XXIV of GATT 1994.’

108 Ibid, at paras 8.93–8.98.

109 Panel Report,Argentina—Footwear, above n 104, paras 8.99–8.100.