Violations of WTO obligations and sanctions for not-bringing in compliance: reflections for RussiaAlexei S. Ispolinov

head of international law department

Moscow State University

Implementation of the DSB decisions

Bringing the contested measure in conformity with WTO rules

Compensation

Refusal to comply - readiness to face sanctions

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Sanctions in GATTRequirement of consensus for adoption of the panel report and for imposition of sanction

As a result – (a) sanctions have been authorized just once (US – suspension of obligations, 1952)

(b) Self –help approach by the states (especially by USA) – aggressive unilatelarism. Questions regarding validity and proportionality of the unilateral measures

Conditions for impositions

Practice

Approach of the states

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WTO: conditions for imposition of sanctionsWTO – some major innovation of the dispute settlement system including sanction regime

Basic features of WTO sanction regime:

Absence of collective sanctions

Absence of retrospective sanctions

Sanctions if the state failed to bring the measure in conformity in a reasonable time

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WTO: conditions for imposition of sanctions

Only by complaining state

Temporary character till bringing the contested measure into conformity

Shall be equivalent to the level of violation (art. 22.4 DSU)

In case of disagreement the level of equivalence shall be determined by arbitrators

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Issues of terminology

Art. 22 of DSU says about “suspension of concessions and other obligations”

In literature and in some DSU decisions: “sanctions” or “retaliatory measures”

We will use “sanctions”

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Statistics

1995-2014 – 474 complaints

Only in 10 cases the complaining parties asked for authorization of sanctions

Only in 4 disputes the complaining parties decided to impose sanctions (USA, Canada, EU)

Some countries (including Brazil, Antigua, Ecuador) refrained from imposition of sanctions

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USA experience

Sanctions in all cases they got the authorization – EU-bananas and EU-hormones

Immediate imposition of 100% duties on the goods imported from the EU

List of goods – EU-bananas – leather bags Luis Vuitton (France), Pecorino cheese (Italy), cashmere sweaters and bath accessories (UK), batteries and coffee machines (Italy)

EU-hormones – delicious products (Dijon mustard, Roquefort cheese, truffle from Italy, Danish ham, chocolate, juices and jams from England)

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USA experience (cont.) Decisive factors:

Lobbyist capacities of the European manufacturers of the products

Choice of the country – influence in EY decision-making

Activity in adopting of the contested measure (sort of punishment)

Less possible negative impact on the USA consumer market

Publicity

Carousel approach

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EU approach

For EU a main aim of sanctions is to induce compliance with WTO rulings

FSC case experience (record amount – 4 biln USD):

More flexible approach – Instead of 100% duties – to increase by 5%, and by 1 % per month till a level of 17%

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EU approach (cont.)

Publicity

Politically motivated choice (re-election of G. Bush)

Smart approach – Screaming exporter is better ten an exporter who is out of the market

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Brazil experience

Brazil is proud to join the club

Perspectives of the victory in US-Cotton case – full scale preparation of sanctions program

Special legislative act TRIOPS related sanctions

Confidentiality

amicable agreement with UAS – annual payment of

147,3 mln USD

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Equivalence: problems with definition and calculations “The level of suspension of concessions and other obligations shall be equivalent to the level of nullification and impairment’ (art. 22.4 DSU)

EC-bananas – USA – request for sanctions in amount 520 mln. , authorization for 191,4 mln.

EC-Hormones – USA request for 202 mln., received authorization – 116,8 mln.

Brazil US cotton requested 3 bln. USA – 147,3 mln in outcome

Antigua – 3 bln 443 mln USA – authorization for 21 mln per year

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Methods of calculation

“The equality-of-harm” approach – tit-for-tat”

Comparison of 2 situations – (a) level of trade blocked as a result of the application of contested measure and (b) counterfactual situation where no such measure exists

“The level-of-subsidy” approach – calculation based on the amount of prohibited subsidy

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Equivalence of sanctions based on GATS and TRIPS

Problems with calculations and with choice of counterfactuals

Ecuador – first case, 201 mln USA TRIPS-related sanctions due to the insignificant import from the EU

Antigua – no detailed explanations. Judicial disaster. Necessity to have an appeal instance

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Summary of WTO sanctions regime

Advantages:

1. Absence of damage compensation – further incentive to submit all disputes to DSB

2. Absence of retrospective sanction – incentive for further liberalization of world trade

3. Decrease of disparity between developed and developing counties. Having not enough specialists. the developing countries tend to make more WTO violations

4. Specifics of WTO – obligation regarding the results not obligation regarding behavior

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Disadvantages

Current sanctions regime creates de facto escape clause –measure continue to be applied till the moment of completion of all judicial procedure and authorization of

sanctions – 3-4 years (6.5 years in case US-cotton) no need to use the Special safeguard agreement

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Suggestion of reform

Compensation, interim measures. Highly disputable and not realistic

Russia and WTO sanctions regime One of the mail arguments in favor of joining WTO –

availability of DSB for contest measures of another states. Another example – an idea of question in WTO the EU energy package

In case of victory – what will be our further steps in case of the EU refusal to comply? Sanctions?

In what form? Russia has a huge internal market but how to use it in case of sanctions? Russia is already a member of the Customs Union and any increase of the import duty shall be a decision of the CU institutions

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Sanctions against Russia and the Customs Union Suggestions in the Russian circles to adopt WTO non-

consistent measures and then us to the full extend de facto escape clause (4-5 years)

complicated situation with the legal status of the Customs Union and its measures (plus the fact that Belarus and Kazakhstan are not still WTO members)

Solutions or EU

EU Commission proposal for new enforcement framework for international trade rules,

MEMO/12/1006, 18/12/2012

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What does the proposal cover?

EU trade sanctions when a country does not comply with a ruling under multilateral or bilateral dispute settlement rules

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What does the proposal cover?

Retaliatory actions in case of adoption by third countries of bilateral/regional safeguard measures without satisfactory compensation

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What does the proposal cover?

Suspension of trade benefits granted to a WTO Member that modifies its concessions

Towards the EU under Article XXVIII GATT 1994 and fails to provide due compensation (Ukraine, fall 2013 initiative of the Ukrainian Government aiming to modify its binding tariffs on over 300 goods agreed upon Ukraine accession)

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“Russia could in return have recourse to the WTO’s formal dispute settlement proceedings to challenge the level and/or form of the EU’s

retaliation, but even in case of a positive outcome of the dispute the WTO rulings

would not have retroactive effect. Hence, in practice the EU’s measures may be in force as long as the CU’s safeguards are affecting the

EU’s interests”

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Recommendations In principle current systems of WTO sanctions has more

advantages for Russia due to the huge and very competitive internal market

But Russia’s ability to impose WTO sanctions is seriously limited by its membership in the CU

What is available? Sanctions based on TRIPS and GATS

Highly advisable solution – to adopt a special legislative act clarifying all such issues

Absence of clarifications means for Russia that the county has no teeth even willing to protect the interest of the Russian companies using WTO dispute settlement mechanism

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Thanks for attention