WTO Jurisprudence: Governments, Private Rights, and International Trade 2020003549, 2020003550, 9780367428761, 9780367855666

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WTO Jurisprudence

This book offers a critical examination of the jurisprudence of the World Trade Organization (WTO) as an emancipatory international social contract on trade. The book suggests that the WTO is an international organization built and operating on member states’ attribution of authority through consent with legislative, administrative, and adjudicative functions – three functions in one triune personality. With a solid constitutional continuity building on GATT experiences, the WTO has successfully made governments accountable to foreign individuals in various capacities either as traders of goods, providers of services, or holders of intellectual property rights within the global marketplace. With a triune personality, the WTO operates within the reign of state primacy – the force – ultimately for the benefits of individuals – the ends – in the global marketplace, and gains a soul of its own in the institutional evolution – the means – of the global trading regime. Although the tripartite dynamics between states, international institutions, and individuals in the global marketplace are unprecedentedly complex, the WTO’s ends of benefiting individuals in the global marketplace has no end. Beyond the critical analysis of WTO’s decisionmaking by consensus, the book critically examines GATT’s “common intention” treaty interpretation, Antidumping’s NME methodology, TRIPS’ public health concerns, and IP-competition trade policy dynamics. A unified WTO jurisprudence looking at the WTO as an international social contract on trade is therefore proposed to allow a fresh look at the force, the means, and the ends of the constitutional evolution of the global trading regime. Wenwei Guan is an Associate Professor of Law at City University of Hong Kong.

Routledge Research in International Law Russian Discourses on International Law Sociological and Philosophical Phenomenon Edited by P. Sean Morris Backstage Practices in Transnational Law Lianne J.M Boer and Sofia Stolk International ‘Criminal’ Responsibility Antinomies Ottavio Quirico The Future of International Courts Regional, Institutional and Procedural Challenges Edited by Avidan Kent, Nikos Skoutaris and Jamie Trinidad The Far-Right in International and European Law Natalie Alkiviadou International Law and Revolution Owen Taylor The Responsibility to Protect in International Law Philosophical Investigations Natalie Oman The Responsibility to Protect in Libya and Syria Mass Atrocities, Human Protection, and International Law Yasmine Nahlawi Public Private Partnership Contracts The Middle East and North Africa Mohamed Ismail WTO Jurisprudence Governments, Private Rights, and International Trade Wenwei Guan State Territory and International Law Josephat Ezenwajiaku For more information about this series, please visit www.routledge.com/Routle dge-Research-in-International-Law/book-series/INTNLLAW

WTO Jurisprudence Governments, Private Rights, and International Trade Wenwei Guan

First published 2020 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2020 Wenwei Guan The right of Wenwei Guan to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Guan, Wenwei, author. Title: WTO jurisprudence : governments, private rights and international trade / Wenwei Guan. Description: Abingdon, Oxon ; New York, NY : Routledge, 2020. | Series: Routledge research in international law | Includes bibliographical references and index. Identifiers: LCCN 2020003549 (print) | LCCN 2020003550 (ebook) Subjects: LCSH: Foreign trade regulation. | World Trade Organization. Classification: LCC K3943 . G83 2020 (print) | LCC K3943 (ebook) | DDC 343.08/7–dc23 LC record available at https://lccn.loc.gov/2020003549 LC ebook record available at https://lccn.loc.gov/2020003550 ISBN: 978-0-367-42876-1 (hbk) ISBN: 978-0-367-85566-6 (ebk) Typeset in Galliard by Swales & Willis, Exeter, Devon, UK

To Emma, Adam, and Isobel

Contents

Foreword by Prof. Ernst-Ulrich Petersmann Preface and acknowledgments 1

International social contract on trade: its force, means, and ends 1.1 History and evolution from the GATT to the WTO 1 1.2 States, the WTO, and the individuals in international law 6 1.3 WTO as an international social contract on trade 17 1.4 Conclusion 25

2

WTO decision-making by consensus 2.1 Introduction 30 2.2 The WTO decision-making duet: consensus and single undertaking 33 2.3 Consensus principle’s undesirable practical implications 40 2.4 Consensus’s contractarian deficits and WTO legitimacy 49 2.5 Conclusion: consensus yet consented? 59

3

GATT: the “common intention” approach of treaty interpretation 3.1 Introduction 68 3.2 How general should the GATT general exceptions be? 71 3.3 Judicial activist “common intention” approach of treaty interpretation 80 3.4 The legitimacy deficit of the “common intention” approach 99 3.5 Concluding remarks 106

4

ix xii 1

30

67

Antidumping: the NME normal value determination 112 4.1 Introduction 112 4.2 Antidumping development and normal value determination 116

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Contents 4.3 4.4 4.5

The NME methodology: nationality as status of products in trade 122 From status to contract and back: NME treatment and beyond 129 Conclusion 137

5

TRIPS: IPRs, public health, and international trade 5.1 Introduction 142 5.2 WTO to promote public health through international trade 145 5.3 Public health caught in TRIPS’ birth defect 153 5.4 Public health, IPRs, and trade: the private right dilemma in international law 165 5.5 Conclusion: the dynamics between public health, IPRs, and trade 174

6

Trade and policy: IP-competition dynamics in TRIPS’ FRAND enforcement 6.1 Introduction 180 6.2 Harmonized TRIPS v. diversified FRAND enforcement 183 6.3 SEPs, antitrust, and trade in WTO law 195 6.4 Concluding remarks 211

7

142

180

Ends without end: the future prospects of WTO evolution

217

Index

221

Foreword

Since China’s accession to the World Trade Organization (WTO) in 2001, China has complied with most WTO rules and most WTO dispute settlement findings involving China as a complainant or defendant. Yet due to the US initiation of a “trade war” against China and of other, illegal US measures disrupting the WTO legal and dispute settlement system, justifying compliance with WTO rules and WTO dispute settlement findings has become more controversial. A breakdown of the WTO trading, legal, and dispute settlement systems will adversely affect the national interests of all 164 WTO members; it is also likely to render realization of the UN sustainable development goals (SDGs) and climate change prevention impossible. Hence, it remains an important task for governments, academics, and civil societies to explain why compliance with WTO rules and dispute settlement findings is in the reasonable self-interests of all WTO members and their citizens. This monograph by Professor Wenwei Guan offers an important contribution to defending “public reason” in the current WTO governance and dispute settlement crises. The power-oriented system of “international law among sovereign states” since the peace treaties of Westphalia (1648) was justified by the consent of states. Since the 1945 United Nations (UN) Charter and the 1948 Universal Declaration of Human Rights, however, international law and the UN legal systems are also justified by the universal acceptance of “inalienable” and “indivisible” human rights, popular self-determination of peoples, and universally agreed SDGs. Chapter 1 of this book convincingly explains why state consent and the universal recognition of treaties, customary law, and general principles of law as “sources” of modern international law no longer suffice for explaining and justifying WTO law. For example, the “blocking” of the filling of vacancies of WTO Appellate Body members violates both WTO law (e.g. Article 17 of the Dispute Settlement Understanding, Article IX:1 WTO Agreement) and the limited, democratic mandates given by national parliaments for implementing the WTO Agreements. Chapter 1 further acknowledges that – just as the UN SDGs are defined in terms of promoting human rights and related public goods (like poverty reduction, climate change mitigation, and protection of the environment) – also the sustainable development goals of WTO law and “principles of justice” underlying the WTO dispute settlement system (e.g. violation

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Foreword

complaints, non-violation complaints and situation complaints pursuant to GATT Article XXIII) are ultimately aimed at protecting transnational rule of law and other public goods for the benefit of citizens and peoples in WTO member states. As WTO law admits sub-national customs territories (like Hong Kong, Macau, and Taiwan) and supra-national WTO members (like the European Union) and protects also individual rights (e.g. intellectual property rights) and remedies (e.g. of individual access to domestic judicial remedies), Chapter 1 describes the “WTO as an international social contract on trade” constituting legislative, executive, and judicial institutions deriving their limited legal powers from the consent of states and related international law principles (like good faith, pacta sunt servanda, limited delegation of powers), yet aiming at protecting legal and economic benefits not only for all WTO member governments, but also for their citizens and peoples. This multilevel governance system is currently confronted with illegal power politics threatening its social legitimacy and the welfare of citizens all over the world. Chapter 2 discusses the many legal and policy problems of WTO decisionmaking by consensus and the political abuses of veto powers. As WTO law explicitly provides for majoritarian decision-making on administrative and judicial matters, the current WTO governance failures to protect the WTO legal and dispute settlement systems (e.g. through majoritarian filling of WTO Appellate Body vacancies) against illegal abuses of US veto powers undermine the legal, democratic, and social legitimacy and accountability of the WTO. Chapters 3 to 6 offer case studies, for instance criticizing the “common intention” approach to treaty interpretation in the Appellate Body jurisprudence (Chapter 3), adverse effects on private rights in WTO jurisprudence relating to discriminatory antidumping measures (Chapter 4), and intellectual property rights (Chapters 5 and 6). These case studies elaborate important policy recommendations for improving rule of law and non-discriminatory conditions of competition in the world trading system, for instance by mandating the WTO Working Group on Trade and Competition to elaborate more coherent WTO competition rules and “flexibilities” for protecting public health and technological innovation. Chapter 7 concludes with a critical discussion of the “state primacy paradox” undermining WTO governance for the benefit of citizens, thereby confirming the need for more coherent theories of WTO diplomacy, WTO governance, WTO jurisprudence, and their constitutional foundations. The hegemonic US assault on the WTO legal and dispute settlement systems risks provoking a disintegration of the world trading system, for instance by inducing China to prioritize its bilateral and regional economic cooperation agreements (like China’s Belt and Road agreements with more than 60 countries, its Regional Comprehensive Economic Partnership) similar to China’s prioritization of “cyber sovereignty” in internet governance systems. Hopefully, Professor Wenwei Guan’s thought-provoking book will induce other Asian scholars to undertake similar studies on how to improve multilevel governance and limit accountability failures in the WTO. The “emancipatory evolution” of WTO governance beyond “state consent” – and the “pluralization” of legal

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forms of multilevel governance of transnational public goods (like a mutually beneficial world trading system, climate change mitigation, transnational rule of law) – require going beyond “methodological nationalism” justifying poweroriented paradigms of states (e.g. China’s totalitarian communist party state) that hamper UN/WTO institutions, WTO law, and WTO governance. Modern international law and multilevel governance function not only as (1) positive multilevel legal orders (e.g. based on legal recognition of rules, principles, and institutions for legislative, executive, judicial, civic, economic, and social decision-making processes); they also (2) dynamically evolve as legal practices interacting with, clarifying, and developing past understandings of the law, which remain (3) embedded into social and cultural infrastructures (like agreed “principles of justice”) driven by rational and non-rational actors and their multiple discourses. The customary rules of treaty interpretation explicitly require clarifying the treaty terms not only in their context (e.g. including subsequent practices) with due regard to their object and purpose, but also “in conformity with the principles of justice” underlying international law, including also “human rights and fundamental freedoms for all” (cf. the Preamble and Article 31 VCLT). Judicial administration of justice in disputes over the meaning and application of modern international law must protect both legal input and output legitimacy of dispute settlement in order to promote social legitimacy of third-party adjudication and voluntary rule-compliance. Promoting the UN and WTO objectives of “sustainable development” will require far-reaching adjustments of international trade and environmental law, governance institutions, legal practices, and social agreements on “principles of justice” (e.g. justifying multilevel governance of public goods). The necessary reforms will benefit from critical analyses of the current governance, dispute settlement and legitimacy crises (e.g. in the UN and WTO), including from the critical studies of Professor Wenwei Guan. The fact that the British “(Br)exit” from the European Union and the disregard for WTO law by the US Trump administration are initiated by the two oldest “liberal democracies” reveals another lesson for protecting rules-based trading systems: not only authoritarian state-capitalism, but also neo-liberalism protecting “unequal freedoms” (like “Chicago school economics” for liberalization, deregulation and privatization of markets) lead to socially disruptive injustices that must be avoided by ordo-liberal limitations of “market failures” and “governance failures” in order to construct transnational “social market economies” supported by free and reasonable citizens with more equal and more equitable opportunities and social safeguards. Prof. Ernst-Ulrich Petersmann Geneva World Trade Organization December 2019

Preface and acknowledgments

This book offers a critical examination of the jurisprudence of the World Trade Organization (WTO) as an emancipatory international social contract on trade. The book suggests that the WTO is an international organization built and operating on member states’ attribution of authority through consent with legislative, administrative, and adjudicative functions – three functions in one triune personality. With a solid constitutional continuity building on GATT experiences, the WTO has successfully made governments accountable to foreign individuals in various capacities either as traders of goods, providers of services, or holders of intellectual property rights within the global marketplace. With a triune personality, the WTO operates within the reign of state primacy – the force – ultimately for the benefits of individuals – the ends – in the global marketplace, and gains a soul of its own in the institutional evolution – the means – of the global trading regime. Although the tripartite dynamics between states, international institutions, and individuals in the global marketplace are unprecedentedly complex, the WTO’s ends of benefiting individuals in the global marketplace has no end. Beyond the critical analysis of WTO’s decisionmaking by consensus, the book critically examines GATT’s “common intention” treaty interpretation, Antidumping’s NME methodology, TRIPS’ public health concerns, and IP-competition trade policy dynamics. A unified WTO jurisprudence looking at the WTO as an international social contract on trade is therefore proposed to allow a fresh look at the force, the means, and the ends of the constitutional evolution of the global trading regime. I would like to take this opportunity to thank Prof. Ernst-Ulrich Petersmann, an eminent scholar in the field whose works have continuously inspired my research for so many years. Prof. Petersmann’s works articulate the categorical imperative of the WTO with great philosophical depth, which to a great extent presents how beautiful the WTO could be as an emancipatory force benefiting individuals in the global marketplace. When I asked for a Foreword upon my completion of the first draft, his confirmation and enthusiastic support were invaluable to me. I am very grateful. I would also like to thank Prof. Theresa Kaiser-Jarvis from the University of Michigan Law School, and Barbara H. Garavaglia, Seth Quidachay-Swan, Amanda Runyon, and Kate E. Britt from the University of Michigan Law

Preface and acknowledgments

xiii

Library. I am grateful for their generous support providing library convenience during my visit to Michigan in summer 2019, during which my summer research was primarily focused on the current manuscript. As I complete the writing of the manuscript, I would also like to thank editor Ms Yongling Lam and the editorial team Ms Samantha Phua and Ms Payal Bharti, and production editor Ms Catherine Scarratt from Routledge, as well as project manager Mr Colin Morgan and copy-editor Ms Cecily Blench at Swales & Willis, whose efficient and professional support has impressed me so much. Last but not least, I would also like to thank my parents, my wife, and my children, whose love and tolerance give meaning to this research. Without my family’s support, this book would not have been possible. I am grateful for their unconditional love and support. Wenwei Guan City University of Hong Kong Kowloon, Hong Kong SAR December, 2019

1

International social contract on trade Its force, means, and ends

During its evolution from the GATT to the WTO, the global trading regime has gradually extended its reign from goods to services, intellectual property rights, and dispute settlement. The coverage of the trade without discrimination principle under the trading regime has also been gradually extended beyond products to individuals in various capacities as traders, suppliers, and nationals with private rights. As an integral part of the international law legal order, the WTO is an international organization with an independent personality that has administrative, legislative, and judicial functions. With its three-in-one triune personality, the WTO operates upon member states’ consent – the force – through rule-oriented institutionalization – the means – ultimately for the benefit of individuals – the ends – in the process of constitutionalization of the global trading regime. A unified jurisprudence looking at the WTO as an international social contract on trade would allow a fresh look at the force, the means, and the ends of the evolution of the global trading regime.

1.1 History and evolution from the GATT to the WTO The development of the global trading regime of the World Trade Organization (WTO) can be traced back to the early multilateral efforts and practice of restoring international economic relations after World War II. In the second half of the 19th century, free trade among European countries had been essentially unfettered for a couple of decades, until World War I brought in a decline in free trade due to the shift of the political and economic environment.1 Efforts to establish a global trade regime in the inter-war period through tariff truces and MFN-based treaty networks started to fail with the rise of agricultural protectionism and the eventual outbreak of World War II.2 To complement the Bretton Woods institutions – the World Bank and the International Monetary Fund (IMF) – after World War II, the US proposed

1 WTO, World Trade Report 2017: Six Decades of Multilateral Trade Cooperation: What Have We Learnt? (Geneva: WTO, 2007), 35–39. 2 Ibid., 39–43.

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negotiations on the establishment of an international organization regulating trade. It was within this context that the United Nations (UN) called for the establishment of an international trade organization as a UN specialized agency.3 Alongside the efforts attempting to establish the International Trade Organization (ITO), consultations to reduce tariffs and regulatory frameworks resulted in the General Agreement on Tariffs and Trade in 1947 (GATT 1947), which was originally expected to be part of the envisaged ITO regime. Although ITO agreement could not reach an end, the GATT 1947 was agreed to be applied provisionally.4 While the negotiations of the ITO Charter eventually completed in 1948 in Havana, the Havana Charter, however, failed to come into force due to the US’s opposition for the fear of sovereignty intrusion. Although the GATT 1947 lacked an organizational framework, contracting parties turned it into a de facto organization and successive trade talks continued until eventually the Uruguay Round established the WTO in 1995. As the final result of the Uruguay Round, the WTO replaced the provisional GATT with a permanent international institution regulating global trade. Among the various significances of the transformation of the trading regime from the GATT to the WTO, there are a couple of new developments that are important to our critical examination. First of all, the coverage and reach of the trading regime have been gradually broadened throughout the years of the evolution of global trade governance which built firmly upon GATT experience with a clear jurisprudential continuity. It is particularly worth emphasizing here that the post-war negotiation aiming at ITO as a specialized UN agency had an ambitious plan to cover not only world trade disciplines but also “rules on employment, commodity agreements, restrictive business practices, international investment, and services.”5 Although the provisional GATT focused only on tariff reduction on trade of goods at the very beginning, the trading regime’s interest in other areas of trade grew broader eventually. From 1948 to 1994, the GATT was a provisional agreement and organization for 47 years, during which the GATT held eight rounds of trade talk. The first five rounds from the first round at Geneva in 1947 to the Dillon Round at Geneva between 1960–1961 focused all on tariffs. In addition to focusing on tariffs, while the Kennedy Round (the sixth, between 1964 and 1967) covered also antidumping measures, the Tokyo Round (the seventh, between 1973 and 1979) covered also subjects of non-tariff measures and “framework” agreements.6 The eighth and last round of the GATT, the Uruguay Round between 1986–1994, eventually created the WTO. The Uruguay Round, as a round to

3 UN Economic and Social Council (UN ECOSOC), Calling of an International Conference on Trade and Employment, UN Doc. E/13 (18 February 1946). 4 Protocol of Provisional Application of the General Agreement on Tariffs and Trade, signed at Geneva on 30 October 1947, UN Treaty Series 55, 308 (1950). 5 WTO, Trading into the Future (Geneva: WTO, 2001, 2nd ed.), 9. 6 Ibid., 9.

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end all rounds, covered a much broader range of subjects than all the previous rounds, including new subjects like services, intellectual property, dispute settlement, textiles, and agriculture, etc., making it “the largest negotiation of any kind in history.”7 In terms of tariff lines, the Uruguay Round increased the tariff bound percentage of developed countries from 78 to 99 percent, of developing countries from 21 to 73 percent, and of transition economies from 73 to 98 percent.8 As the final result of the Uruguay Round, the WTO replaced the provisional GATT with a permanent international regime, coverage of which has been extended from goods to services and intellectual property backed with a much stronger dispute settlement system, the Dispute Settlement Understanding (DSU) system. It should nevertheless be noticed that the newborn WTO is a result of the continuity of the evolution of the global trading regime, built firmly on the provisional GATT. According to the WTO Agreement, the Secretariat and the Director-General of the WTO were designed to come from the Secretariat and Director-General of the GATT.9 Most importantly, except as otherwise provided, “the WTO shall be guided by the decisions, procedures and customary practices followed by the CONTRACTING PARTIES to GATT 1947 and the bodies established in the framework of GATT 1947.”10 In its discussion of the legal effect of GATT panel reports, the WTO Appellate Body stated: Article XVI:1 of the WTO Agreement and paragraph 1(b)(iv) of the language of Annex 1A incorporating the GATT 1994 into the WTO Agreement bring the legal history and experience under the GATT 1947 into the new realm of the WTO in a way that ensures continuity and consistency in a smooth transition from the GATT 1947 system. This affirms the importance to the Members of the WTO of the experience acquired by the CONTRACTING PARTIES to the GATT 1947 – and acknowledges the continuing relevance of that experience to the new trading system served by the WTO.11 Therefore, the global trading regime from the GATT to the WTO has been a process of evolutionary growth penetrating deeper into and covering a broader range of global trade, with no interruption but rather continuity firmly built on those 47 years of GATT experience.

7 8 9 10 11

Ibid., 12–13. Ibid., 6. Art. XVI.2, WTO Agreement. Art. XVI.1, WTO Agreement. Japan – Alcoholic Beverages II, WTO Appellate Body Report, WT/DS8/AB/R (4 October 1996), 14. See also, India – Patents (US), WTO Appellate Body Report, WT/DS50/AB/R (19 December 1997), 14; EU – Poultry Meat (China), WTO Panel Report, WT/DS492/R (28 March 2017), paras. 7.24–7.26.

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Secondly, although the WTO system is a comprehensive framework with lengthy agreements and annexed schedules, there are several fundamental principles run through the whole system. According to WTO Secretariat, these principles include trade without discrimination, free trade gradually through negotiation, predictability through binding, promoting fair competition, and encouraging development and economic reform.12 The most fundamental one among these five is the principle of trade without discrimination, which includes the most-favored-nation (MFN) treatment obligation and the national treatment obligation. While the MFN treatment ensures the same “best” treatment be equally available to products from all the other members beyond border,13 the national treatment guarantees foreign imported products be treated not less favorably than local products within border.14 Therefore, the trade without discrimination principle secures equal treatment for products in trade, within or beyond national borders, i.e. goods in the entire global market among all WTO Members. The reading of the trade without discrimination principle should not be isolated from the operation of the subsidies and countervailing measures (SCM) and antidumping regimes. Negotiated in the Tokyo Round, the SCM Agreement builds on the Agreement on Interpretation and Application of Article VI, XVI, and XXIII of GATT. Regulating various government’s trade distorting policies, the SCM regime prohibits governments’ trade distorting action of subsidizing domestic players with advantage or more favorable terms in the marketplace, making the domestic players “better off” than they would otherwise have been. Therefore, the SCM regime targets states’ trade distorting subsidies. The Antidumping Agreement on the other hand provides detailed rules governing the application of the Article VI of the GATT, enabling contracting parties to take measures to prohibit foreign companies’ predatory dumping behaviors. The antidumping regime therefore regulates trade distorting effects of companies’ predatory pricing behaviors. Together with the trade without discrimination’s application to ensure equal treatment within and beyond borders, the SCM and antidumping regimes cover both government and companies’ market distortion behaviors. Therefore, any trade distorting actions, either within or beyond borders, be it governmental or private, are all covered and regulated to refrain from obstructing fair trade. Moreover, the coverage of the trade without discrimination principle has been gradually extended beyond products to individuals in various capacities as suppliers, exporters, and nationals with private rights. It is important to know that the MFN and national treatments covered only products in GATT 1947 as later incorporated into the WTO as GATT 1994. According to GATT 1994, any favorite treatment granted by a WTO member “to any product originating in or

12 WTO, Trading into the Future, 5–7. 13 Art. I, GATT 1994, Art. II, GATS Agreement, and Art. 4, TRIPS Agreement. 14 Art. III, GATT 1994, Art. XVII, GATS Agreement, and Art. 3, TRIPS Agreement.

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destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.”15 As the national treatment requires, “[t]he products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin.”16 The principle’s coverage, however, has gone beyond products to cover individuals in GATS in the capacity of “services and service suppliers,” as “nationals” in TRIPS, as well as in the capacity of “exporters affected” under the Preshipment Inspection Agreement, and “suppliers” in the Agreement on Technical Barriers to Trade. Under the TRIPS Agreement for example, Each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection of intellectual property, subject to the exceptions already provided in, respectively, the Paris Convention (1967), the Berne Convention (1971), the Rome Convention or the Treaty on Intellectual Property in Respect of Integrated Circuits.17 With regard to the protection of intellectual property, any advantage, favor, privilege or immunity granted by a member to the nationals of any other country shall be accorded immediately and unconditionally to the nationals of all other members.18 Under the TRIPS Agreement, “the nationals of other Members” means “those natural or legal persons that would meet the criteria for eligibility for protection provided for” in relevant WIPO treaties.19 Going beyond GATT, GATS, and TRIPS, moreover, the trade without discrimination principle also covers individuals beyond goods in WTO Plurilateral Trade Agreements. Under the Government Procurement Agreement, for example, in relation to all laws and practices covered, “each Party shall provide immediately and unconditionally to the products, services and suppliers of other Parties offering products or services of the Parties, treatment no less favourable” than that accorded to domestic and any other party’s products, services, and suppliers.20 Therefore, the historical development from GATT’s provisional operation to the WTO as a permanent regime has been a continuous evolution of the global trade governance with a clear constitutional continuity. Within this continuous constitutional evolution of the trading regime there is a clear path of broadening

15 16 17 18 19 20

Art. I.1, GATT 1994. Art. III.4, GATT 1994. Art. 3.1, TRIPS Agreement. Emphasis added. Art. 4, TRIPS Agreement. Emphasis added. Art. 1.3, TRIPS Agreement. Art. III.1, Government Procurement Agreement.

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the regulatory coverage from trade in goods to services and intellectual property rights, and to the facilitation of security and predictability through a dispute settlement mechanism. Alongside the process of constitutionalism of global trade, the broadening of regulatory impact has seen a tendency of expanding equal treatment beyond products to individuals in various capacities. What then is the nature of the dynamics between the WTO, states, and individuals in international law?

1.2 States, the WTO, and the individuals in international law 1.2.1 WTO and the primacy of states The relation of GATT/WTO to public international law has, of course, long been one of the fundamental issues of concern, yet was only somewhat “clarified” in the more recent stages of development in the process of the constitutionalism of the global trading regime. In GATT times, there were debates as to whether GATT was a separate legal regime from public international law and thus had an independent jurisprudence and legal structure of its own. Or as McRae described, there was a contrast between a “tradition continued” model, viewing the two as having no particular implications for each other, and a “new frontier” model, “viewing the WTO within the mainstream of international law” and arguing that the WTO was an important part to be integrated into public international law.21 According to Jackson, it was, however, generally confirmed that “there are relatively numerous examples throughout the history of GATT that would oppose the ‘separate regime’ theory.”22 In particular in cases close to the end of the GATT where the GATT panel discussed the issue of whether general international law was relevant to GATT law, the application of general customary international law – the Vienna Convention on the Law of Treaties 1969 (1969 VCLT) in particular – was confirmed.23 The WTO framework, unfortunately, does not explicitly clarify the relation between the WTO regime and public international law. However, the Understanding on Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement Understanding, DSU) clearly states that, central to WTO

21 Donald M. McRae, “The WTO in International Law: Tradition Continued or New Frontier?” 3 Journal of International Economic Law (2000), 27–30. 22 John H. Jackson, Sovereignty, the WTO and Changing Fundamentals of International Law (Cambridge: Cambridge University Press, 2006), 164–165. See also, Joost Pauwelyn, “The Role of Public International Law in the WTO: How Far Can We Go?” 95 American Journal of International Law (2001), 538–540. 23 US – Tuna II, adopted GATT Panel Report, DS/29/R (16 June 1994), paras. 5.19–5.20; EC – Cotton Yarn, adopted GATT Panel Report, ADP/137 (30 October 1995), para. 541. See discussion at Jackson, Sovereignty, the WTO and Changing Fundamentals of International Law, 165–166.

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dispute settlement system’s role in “providing security and predictability to the multilateral trading system,” WTO covered agreements are to be clarified “in accordance with customary rules of interpretation of public international law.”24 This, of course, is not necessarily limited to rules of treaty interpretation only; as the WTO Panel in Korea – Government Procurement suggested, there is “no basis here for an a contrario implication that rules of international law other than rules of interpretation do not apply.”25 The Panel indeed stated that “the relationship of the WTO Agreements to customary international law is broader” than the requirement of Article 3.2 of the DSU to interpret WTO provisions in accordance with customary rules of interpretation of public international law. According to the WTO Panel, Customary international law applies generally to the economic relations between the WTO Members. Such international law applies to the extent that the WTO treaty agreements do not “contract out” from it. … [T]o the extent there is no conflict or inconsistency, or an expression in a covered WTO agreement that implies differently … the customary rules of international law apply to the WTO treaties and to the process of treaty formation under the WTO.26 The WTO framework thus forms an integral part of the public international law legal order. Just as the WTO Appellate Body stated clearly in US – Gasoline, the WTO covered agreements are “not to be read in clinical isolation from public international law.”27 Pauwelyn, therefore, argued that “both the WTO treaty and WTO dispute settlement are integral parts of public international law,” and the interaction between international law and WTO law is a “continuing process of cross-fertilization” instead of one-sided.28 As an integral part of the legal order, the WTO is an international organization with legal personality under public international law. According to the WTO Agreement, the WTO “shall have legal personality, and shall be accorded by each of its Members such legal capacity as may be necessary for the exercise of its functions.”29 WTO’s power then comes from member states’ attribution and is distinct from member states’ power. On the one hand, the WTO as a sovereign creation to meet cooperation needs reflects a tension between two poles: “state sovereignty and the concept of function,” in which “the finality of

24 Art. 3.2, DSU Agreement. 25 Korea – Government Procurement, WTO Panel Report, WT/DS163/R (1 May 2000), footnote 753. 26 Ibid., para. 7.96. 27 US – Gasoline, WTO Appellate Body Report, WT/DS2/AB/R (29 April 1996), 17. 28 Joost Pauwelyn, “The Role of Public International Law in the WTO: How Far Can We Go?” 95 American Journal of International Law (2001), 577–578. 29 Art. VIII.1, WTO Agreement.

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the state is integral (finalité intégrée), whereas the finality of international organizations is functional (finalité fonctionnelle).”30 As ICJ Judge Gros put it, [i]n the absence of a “super-State”, each international organization has only the competence which has been conferred on it by the States which founded it, and its powers are strictly limited to whatever is necessary to perform the functions which its constitutive charter has defined.31 It therefore remains a rule of thumb that, “while states are free to act as long as this is in accordance with international law,” international organizations like WTO “are competent to act only as far as powers have been attributed to them by the member states.”32 On the other hand, within its competency, the WTO’s power is distinct from that of the member states, which means the WTO has a soul of its own. Indeed, according to Alvarez, any institution once established, acquires a life of its own, independent of the elements which have given birth to it, and it must develop, not in accordance with the views of those who created it, but in accordance with the requirements of international life.33 Within the trading regime, WTO’s functions have been set, intentionally or unintentionally, in a separation of powers model similar to the domestic legal system, which has administrative, legislative, and judicial functions. Accordingly, the WTO has an administrative function “facilitat[ing] the implementation, administration and operation, and further the objectives” of the WTO (Art. III.1), a legislative function in “provid[ing] the forum for negotiations among its Members concerning their multilateral trade relations” under the WTO (Art. III.2), and a judicial function of administering the DSU framework (Art. III.3). For example, within the WTO framework, members should only seek the redress of a WTO violation through resorting to DSU rules and procedures, and thus shall make no determination of a WTO violation except through recourse to the dispute settlement in accordance with the DSU rules and procedures.34 As a WTO Panel pointed out, “[i]t is for the WTO through the DSU process – not for an individual WTO Member – to determine that a WTO inconsistency has occurred.”35 Moreover, according to the Panel, WTO

30 Henry G. Schermers and Niels. M. Blokker, International Institutional Law (The Hague: Martinus Nijhoff Publishers, 2011, 5th ed.), 18. 31 ICJ, Interpretation of the Agreement of 25 March 1951 between the WHO and Egypt, Advisory Opinion, Separate Opinion of Judge Gros, ICJ Reports 1980, 103. 32 Schermers and Blokker, International Institutional Law, 157. 33 ICJ, Admission of a State to the United Nations (Charter, Art. 4), Individual Opinion by M. Alvarez, ICJ Reports 1948, 68. 34 Arts. 23,2, 23.2(a), DSU Agreement. 35 US – Section 301 Trade Act, WTO Panel Report, DS/152/R (22 December 1999), para. 7.38.

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“prohibits specific instances of unilateral conduct by WTO Members when they seek redress for WTO inconsistencies in any given dispute.”36 With the administrative, legislative, and judicial functions, the WTO has an independent soul of its own associated with its triune personality built on the attribution from its member states. Being an integral part of the public international law order with its independent legal personality, however, does not change the fact that the WTO operates on sovereign consent. While the GATT history suggests a “strong tendency” of evolving in a rule oriented direction, Jaskson argued, there is an inherent “tension between the role of the nation-state and the need for international institutions to facilitate cooperative mechanisms” to enhance the efficiency and justice of the increasingly globalized market.37 Similarly, McRae argued, there is a tension “between claims to state authority and claims to international control” in the dispute settlement framework, and the WTO is best understood as “a regime based on the fundamental assumptions of a liberal trade order, but working within a framework of a sovereignty-based system.”38 In the arena in which the WTO is operating, state is the primary subject of public international law, and “it is states and organizations which represent the normal types of legal person on the international law plane.”39 As Jessup suggested, The inescapable fact is that the world is today organized on the basis of the coexistence of states, and that fundamental changes will take place only through state action, whether affirmative or negative. … It is true to say that states themselves operate by virtue of the will of individuals and that the individual is thus the ultimate source of authority. Yet so firmly rooted is the international state system that we are accustomed to think in terms of the state itself as the ultimate authority and sole actor.40 The statement of state primacy in international law is parallel to individual’s status in public international law. As Crawford argued, though “it is no longer possible to deny that individuals may have rights and duties in international law; but what rights and duties they do have depends … not on any notion of natural personality operating with the legal system.”41 Therefore, to classify the individuals as a “subject” of international law “is unhelpful,” even if individuals might have rights inuitu personae that can be vindicated in particular contexts in

36 Ibid., para. 7.39. 37 John H. Jackson, “International Economic Law in Times That Are Interesting,” 3 Journal of International Economic Law (2000), 9. 38 McRae, “The WTO in International Law,” 41. 39 James Crawford, Brownlie’s Principles of Public International Law (Oxford: Oxford University Press, 2012, 8th ed.), 116. Emphasis original. 40 Philip C. Jessup, A Modern Law of Nations: An Introduction (New York: The MacMillan Company, 1948), 17–18. 41 Crawford, Browlie’s Principles of Public International Law, 17.

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the field of human rights and investment protection.42 International law provides no means for the enforcement of the individual responsibilities and rights dealt with in the provisions of those human right instruments.43 Indeed, although the WTO’s operation is ultimately for the benefits of the individuals, its relation with individuals remains “indirect.”44

1.2.2 The sanctity of WTO obligations As a constitutional principle rooted in natural law confirming the state autonomy principle that “an autonomous State has power to consent, to bind itself so as to bind another,” pacta sunt servanda doctrine is fundamental to public international law.45 The doctrine was incorporated in the UN Charter to oblige members to “fulfil in good faith the obligations assumed by them” in accordance with the UN Charter for “ensur[ing] to all of them the rights and benefits resulting from [UN] membership.”46 This sanctity of treaty obligations has further been clearly specified in the 1969 VCLT. According to the VCLT, “every treaty in force is binding upon the parties to it and must be performed by them in good faith,” and domestic law is no good defense for treaty noncompliance.47 Moreover, this principle is also the most important one in international economic law and the foundation of international trade and finance. According to Henkin, The most important principle of international economic law, as of all international law, was and is pacta sunt servanda – agreements are to be kept. The sanctity of undertakings, in treaties as well as in commercial contracts, between Governments, between Governments and foreign nationals, or between nationals of different countries – has been the foundation of international trade and finance.48 Indeed, the pacta sunt servanda doctrine as the foundation of international law has also clearly been incorporated in the GATT/WTO framework with rather similar language. Under the GATT framework, for example, each contracting party is under the obligation to take all “reasonable measures” possible to ensure its regional and local governments and authorities’ observance of the GATT provisions.49 More broadly, it is incorporated in the WTO Agreement:

42 43 44 45 46 47 48 49

Ibid., 121. Ibid. See discussion infra, 1.2.3, 1.3.1, and 1.3.2. Louis Henkin, International Law: Politics and Values (The Hague: Martinus Nijhoff Publishers, 1995), 28. Art. 2.2, the UN Charter. Arts. 26 and 27, 1969 VCLT. Henkin, International Law: Politics and Values, 149. Art. 24.12, GATT 1994.

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Each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements.50 Accordingly, WTO members are required to “ensure the conformity” of their laws, regulations, and administrative procedures with the WTO obligations. The “conformity” requirement covers both future legislation and actions, as well as existing laws, regulations, and administrative procedures. In discussion of the SPS Agreement compliance issue in a dispute, a WTO Panel states: We finally note that according to Article XVI:4 of the WTO Agreement, each Member “shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements [including the SPS Agreement]”. This provision confirms that measures which already existed as of the date of entry into force of the SPS Agreement also need to be consistent with the requirements imposed by that Agreement.51 Therefore, the conformity obligation under the WTO to a certain extent expects WTO members to review existing legal and regulatory frameworks and amend them in order to conform with the new international treaty obligations when and wherever is needed. Some of the transitional arrangements in WTO covered agreements were therefore instituted for the purpose of allowing the members a sufficient period of time to comply with WTO rules.52 The pacta sunt servanda doctrine thus reflects the rigidity of the WTO framework, as any noncompliance or inconsistency will be considered as a WTO violation. According to the DSU, where an action breaches the rules of a WTO covered agreement, a WTO violation, i.e. a case of nullification or impairment, will be assumed.53 This indeed reflects the rigidity of the WTO norms. The rigidity of the WTO obligations, however, has not changed the fact that members remain sovereign, thus free, after they accede to the multilateral trading framework. Under public international law in general, the manner in which international law applies within a state is a matter governed by the law of that state. As pointed out in Oppenheim’s International Law: From the standpoint of international law states are generally free as to the manner in which, domestically, they put themselves in the position to meet

50 Art. 16.4, WTO Agreement. 51 EC-Hormones (US), WTO Panel Report, WT/DS26/R, para. 8.27. See also, EC-Hormones, WTO Appellate Body Report, WT/DS26/AB/R, para. 128; US-1916 Act (Japan), WTO Panel Report, WT/DS162/R, para. 6.287; US-1916 Act (EC), WT/DS136/R, para. 6.223. 52 See e.g. Arts. 65 et sep., TRIPS Agreement; Arts. 28 et sep., SCM Agreement. 53 Art. 3.8, DSU Agreement.

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International social contract on trade their international obligations; the choice between the direct reception and application of international law, or its transformation into national law by way of statute, is a matter of indifference, as is the choice between the various forms of legislation, common law, or administrative action as the means for giving effect to international obligations. These are matters for each state to determine for itself according to its own constitutional practices.54

Therefore, regarding TRIPS compliance, for example, while all TRIPS Members are required to “give effect to” the TRIPS provisions, they nevertheless remain free to choose whatever appropriate way of implementation: Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement. Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.55 The TRIPS Agreement further clarifies that TRIPS does not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general, nor does it affect the capacity of Members to enforce their law in general, and creates no obligation with respect to “the enforcement of law in general.”56 Indeed, GATT/WTO obligation is an “obligation of result” rather than an “obligation of means.” Under the DSU, a member may recourse to the DSU proceeding when any of their benefits under the WTO Agreements are “being impaired” by another member’s measures to the effect of “[a] nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements.”57 The wording “being impaired” denotes a factual happening rather than a simple possibility of violation, nor a limitation on the manner fulfilling WTO obligations. It has long been an established GATT jurisprudence that members can challenge legislation independently from specific application instances, yet only non-discretionary or mandatory legislation that mandates a violation of GATT obligation can be found to be in violation of WTO obligations. In EEC – Regulation on Imports of Parts and Components, Japan challenged EEC’s measures taken under its anti-

54 Robert Jennings and Arthur Watts, Oppenheim’s International Law (London: Longman Group UK Ltd., 1992, 9th ed., vol. I), 82–83. 55 Art. 1.1, TRIPS Agreement. 56 Art. 41.5, TRIPS Agreement. 57 Arts. 3.3, 23.1, DSU Agreement.

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circumvention provision to impose tax on products made in the EEC by companies related to Japanese companies. The measures taken by EEC were found in violation of EEC’s obligations under GATT. However, Japan’s suggestion requesting the EEC not only revoke the measures taken but also take down the provision concerned was rejected by the Panel. According to the Panel, the mere existence of the anti-circumvention provision in the EEC’s antidumping Regulation is not inconsistent with the EEC’s obligations under the General Agreement. … [T]he EEC would meet its obligations under the General Agreement if it were to cease to apply the provision in respect of contracting parties.58 This is to leave room for governments to deviate from their GATT obligations in relation to third non-GATT governments.59 Moreover, WTO members have the ultimate freedom of withdrawing from the WTO. According to the WTO Agreement, any WTO member may withdraw from the WTO framework freely without condition with six months’ written notice of withdrawal to the Director-General of the WTO.60 It should be noticed that the GATT 1947 system also provided withdrawal provisions for specific situations in which impairment of reciprocal concessions resulted in the disadvantage of a Contracting Party.61 The binding force of the WTO regime, therefore, is paradoxical in nature. States are autonomous and free through consent to join the WTO and to be bound by its rules, yet ultimately remain free – to withdraw from the WTO – under public international law.

1.2.3 WTO’s “indirect impact on individuals” As an international organization operating in the arena where states have primacy, a tension is created between international law and domestic law that bears fundamental importance to individuals’ status in international law, an issue of concern in relation to the monism and dualism dichotomy debate. The relationship between international law and domestic law, according to Henkin, was once “considered in the light of two polar conceptions [between monism and dualism].”62 While monists insisted that “the legal system of every state is a single system consisting of international law and the state’s own domestic law, with international law supreme,” dualists argued that international law and

58 EEC – Regulation on Imports of Parts and Components, O J. L/6657 – 37S/132, adopted GATT Panel Report (16 May 1990), para. 5.26. 59 However, according to the WTO Panel in US – Section 301 Trade Act (para. 7.97), even if legislation is not mandatory but discretionary in nature, it was prima facie inconsistent with Article 23 of the DSU. 60 Art. XV, WTO Agreement. 61 Arts. XVIII.12(e), XXIII.2, and XXX.2, GATT 1947. 62 Henkin, International Law: Politics and Values, 64.

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domestic law are distinct legal systems and international law operates wholly between states and “does not penetrate a state’s internal legal system.”63 Some prominent international law scholars, Lauterpacht for example, are forceful advocates of a version of monism emphasizing that “individuals are the ultimate subjects of international law, representing both the justification and moral limit of the legal order.”64 However, Henkin pointed out, the differences between the two were theoretical and conceptual only, and “appear not to have inspired significant differences between states in their application of international law.”65 “The international system today,” according to Henkin, “is essentially dualist in principle but it has slowly moved a few steps towards monism in practice.”66 Moreover, Henkin pointed out, the statement that “only states are subjects of international law” is not true, or no longer true if it ever was.67 While “law is made by states,” according to Henkin, states accordingly have also “created (or recognized) other entities, and have given them status, powers, rights, responsibilities, and remedies, within the international system.”68 While the nationality of companies is “a fiction upon a fiction, deriving from the larger fiction of state sovereignty,” the wide international acceptance of a market economy might bring a change, in which the company may prove to be the essential unit of the world economy and to be considered as “a new entity in the international system.”69 The WTO, as an international organization established by and operated among governments, is nevertheless closely related to individuals. A WTO Panel’s discussion on GATT/WTO’s relevance to individuals shed some light on the issue. According to a WTO Panel, one of WTO’s objects and purposes considered to be relevant to the strengthening of the multilateral system is the “the creation of market conditions conducive to individual economic activity in national and global markets and to the provision of a secure and predictable multilateral trading system.”70 As to the direct effect issue, the Panel agreed that neither the GATT nor the WTO has so far been considered as a legal regime producing direct effect, as “the GATT/WTO did not create a new legal order the subjects of which comprise both contracting parties or Members and their nationals.”71 Yet the Panel also emphasized that, However, it would be entirely wrong to consider that the position of individuals is of no relevance to the GATT/WTO legal matrix. Many of the

63 64 65 66 67 68 69 70 71

Ibid., 64–65. Crawford, Browlie’s Principles of Public International Law, 48. Henkin, International Law: Politics and Values, 65. Ibid., 66. Ibid., 16–17. Ibid., 17. Ibid., 24. US – Section 301 Trade Act, WT/DS152/R, para. 7.71. Ibid., para. 7.72.

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benefits to Members which are meant to flow as a result of the acceptance of various disciplines under the GATT/WTO depend on the activity of individual economic operators in the national and global market places. The purpose of many of these disciplines, indeed one of the primary objects of the GATT/WTO as a whole, is to produce certain market conditions which would allow this individual activity to flourish.72 Due to GATT/WTO regime’s “indirect impact on individuals,” the Panel pointed out, a domestic legislation, “independent from its application in specific instances,” may constitute a GATT/WTO violation, though it might not raise state responsibility under public international law.73 As different from treaties concern only the relations between states, a treaty’s benefits depend partially on individuals’ activity, a simple legislation inconsistency itself, even if without action, may constitute a breach due to its “appreciable ‘chilling effect’ on the economic activities of individuals.”74 The GATT/WTO system, according to the Panel, therefore, “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.”75 Indeed, to ensure the security and predictability of issues that can affect individual operators, the WTO regime provides various judicial remedy provisions in the annexed agreements. In GATT 1947 for example, as to “publication and administration of trade regulations,” members are required to publish “laws, regulations, judicial decisions and administrative rulings of general application” to “enable governments and traders to become acquainted with them.”76 According to GATT 1947, moreover: Each contracting party shall maintain, or institute as soon as practicable, judicial, arbitral or administrative tribunals or procedures for the purpose, inter alia, of the prompt review and correction of administrative action relating to customs matters. Such tribunals or procedures shall be independent of the agencies entrusted with administrative enforcement and their decisions shall be implemented by, and shall govern the practice of, such agencies unless an appeal is lodged with a court or tribunal of superior jurisdiction within the time prescribed for appeals to be lodged by importers …77 It is important to note that the non-discrimination treatment requirement, including the MFN and national treatment under GATT 1947, cover only

72 73 74 75 76 77

Ibid., para. 7.73. Ibid., paras. 7.80–7.81. Ibid., para. 7.81. Ibid., para. 7.76. Art. X.1, GATT 1947. Emphasis added. Art. X.3.(b), GATT 1947. Emphasis added.

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products rather than individuals.78 The reference here to “traders” in general and to “importers” in relation to judicial remedies through judicial, arbitral or administrative tribunals or procedures domestically, are laid down as governments’ obligations to “traders” and “importers.” This indeed reveals the truth that the bearers of the international trade relation ultimately are individuals. Most importantly, this kind of judicial review remedy provision is spread out over many annexed agreements, including Sanitary and Phytosanitary Measures Agreement, Antidumping Agreement, SCM Agreement, Customs Valuation Agreement, Preshipment Inspection Agreement, Rules of Origin Agreement, GATS, TRIPS, and Government Procurement Agreement.79 These various provisions laid down obligations on members to provide individuals in various capacities judicial review remedies via “judicial, arbitral or administrative tribunals or procedures” independent from administrative enforcement agencies. To some extent, the GATT/WTO indeed is all about the individuals. According to the WTO Agreement, WTO members recognize that: [WTO members’] relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development.80 Indeed, the WTO’s objectives of improving the living standards, employment, and income, even the expansion of trade in goods and services and optimal use of the resources and environment, are ultimately for the benefit of individuals. These objectives reconcile very well with that of the UN Charter, where the facilitation of security, human rights and dignity, and justice is for the purpose of “promot[ing] social progress and better standards of life in larger freedom.”81 Moreover, the means to achieve WTO objectives in relation to living standards, employment, and income, according to the WTO Agreement, is to establish “reciprocal and mutually advantageous arrangements” that lead to the substantial reduction of trade barriers and the elimination of discriminatory

78 Arts. I and III, GATT 1947. 79 See Art. 1, Annex C, Sanitary and Phytosanitary Measures Agreement; Art. 11, Antidumping Agreement; Art. 23, SCM Agreement; Art. 11, Customs Valuation Agreement; Art. 4, Preshipment Inspection Agreement; Art. 2 and Art.3.(f), Annex 2, Rules of Origin Agreement; Art. 6.2, GATS; Arts. 32, 41.1, 41.2, 41.4, and 49, TRIPS; and Arts. 20.1 and 20.2, Government Procurement Agreement. 80 First Recital, Preamble, the WTO Agreement. 81 Preamble, the UN Charter.

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82

treatment. Furthermore, the purpose of improving living standards, employment, and income, as well as optimal use of resources and environment through “reciprocal and mutually advantageous arrangements,” is “to develop an integrated, more viable and durable multilateral trading system.”83 Therefore, the constitutional evolution of the WTO as an integrated multilateral trading system is for the purpose of improving individuals’ living standards, employment, and income, as well as optimal use of resources and environment through reduction of trade barriers and the elimination of discriminatory treatment. Reading the recitals of the preamble to the WTO Agreement organically as a whole, the GATT/WTO global trading regime is in fact all about the welfare of individuals.

1.3 WTO as an international social contract on trade 1.3.1 Theories of the nature of WTO constitutionalism connected Operating in the global arena where states hold primacy, WTO as an international organization with three functions (legislative, administrative, and adjudicative) in one triune personality raises multiple possibilities of the categorization of its nature. The description of the regime by one of the most prominent GATT/WTO scholars, Robert E. Hudec, offers a unique perspective into the issue of the nature of the GATT/WTO, which reflects to certain extent a crucial part of the triune personality of the GATT/WTO. Hudec characterized international trade law as something between law and politics. He argued that the GATT/WTO legal system is a “diplomat’s jurisprudence,” and that its law “has been designed and operated as an instrument of diplomacy,” in which the GATT/WTO diplomats “reconcile, on their own terms, the regulatory objectives of a conventional legal system with the turbulent realities of international trade affairs.”84 For Hudec, GATT/WTO law is designed to soften conventional regulatory pressure to a “looser sort of compulsion” applied by diplomats in a style of “sophisticated and often artistic use of ambiguity” to deal with realistic concerns “not necessarily bounded by the lawyer’s rather clear cut criteria of what is and is not ‘legal’.”85 Thus Hudec argued that the main point on which international trade law differs from a domestic legal system is “the overriding concern for ‘flexibility’ – the insistence that the law’s coercive pressures

82 Third Recital, Preamble, the WTO Agreement. 83 Fourth Recital, Preamble, the WTO Agreement. 84 Robert E. Hudec, Essays on the Nature of International Trade Law (London: Cameron May, 1999), 17, 75. 85 Ibid., 33–35. He analyzed how dispute settlement process in GATT/WTO is different from conventional judicial decision-making. He aruged that “the Panel decision is a far less static instrument than the conventional court decision. Rather than being a final resolution of the legal issue, the Panel decision is simply the first stage in larger decision-making process that involves the whole community.” Ibid., 66.

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be applied in a controlled fashion which allows room for manoeuvre at every stage of the process,” moreover, this flexibility gives the GATT/WTO “a capacity for creative development,” some “possibility of growth.”86 According to Hudec, although the tentative nature of GATT/WTO texts is meant to be used as “binding and dispositive authority,” they also give the community “greater claim to authority than would be the case of ad hoc response,” in which there is always the “possibility of growth.”87 How would this “possibility of growth” be realized? According to Hudec, this “possibility of growth” is realized through justifying disobedience. He argued that “there are situations in which disobedience can be justified, as a matter of policy, in terms of strengthening support for the legal system in question.”88 The state primacy certainly will be the ultimate justification of the deviation from or non-compliance of the WTO treaty obligations, a paradoxical force that supports and at the same time challenges the operations of the WTO. Another prominent GATT/WTO scholar, John H. Jackson, recognized GATT/WTO’s inherent tension between power oriented vs. rule oriented philosophy, in particular in the early era of the trading regime. Jackson’s recognition of the power oriented approach’s impact on the inherent tension confirms, at least partially, Hudec’s categorization of GATT/WTO’s diplomat’s jurisprudence feature. According to Jackson, the overall characterization of the history of “constitutional evolution” from the provisional GATT application to the WTO framework is one that “the institutions have developed from bottom up, rather than top down.”89 Within this process of constitutionalism, according to Jackson, there is an inherent tension between power oriented and rule oriented perspectives ever since the start of the GATT framework: So at the very start [of the GATT] there was a tension about the goals of this [dispute settlement] procedure. On the one hand, there were those who felt it was simply an extension of the diplomatic process, what I describe as the “power oriented” process. Basically the hope of this approach was that the procedure would help governments settle their differences. On the other hand, in a “rule oriented” process the idea is to achieve

86 Ibid., 75–76. 87 Ibid., 35. He went on to argue that “[a]s the consensus on one point or another becomes more positive over time, these ambiguous sources of authority can provide the formal basis for absorbing such developments into a regular legal framework.” Ibid. 88 Ibid., 209. He described five general guidelines for justifiable disobedience: (1) is “consistent with the general objectives of the Agreement”; (2) is in a good faith to “achieve the desired legal change by negotiation”; (3) is “accompanied by an offer to continue to negotiate in good faith”; (4) must be limited to that “which is necessary to achieve a negotiated legal reform of the kind required”; and (5) must “accept the consequences imposed by law for it.” Ibid., 208. 89 John H. Jackson, “Fragmentation or Unification among International Institutions: The World Trade Organization,” 31 International Law and Politics (1999), 823, 826.

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a result that is rule-consistent and that perhaps helps interpret and elaborate the meaning of the rules, so as to add to the longer term predictability and stability of the system.90 Jackson’s constitutionalism reading of the GATT/WTO, nevertheless, emphasizes the institutional nature of the constitutional evolution. His institutional constitutionalism appears somewhat distant from Hudec’s diplomat’s jurisprudence, in particular in his categorization of the basic premises, basic themes, and constituent principles of the world trading system. According to Jackson, two basic premises of the global trading system are that “economic concerns have taken center stage in foreign affairs decision making,” and that the international economics problem is a “problem of ‘managing’ interdependence” which is constituted by international institutions.91 Jackson argued that the key issue of managing interdependence is the “allocation of decision-making authority at different levels of government.”92 According to Jackson, the basic theme of international trade law is the tension between “the necessity for legal rules conducive to stability and predictability, and the human need for solutions to short-term and ad hoc problems,” or simply the “dilemma of rule versus discretion.”93 This dilemma, along with Hudec’s perception of the “possibility of growth” of the evolving international trade law, suggests that the WTO regime might just be a dynamic regulatory regime evolving with a soul of its own. Another “persistent theme” of the international trade law is the “close interaction of national and international institutions.”94 For Jackson, “the domestic and international rules and legal institutions of economic affairs are inextricably intertwined,” and moreover, the world trading system is “a complex interplay of both national and international norms, institutions, and policies.”95 This indeed confirms Pauwelyn’s categorization of the interplay between domestic and international trade laws and institutions as a “continuing process of cross-fertilization.”96 Different from Jackson’s perspective of the WTO as a constitutionalization process of an institutional order, the approach of another prominent WTO scholar, Ernst-Ulrich Petersmann, offered a third perspective on the nature of the WTO as constitutionalization of a rights-based system.97 Deeply rooted in

90 Ibid., 823, 826–827. Emphasis added. 91 John H. Jackson, The World Trading System: Law and Policy of International Economic Relations (Cambridge, MA: MIT Press, 1997, 2nd ed.), 4, 7–8. 92 Ibid., 346. 93 Ibid., 10, 29. 94 Jackson, The World Trading System, 29. 95 Ibid., 26, 341. 96 Pauwelyn, “The Role of Public International Law in the WTO,” 578. 97 Deborah Z. Cass, “China and the ‘Constitutionalization’ of International Trade Law,” in Deborah Z. Cass et al. (eds.), China and the World Trading System (Cambridge: Cambridge University Press, 2003), 42–48.

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Kantian philosophy and encouraged by the success of the European integration, Petersmann argued that “the guarantees of freedom and non-discrimination in WTO law serve human rights functions by enabling individuals to enhance their personal autonomy and welfare through peaceful cooperation across frontiers.”98 According to Petersmann, therefore, By extending equal freedoms across frontiers and subjecting discretionary foreign policy powers to additional legal and judicial restraints ratified by domestic parliaments, the WTO rules – even if formulated in terms of rights and obligations of governments – serve “constitutional functions” for rendering human rights and the corresponding obligations of governments more effective in the trade policy area.99 As Petersmann argued, the insight of the “functional theories” has been confirmed by the success of the European integration, in which the citizen-driven market integration provides strong incentives for transforming “market freedoms” into “fundamental rights.”100“The moral ‘categorical imperative’ of maximizing personal autonomy and equal liberties across frontiers,” for Petersmann, “corresponds with the economic objective of maximizing consumer welfare through open markets and non-discriminatory competition.”101 Moreover, beyond the issue of “moral legitimacy,” there is also “[an] economic necessity for the proper functioning of economic and ‘political markets’ and for rendering competition ‘self-enforcing’ by assignment of individual freedoms, property rights and liability rules to all economic actors and scarce resources.”102 Petersmann thus argued that The time has come to recognize that human rights law offers WTO rules moral, constitutional and democratic legitimacy that may be more important for the parliamentary ratification of future WTO Agreements than the traditional economic and utilitarian justifications.103 Of course, Jackson and Petersmann’s perspectives of constitutionalism, and even Hudec’s categorization of the diplomat’s jurisprudence, are not irreconcilable views, but rather highly interrelated. Dunoff, for example, categorized the WTO

98 Ernst-Ulrich Petersmann, “From ‘Negative’ to ‘Positive’ Integration in the WTO: time for ‘mainstreaming human rights’ into WTO Law?” 37.6 Common Market Law Review (2000), 1363–1382, 1375. 99 Ernst-Ulrich Petersmann, “Time for a United Nations ‘Global Compact’ for Integrating Human Rights into the Law of Worldwide Organizations: Lessons from European Integration,” 13.3 European Journal of International Law (2002), 621–650, 644. 100 Ibid., 629. 101 Ibid., 629–630. 102 Ibid., 1376. 103 Ibid., 1377.

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constitutionalism discourse into three perspectives, namely, Jackson’s “constitutionalism as institutional architecture,” Petersmann’s “constitutionalism as normative commitments,” and Cass’ “constitutionalism as judicial mediation.”104 Given that Cass depicted WTO constitutionalism through the constitutional norms generating process of the WTO as a rule-based institution, the WTO’s Appellate Body in particular,105 Cass’ perspective reflects the process perspective of Jackson’s WTO institutional constitutionalism. While Jackson and Petersmann address the (institutional) means and the (humanitarian) ends of, Hudec explains the force, the source of the authority and political nature of the WTO constitutionalism.

1.3.2 International social contract and WTO constitutionalism Whether considering the diplomatic, institutional, or constitutional characterization of the nature of the WTO, each reflects its respective part of the truth of the WTO as an intergovernmental organization with triune personality, operating ultimately for the benefit of individuals in a global arena where states hold primacy. On the one hand, Hudec’s diplomat’s jurisprudence captures the inner truth of the background of the state primacy within which the WTO operates and from which the WTO derives its personality and authority. The early smooth functioning of the WTO, in particular the rapid growth of the DSB case law in which 20 years of the WTO solved more disputes than 47 years of the GATT,106 might to some extent have been signaling the fading away of the diplomat’s jurisprudence. The deadlock of the Doha negotiation, the dismantling of the Appellate Body appointments, and the ongoing China-US trade war, certainly indicated that the diplomat’s jurisprudence is deeply rooted in the WTO.107 On the other hand, while Jackson touches the institutional structure and process – the means – of WTO’s constitutional process, Petersmann captures the categorical imperative – the ends – of WTO’s constitutional evolution. The complexity of the international constitutional evolution based on market economy principles gains its energy from and constructs a soul of itself for global trade. Although Jackson’s focus was on the institutional evolution of the GATT/ WTO constitutionalism, the picture of the constitutionalism Jackson presented nevertheless captures the constitutional dynamics of the means and the ends

104 Jeffrey L. Dunoff, “Constitutional Conceits: the WTO’s ‘Constitution’ and Discipline of International Law,” 17.3 European Journal of International Law (2006), 651–656. 105 Ibid., 655–656. 106 WTO, 20 Years of the WTO: A Retrospective (Geneva: WTO, 2015), 78. 107 WTO Documents, United States – Tariff Measures on Certain Goods from China III: Request for Consultation by China, WT/DS587/1 (4 September 2019). In this consultation request, China claimed that the US’s overall 15 percent tariff increase on goods from China under the US’s Notice of Modification of Section 301 Action dated 20 August 2019 violates its GATT 1994 commitment.

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within bounds described by the political force of state primacy in the process of the evolution of the global trading regime: We are dealing with a process involving the global systems as we know them today, systems which, especially in recent decades, have tended to focus on market economy principles. We are dealing with the decentralized decision-making of millions and millions of entrepreneurs. So one of the goals of this system is to have a rule structure that provides a certain amount of predictability and stability, which will help shape how those millions and millions of economic decisions are and can be made.108 Therefore, while Hudec captures the force, and Jackson captures the means, Petersman captures the ends of the constitutionalism process of the WTO. As an international organization with triune personality, an all-round WTO jurisprudence should capture the force, the means, and the ends of the constitutionalism process of the global trading regime, operating on the foundation of state primacy and ultimately for individuals’ benefit. However, neither is the WTO constitutionalism process a linear development, nor does it proceed without any problem. Alston, for example, suggested that Petersmann’s application of Kantian philosophy of international morality to international law might not have paid enough attention to the complexity of the conceptually challenging move.109 However, what Petersmann tried to emphasize is human rights’ constitutive function for welfare-creation – the ends of the WTO constitutionalism evolution as we analyzed it – and to argue for equal protection of human rights in both economic markets and political markets.110 The dynamics among the force, the means, and the ends of the evolution of the global trade, and the complexity of the WTO constitutionalism have indeed been well reflected in the controversies of the WTO constitutionalism debates in academia. As Dunoff pointed out, the WTO constitutionalism discourse, to some extent, seems to have a “self-defeating nature” and “reflects a disciplinary anxiety over international law’s status and role,” which suggests that the louder the references are to the constitutional discourse, the weaker is the evidence for the constitutional features we can find in the WTO.111 The invocation of constitutional discourse at the GATT/WTO in particular or in international law in general, may be a response utilizing a “rhetorical strategy” to deal with disciplinary anxiety through “invest[ing] international law with the power and

108 Jackson, “Fragmentation or Unification among International Institutions,” 823–831. 109 Philip Alston, “Resisting the Merger and Acqusition of Human Rights by Trade Law: A Reply to Petersmann,” 13.4 European Journal of International Law (2002), 815, 839. 110 Ernst-Ulrich Petersmann, “Taking Human Dignity, Poverty and Empowerment of Individuals More Seriously: Rejoinder to Alston,” 13.4 European Journal of International Law (2002), 845–851. 111 Dunoff, “Constitutional Conceits,” 647–675.

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authority that domestic constitutional structures and norms possess.” Each of these versions of WTO constitutionalism, according to Dunoff, provides “a mechanism for withdrawing an issue from the battleground of power politics and as a vehicle for resolving otherwise politically destabilizing political disputes through reference to a meta-agreement.”113 Dunoff therefore pointed out that “the turn to constitutionalism is self-defeating because constitutionalism does not and cannot generate finality on highly contested issues; it cannot deliver on its promise to remove divisive issues from the domain of politics.”114 The discussion of WTO’s “self-defeating” turn to constitutionalism, however, is of fundamental importance to our discussion at least in two ways. First of all, the “failure,” if any, of the quest for the means and the ends of the WTO constitutionalism as the escape from power politics actually reflects the unfortunate truth that the power politics is inherent to the roots of the GATT/WTO. Either Jackson or Petersmann’s perspective of the GATT/WTO should therefore be reconciled with, rather than distinguished from, Hudec’s diplomat’s jurisprudence perspective of the GATT/WTO. Secondly, power politics within the reign of the international law where states hold primacy remains the foundation of the GATT/WTO constitutionalism evolution. Therefore, as Dunoff acknowledged, variations of the WTO constitutionalism, not only were “made in the service of a larger turn away from politics,” but also were presented “as a corrective or replacement for unruly and potentially destructive trade politics.”115 Dialectically as well as practically, any denial of the force must at the same time be a recognition of the force of the power politics in the process of the GATT/WTO constitutionalism evolution. Both WTO constitutionalism’s denial and recognition of the force of the power politics indeed bring us to international law’s discussion of the “S” word – sovereignty – and the nature of the WTO as an international social contract on trade. Remember it was a fear of the sovereignty intrusion that made the US, the strongest trading power, bar the negotiated ITO from coming into force. Although elements inherent in “sovereignty” might have been considered as fictions or fictions upon fictions, Henkin argued, independence, equality, autonomy, and integrity, etc., remain essential characteristics and indicia of modern statehood.116 As an implication of state autonomy, state consent remains the foundation of international law and that international law is binding on a state only by its consent remains “an axiom of the political system.”117 Accordingly, state autonomy suggests that a state has “will,” “the power to consent, to enter into relations,” through which “States have in effect created the international

112 113 114 115 116 117

Ibid., 649. Ibid., 662. Ibid., 665. Ibid., 664–665. Henkin, International Law: Politics and Values, 10. Ibid., 27.

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political system, by a kind of international ‘social contract’.”118 Therefore, “the international system has in its basic law a law of contract, known as the law of treaties.”119 As Henkin indicated, the state system indeed “is established by the consent of states, in effect by an inter-state social contract,” and virtually all law “is the result of contract” or rooted in consent (contract) of states.120 The WTO Appellate Body’s discussion in Japan – Alcoholic Beverage II elaborated this social contract nature well: The WTO Agreement is a treaty – the international equivalent of a contract. It is self-evident that in an exercise of their sovereignty, and in pursuit of their own respective national interests, the Members of the WTO have made a bargain. In exchange for the benefits they expect to derive as Members of the WTO, they have agreed to exercise their sovereignty according to the commitments they have made in the WTO Agreement.121 Taking the WTO regime as a social contract on trade has mixed implications for our analysis. On the one hand, taking the WTO framework as a social contract among sovereign states for sure explains well the foundation of the global trading framework, yet at the same time plants an inherent “sovereign paradox” in it. According to Schermers and Blokker, the tension between “the formal independence (sovereignty) of states and their actual interdependence” has always been a “classic theme” of the international legal system.122 This classic theme, accordingly, produces “the paradox that, in order to exercise their functions and to remain as independent as possible, states are forced to cooperate due to the unavoidable reality of interdependence and globalization.”123 This “paradox” derived from the classic theme is indeed deeply rooted in the social contract theory. The Rousseauian construction of the social contract starts from the moment when we as free individuals are looking for a collective association under which each individual, “while uniting himself with the others, obeys no one but himself, and remains as free as before.”124 The solution Rousseau found is a social contract, a paradoxical imagination in which people are free to engage in a contract in order to be bound, and to be the legislators and subjects of the social contract at the same time.125

118 119 120 121 122 123 124 125

Ibid., 11. Ibid., 102. Ibid., 103. Japan – Alcoholic Beverages II, WTO Appellate Body Report, WT/DS8/AB/R (4 October 1996), 15. Schermers and Blokker, International Institutional Law, 2. Ibid. Jean-Jacques Rousseau, The Social Contract (London: Penguin, 1968), 60. For the critique of the Rousseauian contractarian paradox, see discussion infra 2.4 “Consensus’s Contractarian Deficits and WTO Legitimacy.”

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On the other hand, the emphasis of the sovereign independence dialectically necessitates the interdependence among sovereign states in order to recognize and confirm each other’s autonomy and to control external influences. This indeed was elaborated well in the UN’s Agenda for Peace: The foundation-stone of this work [of the United Nations] is and must remain the State. Respect for its fundamental sovereignty and integrity are crucial to any common international progress. The time of absolute and exclusive sovereignty, however, has passed; its theory was never matched by reality. It is the task of leaders of States today to understand this and to find a balance between the needs of good internal governance and the requirements of an ever more interdependent world. Commerce, communications and environmental matters transcend administrative borders; but inside those borders is where individuals carry out the first order of their economic, political and social lives.126 Therefore, if globalization is the fact or even unescapable fate, there is indeed no better choice other than participating in the evolving process of the globalizing trading framework to exercise a state’s true autonomy and sovereign independence. “In committing to the WTO and its procedures and disciplines,” according to the WTO 2004 Sutherland Report, “governments are returning to themselves a degree of ‘sovereignty’ lost through the process of globalization.”127 National governments’ loss of their capacity to regulate at the domestic level will be, or in fact can only be, reclaimed through some control of their economic destinies at the multilateral level.128 The WTO evolution is then an unavoidable constitutional process of international social contract on trade swallowing states, international institutions, and individuals in the global market, a process which can be made better and fairer but cannot be avoided.

1.4 Conclusion Building on a brief examination of the historical evolution of the global trading regime from provisional GATT to the WTO, this chapter reveals the constitutional continuity of the development of the trading regime. During the process of development, while the regime’s coverage has been extended from trade in goods to services, intellectual property rights, and trade facilitation through dispute resolution, the significance of the non-discrimination principle also grew

126 United Nations, An Agenda for Peace: Preventive Diplomacy, Peacemaking and Peacekeeping, UN Report of the Secretary-General (A/47/277-S/24,111, 31 January 1992), para. 17. 127 WTO, The Future of the WTO: Addressing Institutional Challenges in the New Millennium, Report by the Consultative Board to the Director-General Supachai Panitchpakdi (The Sutherland Report; Geneva: WTO, 2004), 34. 128 Ibid.

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from covering products to individuals in various capacities. The WTO as an international organization with a three-in-one triune personality of administrative, legislative, and judicial functions, within the framework where states hold primacy, operates ultimately for individuals’ benefit. While the WTO as an intergovernmental organization in public international law leaves no space for individuals, the WTO nevertheless penetrates domestic affairs by touching on private rights either through the trade in goods mechanism (GATT) or though the intellectual property rights (TRIPS) mechanism. International trade thus appears to be an interconnecting mechanism relating states, individuals, and the WTO through the movement of goods, services, and intellectual property rights. The critical examination of the state-WTO-individual tripartite dynamics in the process of global trade’s constitutional evolution offers an in-depth understanding of the nature of the WTO as an international social contract on trade. Building on this critical conceptualization of the tripartite dynamics in international law, Chapter 2 on WTO decision-making by consensus reveals that consensus decision-making, the soul of the WTO, faces both practical and theoretical challenges. A major practical issue is that consensus involves deference to powers and problems of disenfranchisement; yet reverse consensus challenges the institutional check-and-balance against the Appellate Body’s de facto judicial finality. Single undertaking, as a natural extension of consensus, creates consent fragmentation. A major theoretical issue is that the legitimacy of the principle of consensus rests on a contractarian foundation. In the same way that “general will” underlies the social compact, consensus and single undertaking underlie WTO decision-making and build their legitimacy on members’ consent. Unfortunately, through contractarian justification’s reference to a static “original compact” as the first mover, consensus decision-making fails to take into account the evolutionary nature of consent and runs into a legitimacy issue. This book further continues the critique of the contractarian myth of WTO jurisprudence in the area of treaty interpretation in Chapter 3 on GATT’s “common intention” approach of treaty interpretation. Building on a critical examination of a high profile WTO case, the analysis of the general exception jurisprudence in China – Raw Materials, Chapter 3 offers a critique of the “common intention” approach of treaty interpretation that asserts members’ common intentions via 1969 VCLT as the customary interpretative rules. As the chapter reveals, misled by the confusion developed previously on China’s trading rights commitments, the Panel and Appellate Body failed to recognize the unforeseeable nature of general exceptions. A clear judicial activist tendency carried in the WTO Panel’s misinterpretation of the accession protocol reveals an “origin-seeking retrospective” mechanism that locates “common intentions” statically at the founding moment of the treaty framework. This further develops a failure to apply the contingency measures that balance the rigidity of the regime and a failure to acknowledge differences and flexibility, which further undermines WTO legitimacy. Its contractarian obsession with “common intentions” as a quest for legitimate consent fails on its own terms.

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Building on the previous critical examination of WTO’s jurisprudential distortion, Chapters 4 and 5 bring us back to practical cases and examine WTO’s private right distortion in international movement of goods and intellectual property rights (IPRs) as private rights, as well as the implications of the private right distortion in international trade. Chapter 4 on the NME normal value determination in the antidumping regime reveals how goods and traders in “free trade” have been trapped inside an ideological divide between market vs. non-market economies. This chapter critically examines the normal value determination of NME and its implications for the purpose of contributing to Doha antidumping reform deliberation. Accompanied by significant growth of government paternalistic discretion in domestic dumping regimes and deeply rooted in an ideological divide, NME methodology’s obsession with national divide turns free trade from traders’ commutative exchange into nations’ distributive predation. The critique suggests that when products and producers are given certain status via nationality instead of treated individually, international antidumping development becomes a process “from status to contract” and back. Beyond NME methodology’s ideological distortion of trade in goods, Chapter 5 on public health and TRIPS critically examines the dynamics between public health, IPRs, and international trade in the context of the TRIPS Amendment and its theoretical implications in international law. The chapter suggests that international efforts in the TRIPS 2003 Waiver and 2005 Amendment addressing public health concerns have not been very successful due to the birth defect of TRIPS, i.e. hoping a private-rights-in-nature regime could accommodate public interests in health concerns. TRIPS’ birth defect further reveals itself in post-TRIPS development and contributed to the failure of the TRIPS Waiver and Amendment due to the resulting practice fragmentation and procedural hurdles in domestic compulsory licensing administration. Moreover, the TRIPS Amendment raised a fundamental theoretical issue, i.e. how WTO as an international organization in public international law can regulate compulsory licensing of IPRs as private and negative rights – in particular the proprietary right to remuneration – while recognizing that TRIPS grants no positive rights. Moving away from previous points of focus to distortion of goods and private right IPRs in trade, Chapter 6 on trade and policy dynamic critically examines governments’ trade policy obligation as to anticompetitive practices in TRIPS. As an integral part of the WTO trading regime and in line with the international trend of antitrust control, TRIPS harmonized IP protection with competition in mind. However, diverse national FRAND enforcement practices that take either a contractual or antitrust approach challenge TRIPS integrity. While SEP’s personal property recognition lends constitutional support to the contractual approach to FRAND enforcement, private property’s in-built limitation warrants a balance with antitrust approach for the consideration of the needs from others. A critical examination of TRIPS’ conclusion and the analytical structure of TRIPS provisions reveals that TRIPS obligation against anticompetitive practices is imperative. The imbalance of harmonized TRIPS with un-harmonized

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FRAND practices reflects TRIPS’ birth defect and challenges TRIPS integrity with negative consequences to be borne by individuals. Building on theoretical and practical critiques above, Chapter 7 concludes with a brief outlook of the future prospects of the WTO framework as an international social contract on trade. Operating within the framework where states hold primacy, the WTO nevertheless has a soul of its own for the benefit of the individuals. The book concludes with a call for reconstruction of a WTO jurisprudence that can reflect the dynamics between the force, means, and ends of the global trading regime’s constitutional evolution. Hopefully this will lead us through the ongoing trade fragmentation more smoothly.

Bibliography General Alston, Philip. “Resisting the Merger and Acqusition of Human Rights by Trade Law: A Reply to Petersmann,” 13.4 European Journal of International Law (2002), 815–844. Cass, Deborah Z. “China and the ‘Constitutionalization’ of International Trade Law,” in Deborah Z. Cass et al. (eds.), China and the World Trading System (Cambridge: Cambridge University Press, 2003), 40–51. Crawford, James. Brownlie’s Principles of Public International Law (Oxford: Oxford University Press, 2012, 8th ed.). Dunoff, Jeffrey L. “Constitutional Conceits: The WTO’s ‘Constitution’ and Discipline of International Law,” 17.3 European Journal of International Law (2006), 647–675. Henkin, Louis. International Law: Politics and Values (The Hague: Martinus Nijhoff Publishers, 1995). Hudec, Robert E. Essays on the Nature of International Trade Law (London: Cameron May, 1999). Jackson, John H. The World Trading System: Law and Policy of International Economic Relations (Massachusetts: MIT Press, 1997, 2nd ed.). Jackson, John H. “Fragmentation or Unification among International Institutions: The World Trade Organization,” 31 N.Y.U. Journal of International Law and Politics (1999), 823–831. Jackson, John H. “International Economic Law in Times that are Interesting,” 3 Journal of International Economic Law (2000), 3–14. Jackson, John H. Sovereignty, The WTO and Changing Fundamentals of International Law (Cambridge: Cambridge University Press, 2006). Jennings, Robert and Arthur Watts. Oppenheim’s International Law (London: Longman Group UK Ltd., 1992, 9th ed., vol. I). Jessup, Philip C. A Modern Law of Nations: An Introduction (New York: The Macmillan Company, 1948). McRae, Donald M. “The WTO in International Law: Tradition Continued or New Frontier?” 3 Journal of International Economic Law (2000), 27–41. Pauwelyn, Joost. “The Role of Public International Law in the WTO: How Far Can We Go?” 95 American Journal of International Law (2001), 535–578.

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Petersmann, Ernst-Ulrich. “From ‘Negative’ to ‘Positive’ Integration in the WTO: Time for ‘Mainstreaming Human Rights’ into WTO Law?” 37.6 Common Market Law Review (2000), 1363–1382. Petersmann, Ernst-Ulrich. “Time for a United Nations ‘Global Compact’ for Integrating Human Rights into the Law of Worldwide Organizations: Lessons from European Integration,” 13.3 European Journal of International Law (2002a), 621–650. Petersmann, Ernst-Ulrich. “Taking Human Dignity, Poverty and Empowerment of Individuals More Seriously: Rejoinder to Alston,” 13.4 European Journal of International Law (2002b), 845–851. Rousseau, Jean-Jacques. The Social Contract (London: Penguin Books, 1968; translated by Maurice Cranston). Schermers, Henry G. and Niels. M. Blokker. International Institutional Law (The Hague: Martinus Nijhoff Publishers, 2011, 5th ed.). UN Documents. “Protocol of Provisional Application of the General Agreement on Tariffs and Trade,” signed at Geneva on 30 October 1947, UN Treaty Series 55, 308 (1950). UN Economic and Social Council (UN ECOSOC). Calling of an International Conference on Trade and Employment, UN Doc. E/13 (18 February 1946). United Nation. An Agenda for Peace: Preventive Diplomacy, Peacemaking and Peace-keeping, UN Report of the Secretary-General (A/47/277-S/24111, 31 January 1992). WTO. Trading into the Future (Geneva: WTO Publications, 2001, 2nd ed.). WTO. The Future of the WTO: Addressing Institutional Challenges in the New Millennium, Report by the Consultative Board to the Director-General Supachai Panitchpakdi (The Sutherland Report; Geneva: WTO Publications, 2004). WTO. World Trade Report 2017: Six Decades of Multilateral Trade Cooperation: What Have We Learnt? (Geneva: WTO Publications, 2007). WTO. 20 Years of the WTO: A Retrospective (Geneva: WTO Publications, 2015).

Cases EC – Hormones (US), WT/DS26/AB/R (16 January 1998). EC – Cotton Yarn, adopted GATT Panel Report (ADP/137, 30 October 1995). EEC – Parts and Components, adopted GATT Panel Report (L/6657 – 37S/132, 16 May 1990). EU – Poultry Meat (China), WT/DS492/R (28 March 2017). ICJ, Admission of a State to the United Nations (Charter, Art. 4), Individual Opinion by M. Alvarez, ICJ Reports 1948. ICJ, Interpretation of the Agreement of 25 March 1951 between the WHO and Egypt, Advisory Opinion, Separate Opinion of Judge Gros, ICJ Reports 1980. India – Patents (US), WT/DS50/AB/R (19 December 1997). Japan – Alcoholic Beverages II, WT/DS8/AB/R (4 October 1996). Korea – Government Procurement, WT/DS163/R (1 May 2000). US – 1916 Act (Japan), WT/DS162/AB/R (28 August 2000). US – 1916 Act (EC), WT/DS136/AB/R (28 August 2000). US – Gasoline, WT/DS2/AB/R (29 April 1996). US – Tuna II, adopted GATT Panel Report (DS/29/R, 16 June 1994). US – Section 301 Trade Act, WT/DS152/R (22 December 1999).

2

WTO decision-making by consensus1

This chapter suggests that consensus decision-making, the soul of the WTO, faces both practical and theoretical challenges. A major practical issue is that consensus involves deference to powers and problems of disenfranchisement; yet reverse consensus challenges the institutional check and balance against the Appellate Body’s de facto judicial finality. Single undertaking, as a natural extension of consensus, creates consent fragmentation. A major theoretical issue is that the legitimacy of the principle of consensus rests on a contractarian foundation. In the same way that “general will” underlies the social compact, consensus and single undertaking underlie WTO decision-making and build their legitimacy on members’ consent. Unfortunately, through contractarian justification’s reference to a static “original compact” as the first mover, consensus decision-making fails to take into account the evolutionary nature of consent. Because decision-making by consensus fails to secure members’ consent and as a consequence single undertaking leads to a fragmentation of WTO’s “general will”, the WTO decision-making process loses its legitimacy and further leads to the impasse of WTO’s accountability towards private rights. The chapter thus calls for a reconstruction of the decision-making mechanism in a way that would embrace full membership consent for a true consensus.

2.1 Introduction From the GATT to the WTO, the international trading framework has made positive contributions to the construction of international rule of law. “For more than half a century now,” as James Bacchus – the former WTO Appellate Body Chairman – suggested, “the GATT-based trading system has been establishing the international rule of law in international trade – rule by rule, and

1 An earlier version of this chapter has been published. Wenwei Guan, “Consensus Yet Not Consented: A Critique of the WTO Decision-Making by Consensus,” 17.1 Journal of International Economic Law (2014), 77–104. Revision of the article included in this book with permission from the publisher, Oxford University Press, ©2014.

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2

case by case.” During this 50 year development of the multilateral trading system, there are many significant achievements that “merit unrestrained applause.”3 In the WTO framework since the Uruguay Round, for example, the introduction of a single undertaking “with common rules and obligations for all members” and the creation of “a more effective dispute settlement mechanism” are two of the greatest achievements of the multilateral trading system.4 The new dispute settlement system in particular, termed by Mike Moore as the “jewel in the crown of multilateralism,” has attracted much praise. Many have commented on the WTO’s dispute settlement system as a “remarkably efficient and effective mechanism” for settling disputes and a “significant milestone that deserves celebration.”5 However, criticism of the legitimacy of the WTO law and on issues of WTO decision-making remains.6 Reform proposals against the status quo of the WTO call for a more efficient and effective decision-making institution.7 Among other issues, WTO decision-making by consensus, its dispute settle-

2 James Bacchus, “Groping Toward Grotius: The WTO and the International Rule of Law,” 44.2 Harvard International Law Journal (2003), 539. 3 Jagdish Bhagwati, “Fifty Years: Looking Back, Looking Forward,” in the WTO Secretariat (ed.), From GATT to the WTO: The Multilateral Trading System in the New Millennium (London: Kluwer Law International, 2000), 57. 4 Ibid., 58–59. See also Thomas Cottier, “A Two-Tier Approach to WTO Decision-Making,” in Debra P. Steger (ed.), Redesigning the World Trade Organization for the 21st Century (Ottawa: Wilfrid Laurier University Press, 2010), 49. In comparing the formal structure of the WTO to that of GATT 1947, Cottier suggested that “[t]he most significant changes have been the evolution of the GATT agreements into a single undertaking under the WTO and the fundamental structural changes undertaken in dispute settlement.” See also, Jeffrey J. Schott, “Challenges Facing the World Trade Organization,” in Jeffrey J. Schott (ed.), The World Trading System: Challenges Ahead (Washington DC: Institute for International Economics, 1996), 3–6. In addition to the single undertaking rule and the dispute settlement mechanism, Schott also mentioned the differences in terms of membership and institutional structure between the WTO and the GATT. 5 Supachai Panitchpakdi, “The WTO at Ten: Building on Ten Years of Achievements,” in Giorgio Sacerdoti, Alan Yanovich, and Jan Bohanes (eds.), The WTO at Ten: The Contribution of the Dispute Settlement System (Cambridge: Cambridge University Press, 2006), 8; Valerie Hughes, “The WTO Dispute Settlement System – from Initiating Proceedings to Ensuring Implementation: What Needs Improvement?” in Giorgio Sacerdoti, Alan Yanovich, and Jan Bohanes (eds.), The WTO at Ten, 193. 6 See, e.g. Andreas R. Ziegler and Yves Bonzon, “How to Reform WTO Decision-making? An Analysis of the Current Functioning of the Organization from the Perspective of Efficiency and Legitimacy,” NCCR Trade Regulation Working Paper No. 2007/23 (May 2007), available at SSRN: https://ssrn.com/abstract=1049441 (accessed 26 November 2019). Thomas Cottier, “The Legitimacy of WTO Law,” in Linda Yueh (ed.), The Law and Economics of Globalisation: New Challenges for a World in Flux (Cheltenham: Edward Elgar Publishing, 2009), 11–48. 7 Carolyn Deere Birkbeck and Catherine Monagle, Strengthening Multilateralism: A Mapping of Proposals on WTO Reform and Global Trade Governance (Geneva/Oxford: ICTSD and the Global Economic Governance Programme, 2009).

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ment mechanism in particular, is one of the key issues.8 These criticisms are diverse, sometimes even presenting contrasting views on the success or the failure of WTO decision-making. These call for a serious study of decisionmaking in the WTO, and its jurisprudential implications for the legitimacy of the multilateral trading regime. This chapter offers a critical examination of decision-making by consensus in the WTO and its theoretical implications. In the second section, the chapter offers a brief examination of the consensus principle and the single undertaking rule in the WTO. The chapter reveals that both consensus and single undertaking are intended to resolve GATT’s institutional defects and to level the playing field, which together play a seamless duet in decision-making in the WTO’s multilateral framework. In the third section, the chapter examines the practical issues of consensus, reverse consensus, and single undertaking in the context of decision-making in the WTO. The chapter suggests that WTO’s consensus decision-making not only pays deference to trading powers and causes a disenfranchising effect and paralysis issue, but also renders WTO judicial bodies’ de facto finality as to agreement interpretation unbalanced and challenges the entirety of the WTO regime. The chapter suggests that both consensus and single undertaking fail their institutional purpose of leveling the playing field due to practical issues of bending to power disparities, thus further raising concerns on their theoretical foundation and implications for WTO legitimacy. In the fourth section, the chapter’s theoretical critique reveals the contractarian roots of consensus and single undertaking in WTO decision-making. The chapter argues that the classic contractarian foundation underlying consensus fails to confirm the evolutionary nature of member consent. This contractarian deficit reflected in consensus decision-making further breaks the regime’s entirety and challenges the WTO legitimacy. The chapter concludes in the fifth section that the contemporary practice of WTO decision-making fails its institutional purpose of leveling the playing field. The contractarian legitimacy deficit in WTO decision-making calls for a serious revisit of the WTO decision-making mechanism for a better future of international rule of law. Although there is no detailed resolution of WTO reform offered, the right direction, however, is clear: that is to narrow the power asymmetry impact on decision-making and secure members’ consent in a dynamic process of evolution.

8 See, e.g. Thomas Cottier, “The Legitimacy of WTO Law.” For general discussion on the reform of the dispute settlement system, see e.g. Jacques Bourgeois, “The Umpire Needs Better Rules of the Game,” 235–245; Daniel Brinza, “DSU Reform: if It Is not Broken – Improve it?” 246–258; Thomas Cottier, “Resolving Underlying Balance-ofpower Issues” 259–265; in Giorgio Sacerdoti, Alan Yanovich, and Jan Bohanes eds., The WTO at Ten: The Contribution of the Dispute Settlement System (Cambridge: Cambridge University Press, 2006).

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2.2 The WTO decision-making duet: consensus and single undertaking 2.2.1 Consensus decision-making and its development Needless to say, the mechanism of decision-making and dispute settlement is of fundamental importance to most of the multilateral treaty frameworks. Among them, the WTO as a rules-based international treaty framework won much praise. Former WTO director-general Renato Ruggiero stressed that “only the multilateral system provides an agreed framework of enforceable rules for the global economy”: The WTO is rules-based. Almost uniquely in the history of international relations, the WTO is based on a set of rules – or contractual obligations – governing trade and economic policy. This greatly reduces the uncertainty surrounding transactions across national frontiers, which in turn promotes trade-related investment, job creation and economic growth. More importantly, the system helps ensure that the economic relations among nations are based on the rule of law, not the rule of power.9 As the GATT is conceived as a provisional agreement instead of a formal international organization, the General Agreement “had little in it about decision making,” except that Article XXV calls for “one nation, one vote and decision by a majority of votes cast, unless otherwise provided.”10 Therefore, the norm of decision-making in the old GATT 1947 was majority vote, yet over time developed a decision-making by consensus practice. The majority vote and consensus practice are “tightened” in the WTO to “better accommodate concerns with protecting national sovereignty and preventing imbalances in rights and obligations.”11 According to Petersmann, the general principle underlying the majority vote and consensus practice “is that the WTO does not have the power to impose new trade policy obligations.”12 In fact, the WTO recognizes the sovereign equality principle. As for decisionmaking, the WTO Agreement makes it clear that “[a]t meetings of the Ministerial Conference and the General Council, each Member of the WTO shall have one vote,” and these decisions “shall be taken by a majority of the votes cast”

9 Renato Ruggiero, “The Future Path of the Multilateral Trading System,” speech delivered at Seoul, Korea on 17 April 1997. Available online at WTO official site: www.wto.org/english/ news_e/sprr_e/seoul_e.htm (accessed 26 November 2019). 10 John H. Jackson, Sovereignty, the WTO and Changing Fundamentals of International Law (Cambridge: Cambridge University Press, 2006), 107. 11 Ernst-Ulrich Petersmann, The GATT/WTO Dispute Settlement System: International Law, International Organizations and Dispute Settlement (London: Kluwer Law International, 1997), 54. 12 Ibid.

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unless provided otherwise.13 The sovereign equality principle is generally recognized. As to decision-making in general, the WTO recognizes the importance of decision-making by consensus: The WTO shall continue the practice of decision making by consensus followed under GATT 1947. Except as otherwise provided, where a decision cannot be arrived at by consensus, the matter at issue shall be decided by voting.14 Therefore, decision-making by consensus is the norm in the WTO. According to the WTO Agreement, a decision by consensus is deemed to have been reached “if no Member, present at the meeting when the decision is taken, formally objects to the proposed decision.”15 On the face of it, any member in the WTO will be able to defeat a consensus as long as the member concerned presents at the meeting and formally objects to the decision. Therefore, the consensus principle gives every member of the WTO, no matter if they are rich or poor, an implicit veto power. Taking decision by consensus at the GATT/WTO is believed to be grounded on the “notion of sovereign equality of states derived from natural law theory and later adopted by positivists and others.”16 It is this root to the notion of sovereign equality that gives the consensus principle some flavor of the rule of law. Eminent GATT/WTO legal scholar John H. Jackson commented on the “important values” of the consensus rule that: The [consensus] rule forces the membership to achieve as wide an acceptance of new measures as possible, thus lending democratic legitimacy to measures that are finally adopted. It therefore forces the richer and more powerful members of the organization to take into consideration the needs and opinions of all parts of the organization, including the poorer and less powerful governments.17 Decision-making by consensus evolved from GATT practice. As Jackson pointed out, “[t]he practice in GATT generally was to avoid formal voting,” and even “there was in fact some fear of voting.”18 According to Jackson, “[t]he voting structure, as in so many international organizations today, bears little

13 Art. IX.1, The Marrakesh Agreement Establishing the World Trade Organization (the WTO Agreement). 14 Ibid. 15 Original footnote 1 to Art. IX.1, the WTO Agreement. 16 Richard H. Steinberg, “In the Shadow of Law or Power? Consensus-Based Bargaining and Outcomes in the GATT/WTO,” 56.2 International Organization (Spring, 2002), 339–340. 17 Jackson, Sovereignty, the WTO and Changing Fundamentals of International Law, 114. 18 John H. Jackson, The World Trading System: Law and Policy of International Economic Relations (Cambridge, MA: MIT Press, 1997, 2nd ed.), 65.

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19

resemblance to the real power relations of the participants.” The fear of voting “in fact influence[s] the negotiations toward a consensus.”20 The consensus principle can, however, lead to some serious “paralysis issues.” In the GATT era, a panel report becomes binding only after the Council approves it through consensus. When the losing party defeats the consensus, the report will not be adopted and would not have a binding status, which makes the dispute settlement process meaningless. Jackson details the “critical defect” that: In effect, the [dispute settlement] procedure which relied on consensus meant that the nation which “lost” in the panel and might otherwise be obligated to follow the panel obligations, could block the council action by raising objections to the consensus. Thus, the losing party to the dispute could avoid the consequences of its loss. This “blocking” was deemed to be the most significant defect in the GATT process.21 In the GATT era, the other blocking potential could happen at the time when the complaining party requests for a panel procedure, though this has been very difficult diplomatically after the mid-1980s.22 As the GATT dispute settlement process gained more recognition during the course of GATT development over time, more trade policy interests than goods trade, including intellectual property and services trade interests, sought to bring these interests under the dispute settlement process. The reverse consensus exceptions in the new Dispute Settlement Understanding (DSU) procedures as the Uruguay Round result cures the two blocking defects in the GATT process.23 From positive to negative consensus: “What happened at the Marrakesh Ministerial Conference in 1994 creating the WTO was a very important qualitative change, and it was done by changing one word, one adjective.”24 Under the DSU, the general rule for the Dispute Settlement Body (DSB) is still to take decision by consensus.25 However, for establishment of panels, adoption of panel and Appellate Body reports, or authorization of retaliation, the DSB makes decision by “reverse, or negative consensus.”26 The negative consensus decision-making was of fundamental importance to the multilateral trading system. Under the negative consensus decision-making,

19 Ibid. 20 Ibid., 69. 21 John H. Jackson, The Jurisprudence of GATT and the WTO: Insights on Treaty Law and Economic Relations (Cambridge: Cambridge University Press, 2000), 175. 22 Ibid., 177. 23 Ibid., 178. 24 Rufus Yerxa, “The Power of the WTO Dispute Settlement System,” in Rufus Yerxa and Bruce Wilson (eds.), Key Issues in WTO Dispute Settlement: The First Ten Years (Cambridge: Cambridge University Press, 2005), 8. 25 Art. 2.4, DSU Agreement. 26 Arts. 6.1, 16.4, 17.14, and 22.6, DSU Agreement.

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the establishment of panels and the adoption of reports become essentially automatic. Its introduction thus “resolved the problem of blockage and paralysis of the dispute settlement system which had existed under the GATT.”27 Therefore, some researchers suggest that WTO adjudicating bodies – panels and the Appellate Body – act independently like courts, and with their inherent jurisdiction, protect due process.28 Petersmann went as far to say that “this quasi-automatic adoption of the reports implies a significant ‘legalization’ and, in view of the independence of members of panels and the appellate body, a ‘quasijudicialization’ of the dispute settlement process in the WTO.”29 Taking the consensus principle as the general requirement of decision-making, the WTO as a rules-based multilateral framework makes a positive contribution to the development of the international trading regulations. The principle’s emphasis on the sovereign equality safeguards the rule of law in the international trading framework.

2.2.2 Single undertaking as consensus’s natural extension Without touching on single undertaking, our discussion of decision-making by consensus would not be a complete one, as single undertaking, as “part of an interlocking set of WTO institutional design factors,” is tightly tied to consensus “keeping the whole thing coherent, and negotiations manageable.”30 Consensus rule and the single undertaking requirement are mutually intertwined, and “a corollary of single undertaking is full consensus.”31 In fact, both consensus rule and the single undertaking requirement are guiding principles of WTO negotiations. On the one hand, consensus is assumed when no present member state objects. On the other hand, single undertaking “requires that all areas are negotiated and adopted by all parties at the same time.”32 Bellmann, Hepburn, and

27 Peter Van den Bossche, “The Making of the ‘World Trade Court’: the Origins and Development of the Appellate Body of the World Trade Organization,” in Rufus Yerxa and Bruce Wilson (eds.), Key Issues in WTO Dispute Settlement: The First Ten Years (Cambridge: Cambridge University Press, 2005), 64. 28 Andrew Mitchell, “Due Process in WTO disputes,” in Rufus Yerxa and Bruce Wilson (eds.), Key Issues in WTO Dispute Settlement: The First Ten Years, 157–158. 29 Petersmann, The GATT/WTO Dispute Settlement System, 186. 30 Robert Wolfe, “Arguing and Bargaining in the WTO: Does the Single Undertaking Make a Difference?” Paper prepared for presentation to the Canadian Political Science Association (Vancouver, Canada, June 4–6, 2008), 18. Available at: www.cpsa-acsp.ca/papers-2008/ Wolfe.pdf (accessed 26 November 2019). 31 United Nations Industrial Development Organization (UNIDO), Public Goods for Economic Development (Vienna: UNIDO, 2008), 64. 32 Christophe Bellmann, Jonathan Hepburn, and Marie Wilke, “The Challenges Facing the Multilateral Trading System in Addressing Global Public Policy Objectives,” in Gilles Carbonnier (ed.), International Development Policy: Aid, Emerging Economies and Global Policies (London: Palgrave Macmillan, 2012), 126. Emphasis original.

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Wilke suggested that both consensus and single undertaking principles “derive directly from the WTO’s nature as a member-driven organization,”33 which certainly confirms the state primacy in the tripartite dynamics.34 The single undertaking principle was first brought in as a procedural device in the Punta del Este Declaration that launched the Uruguay Round negotiation in 1986.35 By design, the single undertaking principle is to level the playing field. As the UNIDO explained: To protect the weaker nations from being pushed by the stronger ones into adopting rules or codes they oppose, WTO negotiations typically do not finish until a unanimous agreement is reached among all participating members. In practice, this implies that any country, no matter how small, has veto power, with two important clarifications. First, this is not a requirement but a practice to legitimize the adopted rules (WTO articles allow simple majority voting). Second, countries that do not participate in a negotiation because they are absent cannot veto.36 The single undertaking principle confirms the reality of interdependence between industries and sectors in international trade. As Petersmann pointed out, [t]he broad coverage of the WTO facilitates “package deal negotiations” behind a “veil of uncertainty” by linking issues concerning different subject matters, and by making progress in one area conditional on progress in another area (“overall reciprocity”), as in the Uruguay Round of multilateral trade negotiations 1986–1994.37 Horst Siebert, too, offered a nice explanation of the rationale behind the single undertaking principle. For Siebert, the multilateral trading system’s institutional order consists of several suborders, each of which is inevitably interdependent with one another.38 Therefore, “[p]ackaging advantages into one bundle is a promising approach”:

33 Ibid. 34 See discussion supra 1.2.1. 35 Miguel Rodriguez Mendoza and Marie Wilke, “Revisiting the Single Undertaking: towards a More Balanced Approach to WTO Negotiations,” in Carolyn Deere Birkbeck (ed.), Making Global Trade Governance Work for Development: Perspectives and Priorities from Developing Countries (Cambridge: Cambridge University Press, 2011), 486. 36 UNIDO, Public Goods for Economic Development, 64. 37 Petersmann, The GATT/WTO Dispute Settlement System, 54. 38 Horst Siebert, “What Does Globalization Mean for the World Trading System?” in the WTO Secretariat (ed.), From GATT to the WTO: The Multilateral Trading System in the New Millennium (London: Kluwer Law International, 2000), 158.

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WTO decision-making by consensus The single undertaking nature of the WTO reflects the concept of packaging the benefits arising in different areas of the international division of labour. In the past, plurilateral agreements, introduced in the Tokyo Round, allowed a subset of GATT members to sign contracts for specific areas. Such a procedure, though easing a contract among at least some GATT members, represents an à la carte approach and entails the risk of fragmentation of the multilateral trading system. In principle, it can be expected that the single undertaking nature of the WTO will strengthen the rule system because it forces countries to swallow less favourable rules in one area if they are compensated by rules allowing higher benefits in other areas. The approach of packaging is also helpful in focusing bargaining when a liberalization round is being concluded.39 [Original footnotes omitted.]

Among the several differences between the WTO and the GATT, Jeffrey J. Schott named the single undertaking rule of the WTO Agreement as “the most significant difference,” under which “members must accept all of the obligations of the GATT and its corollary agreements negotiated in the Tokyo and the Uruguay Rounds.”40 According to Schott, “[c]ountries that formerly received the benefits of some GATT codes without having to join and undertake new obligations must now end their ‘free ride’.”41 The European Commission advocates the single undertaking principle that “[t]his principle of a single undertaking constitutes the only guarantee of benefits of a Round to all members, and the best means to ensure an end result acceptable to all.”42 The single undertaking rule is clearly indicated in the WTO Agreement, according to which “[t]he WTO shall provide the common institutional framework for the conduct of trade relations among its Members in matters related to the agreements and associated legal instruments included in the Annexes to this Agreement.”43 In the WTO, those annexed multilateral trade agreements in Annexes 1, 2, and 3 are integral parts of the WTO Agreement, and plurilateral trade agreements in Annex 4 are also part of the Agreement and legally binding for those members that accepted them.44 According to Petersmann, the membership requirement of the WTO law is an extension of the single undertaking principle.45 Under the WTO Agreement,

39 40 41 42

Ibid., 158–159. Jeffrey J. Schott, “Challenges Facing the World Trade Organization,” 3. Ibid. European Commission, 1999. As cited in Brian Hindley, “What Subjects Are Suitable for WTO Agreement?” in Daniel L.M. Kennedy, James D. Southwick (eds.), The Political Economy of International Trade Law: Essays in Honor of Robert E. Hudec (New York: Cambridge Unviersity Press, 2002), 160. 43 Art. II.1, the WTO Agreement. 44 Arts. II.2 and II.3, the WTO Agreement. 45 Petersmann, The GATT/WTO Dispute Settlement System, 48.

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original membership applies only to those GATT contracting parties who accept the WTO Agreement together with multilateral trade agreements as well as provide GATT 1994 and GATS schedules, and late acceding members will need to do the same.46 This membership condition was agreed upon at a late stage of the Uruguay Round to deal with the GATT’s structural deficits in the fragmentation of rights and obligations and many less developed countries’ avoidance of substantive trade commitments.47 The widespread “free-riding” issue in the GATT system was therefore “significantly reduced by the single undertaking approach and membership requirements of WTO law.”48 By reference to Articles II.2 and II.4 of the WTO Agreement and a general interpretative note in Annex 1A, the Appellate Body in Brazil – Desiccated Coconut concluded that, “[u]like the previous GATT system, the WTO Agreement is a single treaty instrument which was accepted by the WTO Members as a ‘single undertaking’.”49 The Appellate Body further elaborated that: [t]he single undertaking is further reflected in the provisions of the WTO Agreement dealing with original membership, accession, non-application of the Multilateral Trade Agreements between particular Members, acceptance of the WTO Agreement, and withdrawal from it. Within this framework, all WTO Members are bound by all the rights and obligations in the WTO Agreement and its Annexes 1, 2 and 3.50 [Original footnote omitted.] Similar to consensus decision-making’s being surrounded by debates, there are several studies on the implications and reform of the single undertaking practice in the WTO.51 However, as Elsig suggested, moving away from the consensus principle and the single undertaking approach for WTO decision-making reform will need to overcome difficult “cultural hurdles,” as “the consensus principle and the single undertaking have received near universal support from WTO Members in recent years.”52 Therefore, consensus and single undertaking are not only mutually intertwined; they indeed share the same institutional purpose. On the one hand, by giving every member in the WTO a virtual veto power, the consensus principle

46 47 48 49

Arts. XI.1 and XII.1, the WTO Agreement. Petersmann, The GATT/WTO Dispute Settlement System, 48. Ibid. Brazil – Desiccated Coconut, WTO Appellate Body Report, WT/DS22/AB/R (21 February 1997), 11. 50 Ibid., 11–12. 51 Philip I. Levy, “Do We Need an Undertaker for the Single Undertaking? Considering the Angles of Variable Geometry,” in Simon J. Evenett and Bernard M. Hoekman (eds.), Economic Development and Multilateral Trade Cooperation (New York: Palgrave Macmilan, 2006), 417–438. Manfred Elsig, “WTO Decision-Making: Can We Get a Little Help from the Secretariat and the Critical Mass?” in Debra P. Steger (ed.), Redesigning the World Trade Organization for the 21st Century (Ottawa: Wilfrid Laurier University Press, 2010), 67–90. 52 Manfred Elsig, “WTO Decision-Making,” 73.

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grounds itself on the notion of sovereign equality from natural law. The principle is therefore to level the playing field. Reverse consensus was further introduced to prevent the blockage and paralysis side effects of consensus decisionmaking in the dispute settlement process.53 On the other hand, a natural deduction of single undertaking is full consensus. Single undertaking is not only intended to resolve the fragmentation and blockage in negotiation decisions as reverse consensus does in dispute settlement, but is also designed to level the playing field.54 Therefore, consensus and single undertaking play a seamless duet in decision-making in the WTO framework. However, as the next section unveils, they both fail to level the playing field as designed during WTO decision-making practice. Further theoretical enquiry indicates that they share the same theoretical deficit that goes into the roots of WTO legitimacy.

2.3 Consensus principle’s undesirable practical implications 2.3.1 The practical issues of the consensus principle Decision-making by consensus is not necessarily a panacea to enhance democracy and the rule of law. As to whether multilateral decision-making is a guarantee of legality in decision-making, Ian Brownlie suggested that “it militates in favour of legality, but it is by no means a guarantee thereof” as a power “can use its political and economic clout to ensure an artificial consensus.”55 A study on decision-making in the European Union suggested that there are five issues resulting from consensus decision-making, including issue censorship or truncation, sloppy decision-making, legitimacy issue, possibility of lagging implementation, and the increasing marginalization of the European Commission.56 Some realists have criticized that “[t]he decisions reached by consensus are actually silent votes where the outvoted minority, realizing it has lost, will capitulate (the ‘shadow of the vote’) and agree to the consensus.”57 Although Brownlie commented on consensus decision-making against a broader background of public international law, Brownlie’s realistic comment on the limitation of multilateral decision-making is also true in the GATT/

53 See supra discussion 2.2.1. 54 See supra discussion at the beginning of this section. 55 Ian Brownlie also provided two examples in the context of a discussion of the use of force by states, i.e. the cases of the US intervention in the Dominican Republic in 1965 and the invasion of Czechoslovakia by Warsaw Pact forces in 1968. Ian Brownlie, The Rule of Law in International Affairs: International Law at the Fiftieth Anniversary of the United Nations (The Hague: Martinus Nijhoff Publishers, 1998), 202. 56 Dorothee Heisenberg, “Informal Decision-Making in the Council: The Secret of the EU’s Success?” in Sophie Meunier and Kathleen R. McNamara (eds.), Making History: European Integration and Institutional Change at Fifty (New York: Oxford University Press, 2007), 73. 57 Ibid., 78.

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WTO context. Some argue that both consensus and single undertaking principles “need to be seen in the context of the overarching power asymmetries at the WTO.”58 As wealthier nations “can hold trade talks hostage more easily than poorer ones” and are better able to “withstand political pressure to join a consensus even against great opposition,” Bellmann, Hepburn, and Wilke suggested, “[t]he consensus principle is thus less about the actual consensual adoption of a final decision than about the process of consensus-building.”59 Indeed, if the consensus approach is strictly applied, it will give every member a veto which makes reaching common agreement very difficult. When it is not strictly applied, “there will often be deference to the real ‘power structure’ of the participants, and this in fact may give the most powerful of the group an even larger share of the power than policy or equity might dictate.”60 Therefore, some consider consensus as “‘shadow’ weighted voting” as consensus decisionmaking in WTO practice can be interpreted as “a hidden system of weighted voting as the reality is that larger countries find it easier to influence voting outcomes than smaller ones.”61 Low further suggested: It would be more costly for smaller countries to challenge an outcome popular with large countries than vice-versa. Similarly, blocking a consensus with a veto is much more difficult for less powerful countries. Large countries have been willing to accept a one-country one-vote arrangement on the assumption that voting would not be used and that the veto would only be applied with great moderation.62 From a sociolegal perspective, a critical examination of how international trade law mediates power relationships between states might consider consensus principle’s deference to trading power as something inevitable. Conti, for example, suggested the rule of law might not level the playing field as much as we thought as “power relationships do not disappear in legal contexts, but are instead reconfigured, authorizing new strategies and resources in the context of political and symbolic skirmishing.”63

58 Bellmann, Hepburn, and Wilke, “The Challenges Facing the Multilateral Trading System in Addressing Global Public Policy Objectives,” 126. 59 Ibid. See also, Faizel Ismail and Brendan Vickers, “Towards Fair and Inclusive Decisionmaking in WTO Negotiations,” in Carolyn Deere Birkbeck (ed.), Making Global Trade Governance Work for Development: Perspectives and Priorities from Developing Countries (Cambridge: Cambridge University Press, 2011), 461–485. 60 Dorothee Heisenberg, “Informal Decision-Making in the Council,” 69–70. 61 Patrick Low, “WTO Decision-Making for the Future,” WTO Staff Working Paper ERSD2011-05 (2 May 2011), 4. Online at: www.wto.org/english/res_e/reser_e/ersd201105_e. pdf (accessed 26 November 2019). 62 Ibid., 5. 63 Joseph A. Conti, Between Law and Diplomacy: The Social Contexts of Disputing at the World Trade Organization (Stanford, CA: Stanford University Press, 2011), 12.

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Steinberg explained consensus decision-making’s deference to power very well. In general, both realists and behavioralists believe that in hard law organizations like the GATT/WTO, there is a direct relationship between power, voting rules, and outcomes. Powerful entities like the EC and the US, however, support a consensus decision-making rule in the GATT/WTO, as “they have dominated bargaining and outcomes at the GATT/WTO from its early years.”64 In launching the Uruguay Round negotiation, “developing country power derived most proximately from law, but ultimately from the willingness of powerful countries to bargain exclusively in the shadow of law” as the Group of Five’s effort to block consensus on agenda setting was not successful.65 Similarly for agenda setting in the current Doha Round, issues including advancing initiatives, developing proposals, and drafting the final act for approval are dominated by big powers like the EC and the US.66 From GATT/WTO practice, powerful states prefer decision by consensus over weighted voting because the sovereign equality rules “provide incentives and opportunities for collecting the information necessary for successful agenda-setting process.”67 Therefore, Steinberg suggested that “GATT/WTO decision-making rules based on the sovereign equality of states are organized hypocrisy in the procedural context.”68 Aside from the deference to trading power, Jackson also explained the sluggish or paralysis effect of the consensus rule. For example, although amendments to Agreements in Annexes 2 can be proposed by any member, approval “shall be made by consensus.”69 When it is difficult to reach consensus, “the emphasis on consensus decision making in the WTO can sometimes lead to paralysis, and can be blamed for the perceived inability of the organization to achieve very much.”70 Low too suggested that “the veto implicit in consensus decision-making imparts a bias towards lowest-common-denominator outcomes.”71 In addition to the issue of sluggishness, the consensus practice also brings in other problems. Aiming at solving the blockage issue in GATT, the reverse consensus principle in decision-making in the DSU framework brings in new issues. As mentioned above, only objections formally raised by those parties to the agreement that are present at the meeting would block the consensus. Absence from a meeting or the voting procedure required or an abstaining position is not a negative, which means lesser burden on decision-making than some super-

64 Richard H. Steinberg, “In the Shadow of Law or Power? Consensus-Based Bargaining and Outcomes in the GATT/WTO,” 56.2 International Organization (Spring, 2002), 340–341. 65 Ibid., 351–353. 66 Ibid., 353–357. 67 Ibid., 361. 68 Ibid., 365. 69 Art. X.8, the WTO Agreement. 70 Jackson, Sovereignty, the WTO and Changing Fundamentals of International Law, 113. For discussion on “consensus paralysis,” see 204. 71 Low, “WTO Decision-Making for the Future,” 3.

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majority requirements. Accordingly, Jackson suggested that the consensus rule “can thus be criticized as disenfranchising members that are absent but may have strong interests to protect.”72

2.3.2 Reverse consensus and its institutional dilemma Decision-making by the Dispute Settlement Body (DSB) in general is still taken by consensus.73 Reverse consensus is introduced as an exception to the general rule in establishing the panels, adopting the panel and Appellate Body reports, and authorizing retaliations.74 However, negative consensus decision-making regarding the adoption of the panel reports, although resolving the blockage and paralysis issues in the GATT and facilitating the legalization of the dispute settlement process in the WTO, brings in problems as well.75 As the negotiators are worried about losing effective control over the adoption of panel reports and thus “would no longer be possible to stop ‘bad’ panel reports from becoming legally binding,” the appellate review was therefore introduced as “a quid pro quo for the quasi-automatic adoption of panel reports.”76 According to Peter Van den Bossche, therefore, the negotiators’ purpose in introducing the appellate procedure is “to ensure that their biggest innovation, namely the quasiautomatic adoption of panel reports by the DSB, would not have the undesirable side effect of leaving WTO Members without protection from the occasional ‘bad’ panel report.”77 The Appellate Body, however, transcends founding fathers’ “modest ambitions” and has grown into “the most important and authoritative organ of WTO dispute settlement” and is now “in all but name, the ‘World Trade Court’.”78 This development, however, creates a serious institutional issue: the concern of judicial activism. Although there might still be advocates of judicial activism in the WTO, the general view is that the WTO Agreement expects judicial restraint rather than judicial activism from the panels and Appellate Body. The “judicial activism” in WTO jurisprudence might not be consistent with what the members intended when they concluded the WTO Agreement. Under the DSU, “[r]ecommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.”79 Jackson explained this provision that:

72 73 74 75 76 77 78 79

Jackson, Sovereignty, the WTO and Changing Fundamentals of International Law, 113. Art. 2.4, DSU Agreement. Arts. 6.1, 16.4, 17.14, and 22.6, DSU Agreement. For the “benefits” of the introduction of the reverse consensus decision-making, see discussion supra 2.1. Peter Van den Bossche, “The Making of the ‘World Trade Court’,” 64. Ibid., 65. Ibid., 79. Ibid., 3.2. See also Art. 19.2, DSU Agreement.

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WTO decision-making by consensus Arguably, it resonates in the direction of a caution to the panels to use judicial restraint and avoid being too activist … So this notion of restraining panels from making changes in the rights and obligations of the nation states is quite prevalent in the system.80

In EC – Hormones, the Appellate Body actually accpted the principle of judicial restraint in its discussion of the principle of in dubio mitius as a “supplementary means” of treaty interpretation.81 Similar language can also be seen in the Standard of Review principle in the WTO antidumping regime.82 Also, it was suggested that the WTO panels and Appellate Body cannot make law. When discussing Article 3.2 of the DSU in US – Wool Shirts and Blouses, the Appellate Body stated that Article 3.2 is not meant to “encourage either panels or the Appellate Body to ‘make law’ by clarifying existing provisions of the WTO Agreement outside the context of resolving a particular dispute.”83 Therefore, the function of WTO panels and the Appellate Body is quite limited in the dispute resolution process, and judicial restraint instead of judicial activism should be the norm. Not only do WTO panels and the Appellate Body have no authority to make law, but neither do they have any authority to interpret or amend the law in a strict sense. In the WTO framework, the authority to interpret or amend the WTO Agreement and the Multilateral Trade Agreements are vested exclusively in the Ministerial Conference and the General Council.84 Of course, the WTO panels and the Appellate Body will need to interpret laws in order to deliver the judgments of the cases according to those laws. However, this interpretation should only be done to the extent that it “assist[s] in appreciating the meaning which the parties may have intended to attach to the expressions that they employed in a document,” as expressed in Article 3.2 of the DSU; no more, no less.85 Therefore, through the innovation of reverse consensus, the WTO

80 John H. Jackson, “The WTO Dispute Settlement Procedures: A Preliminary Appraisal,” in Jeffrey J. Schott (ed.), The World Trading System: Challenges Ahead (Washington DC: Institute for International Economics, 1996), 163. This was cited by Japan in Japan – Film in calling for juridical restraints. Japan – Film, WTO Panel Report, WT/DS44/R (21 March 1998), para. 6.3. 81 EC – Hormones (US), WTO Appellate Body Report, WT/DS26/AB/R (16 January 1998), para.165 and footnote 154. 82 Art. 17.6, WTO Antidumping Agreement. 83 US – Wool Shirts and Blouses, WTO Appellate Body Report, WT/DS33/AB/R (25 April 1997), 19. 84 Arts. 9.2, 10, the WTO Agreement. See also, Art. 28, GATT 1994. 85 In its discussion of the draft of the Vienna Convention on the Law of Treaties, the International Law Commission suggested that there exists no definite rules of treaty interpretation and that the purpose of interpretation is to “assist in appreciating the meaning which the parties may have intended to attach to the expression that they employed in a document.” Yearbook of the International Law Commission 1966 (YILC 1966), vol. 2, 218.

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Appellate Body’s evolution into the “world trade court” has traveled far beyond the institutional design of the WTO Agreement. To make things worse, this unexpected judicial activism that has evolved from the reverse consensus mechanism further reveals a deep-rooted institutional deficit of the WTO framework in the context of the tension between “judicial interpretation” vs. “authoritative interpretation.” Indeed, there is no mechanism in the WTO current framework that can really provide a check and balance against this judicial activism. The WTO panels and Appellate Body’s clarifications of the WTO Agreements as “judicial interpretation” are effective only to concerned parties in given cases without universal effect.86 The “authoritative interpretation” power is solely reserved to the Ministerial Conference and the General Council. According to the WTO Agreement, the Ministerial Conference and the General Council are vested with “the exclusive authority to adopt interpretations of this [WTO] Agreement and of the Multilateral Trade Agreements.”87 From an institutional design perspective, this authoritative interpretation “gives the political bodies of the WTO an opportunity to refine existing trade rules,” as well as “to correct (overturn) an interpretation given by a panel or the Appellate Body.”88 The authoritative interpretation is therefore considered as a “necessary instrument of checks and balances” against the judicial interpretation made by panels and the Appellate Body.89 However, as the adoption requires a three-fourths majority of members, the authoritative interpretation under Article IX.2 has never had any practice so far. In fact, even if the Ministerial Conference or General Council wants to overturn the “judicial interpretation” through “authoritative interpretation,” the three-fourths procedure requirement will be much more bothersome compared with panel and the Appellate Body report’s adoption through “reverse consensus,” a quasiautomatic adoption process. This imbalanced tension between “judicial interpretation” vs. “authoritative interpretation” means that decisions from panels and the Appellate Body gain the “de facto finality as interpretations of the law, even if they lack de jure finality.”90 The imbalance between “judicial interpretation” vs. “authoritative interpretation” has enormous political significance under the contemporary institutional

86 The Appellate Body pointed out in Japan – Alcoholic Beverages II that: “[a]dopted panel reports are an important part of the GATT acquis … However, they are not binding, except with respect to resolving the particular dispute between the parties to that dispute.” Japan – Alcoholic Beverages II, WTO Appellate Body Report, WT/DS8/AB/R (4 October 1996), 13. 87 Art. IX.2, the WTO Agreement. 88 Claus-Dieter Ehlermann and Lothar Ehring, “The Authoritative Interpretation under Article IX:2 of the Agreement Establishing the World Trade Organization: Current Law, Practice and Possible Improvements,” 8.4 Journal of International Economic Law (2005), 812. 89 Ibid. 90 Robert Howse, “The Most Dangerous Branch? WTO Appellate Body Jurisprudence on the Nature and Limits of the Judicial Power,” in T. Cottier, P.C. Mavroidis and P. Blatter (eds.), The Role of the Judge in International Trade Regulation: Experience and Lessons for the WTO (Ann Arbor, MI: University of Michigan Press, 2003), 15.

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framework of the WTO. As Oesch suggested, “[t]he WTO internal institutional structure has not (yet) developed according to a constitutional tradition of separation and balance of powers.”91 There is no body in the WTO that assumes a truly executive function which could serve as a check and balance against the “judicial function” of panels and the Appellate Body. Against the background of WTO scholarship which is undergoing a paradigm shift from “functionalism to constitutionalism,” the role of panels and the Appellate Body in the dispute settlement process is heading in a less deferential and more intrusive direction.92 Against this background, we see no remedy for the institutional imbalance between “judicial interpretation” vs. “authoritative interpretation.” The lost balance between “judicial interpretation” vs. “authoritative interpretation” challenges and questions the legitimacy of panels and the Appellate Body’s judicial activism arising out of reverse consensus. Under the DSU, the findings and recommendations from panels and the Appellate Body “cannot add to or diminish the rights and obligations provided in the covered agreements.”93 Any activist move from panels and the Appellate Body will certainly raise legitimacy questions and inevitably carry significant implications.

2.3.3 Single undertaking as consensus’s alienation and WTO’s entirety As revealed above, reverse consensus was introduced to resolve the blockage and fragmentation problems in GATT’s decision-making during the dispute settlement process.94 Similarly, single undertaking was introduced to tackle GATT’s free riding and fragmentation problems instead of soliciting members’ consent. Single undertaking is clearly indicated in those provisions of the WTO Agreement dealing with original membership, accession, non-application, acceptance of and withdrawal from the WTO Agreement, which suggests the WTO regime is an integral whole.95 In its explanation of the single undertaking nature of the WTO framework in Brazil – Desiccated Coconut, the Appellate Body emphasized that the WTO regime is one agreement binding all members in one proceeding.96 This means, as single undertaking, there is no fragmentation between members, and neither are the covered agreements separable from each other. Rather, the WTO regime is an integral whole: accepted by all and binding on all. According to Wolfe, The Single Undertaking is a representation of the WTO as an integrated whole where legitimacy depends on the acceptance of obligations by

91 Matthias Oesch, Standards of Review in WTO Dispute Resolution (Oxford: Oxford University Press, 2003), 234. 92 Ibid., 239–243. 93 Art. 19.2, DSU Agreement. See also Art. 3.2, DSU Agreement. 94 See discussion supra, 2.2.1, 2.3.2. 95 See discussion supra, 2.2.2. 96 Brazil – Desiccated Coconut, WTO Appellate Body Report, 12, 16. See also discussion supra 2.2.2.

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everyone. The agreements are not “enforceable” other than through willing implementation by Members, subject to its various surveillance mechanisms. The Single Undertaking is therefore part of how the WTO is constitutive of the actors; how it ensures that all have a voice and a veto.97 The single undertaking rule, as Wolfe suggested, was intended to level the playing field. This is, however, not the case in reality, even at the founding moment of the WTO. As the outcome of the Uruguay Round, the WTO Agreement defines the scope of the WTO clearly, saying that GATT 1994 “is legally distinct from” GATT 1947.98 Therefore, a country at the end of the Uruguay Round could reject the WTO and remain a party to GATT 1947 and be protected by the GATT 1947 mechanism only with respect to the trade actions of members that also remained parties to GATT 1947. However, the US subsequently withdrew from GATT 1947 following a six-month notice. The single undertaking principle that requires all Uruguay outcomes to be accepted or rejected as a whole therefore created “a major incentive” for some governments to accept “agreements that they intensely dislike and that they knew would bring them serious domestic political problems”.99 The single undertaking rule was used as a stick even at the founding moment. Therefore, although the single undertaking requirement aimed at leveling the playing field at the very beginning, single undertaking “now artificially limits the flexibilities of WTO Members in the negotiations” and “facilitates the position of those countries that hold negotiations hostage.”100 Single undertaking, and its combination with the consensus principle, might produce something unexpected. Elsig argued that the combination of consensus and single package leads to a type of “decision-trap” that is difficult to escape from.101 Craig VanGrasstek and Pierre Sauvé suggested: Paradoxically, instead of encouraging bold deals by causing each country to focus on those parts of the package that they most dearly desire, the single undertaking might promote timidity by causing each country to focus on those things that they most fear. Taken together, the rule of the single undertaking and the norm of consensus could produce an unbreakable deadlock.102

97 98 99 100 101 102

Wolfe, “Arguing and Bargaining in the WTO,” 18. Art. II.4, the WTO Agreement. Hindley, “What Subjects Are Suitable for WTO Agreement?” 158. Mendoza and Wilke, “Revisiting the Single Undertaking,” 486–487. Elsig, “WTO Decision-Making,” 86. Craig VanGrasstek and Pierre Sauvé, “The Consistency of WTO Rules: Can the Single Undertaking be Squared with Variable Geometry?” 9.4 Journal of International Economic Law (2006), 858.

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The secret lies in the reality of the power asymmetry in the WTO framework. In their comments on the deadlock of the Doha Round negotiation, Ismail and Vickers suggested that “the challenge is that each round of negotiations is based on the inequities of previous rounds.”103 According to Ismail and Vickers, “[t] his generates repeated stand-offs whereby developing countries seek to remedy past anomalies and injustices, while developed countries seek to protect sectors of decreasing competitiveness and to open up new areas of economic opportunity.”104 Moreover, “it is often the case that most of the issues included in large rounds are areas of greater interest to the more powerful players, creating an imbalance in the negotiating agenda.”105 Therefore, the function of single undertaking has to adapt to the divide between developed countries and the developing countries, or between the powerful players and the small countries. The discussion on issue linkage sheds light on this problem, as in the WTO framework, “[t]he practice of issue linkage is epitomized in the concept of the Single Undertaking.”106 Issue linkage is of critical importance to multilateral trade negotiations and the creation of the WTO would not have been possible without issue linkage. Although issue linkage can increase members’ potential gains from trade liberalization and facilitate agreement, it also “can be used by powerful countries to extract disproportionate concessions from their weaker counterparts,” and “can exacerbate power asymmetries.”107 Therefore, although the single undertaking rule was introduced to resolve the free riding and fragmentation issues in the Tokyo Round, its function, however, has to bend to the reality of power asymmetry in the WTO. The divide between the developed and the developing countries presents a new fragmentation in the WTO. The current single undertaking practice has failed to achieve its institutional purpose of ensuring “that all have a voice and a veto.” The function of single undertaking in the current WTO framework, therefore, recognizes the power asymmetry in the WTO and in fact legalizes the fragmentation between developed and developing countries. The special and differential treatment for developing countries and least developed countries (LDCs) therefore becomes groundless, which further leads to the issue of WTO legitimacy. Therefore, Mendoza and Wilke suggested, to ensure both the “success and legitimacy” of the single undertaking process, “sufficient procedural special and differential treatment for developing countries, particularly LDCs and small and vulnerable economies, needs to be provided.”108 Unfortunately, the function of

103 Ismail and Vickers, “Towards Fair and Inclusive Decision-making in WTO Negotiations,” 470. 104 Ibid. 105 Ibid. 106 Amrita Narlikar, World Trade Organization: A Very Short Introduction (Oxford: Oxford University Press, 2005), 54. 107 Ibid., 54–55. 108 Mendoza and Wilke, “Revisiting the Single Undertaking,” 503.

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single undertaking and the general tendency over time has been towards fading out the special and differential treatment and requiring poorer countries to adopt progressively deeper commitments.109 Developing countries agreed to the conceptual change of the special and differential treatment and adopted new commitments regarding intellectual property protection and investment measures in Uruguay Round in the expectation of getting better market access in agriculture, textiles, and other sectors.110 When these benefits failed to materialize, developing countries’ dissatisfaction has become one of the key factors causing the deadlock of the Doha Round negotiation.111 Though originally intended to give every member a voice and a veto and thus resolve deadlocks in negotiation, the single undertaking rule, however, caused new fragmentation and the deadlock in the Doha Round. This further leads us to the legitimacy issue of the single undertaking rule in particular and the WTO in general.

2.4 Consensus’s contractarian deficits and WTO legitimacy 2.4.1 Consensus principle’s contractarian foundation The WTO’s positive contribution to international rule of law owes much to the consensus principle that endorses sovereign equality and levels the playing field among the rich and the poor, or among the developed, developing, and least developed countries. As a matter of fact, the consensus principle confirms the fundamental principle of the international society: that international law builds on state consent. The consensus principle’s endorsement of sovereign equality through soliciting members’ consent confirms the jurisprudential fundamentals of the social contract theory in international law.112 First of all, the WTO by nature is a contract. Similar to terms of a contract in domestic law, the adopted text of an international treaty “is the result … of the meeting of minds … [and] the meeting of various motives.”113 It is probably in this regard that the Appellate Body stated in Japan – Alcoholic Beverage II that “[t]he WTO Agreement is

109 VanGrasstek and Sauvé, “The Consistency of WTO Rules,” 853–854. See also, UNIDO, Public Goods for Economic Development, 80. 110 UNIDO, Public Goods for Economic Development, 80. 111 See, for example, the coalition of developing countries known as the Like Minded Group (LMG)’s attempt to challenge the launch of the Doha Round negotiation. Amrita Narlikar, World Trade Organization, 54–55. 112 See discussion supra 1.3. 113 Roy S. Lee, “Multilateral Treaty-making and Negotiation Techniques: An Appraisal,” in B. Cheng and E.D. Brown (eds.), Contemporary Problems of International Law: Essays in Honour of Georg Schwarzenberger on his Eightieth Birthday (London: Stevens & Sons Ltd., 1988), 160.

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a treaty – the international equivalent of a contract.”114 Therefore, that “the treaty is presumed to reflect the common intention of the parties” becomes a natural “fiction.”115 During decision-making by consensus, or concluding deals as a single undertaking, members’ giving up the “implicit veto power” and accepting the decision reflects the contracting process of a “meeting of minds.” Secondly, members’ consent is also the fundamental building block of the legitimacy of consensus decision-making. This is because, if decision-making by consensus solicits members’ consent successfully, the binding force of that given agreement or decision will be evident. The consensus principle, as Jackson sugested, then lends “democratic legitimacy” to WTO decision-making and thus enhances international rule of law.116 Single undertaking too grounds itself on consent; as Wolfe sugested, single undertaking “is a symbol of the ‘collective intentionality’ of Members, of their mutual commitment to the system.”117 By allowing the input of members’ consent, decision-making by consensus is in fact an application of social contract theory in the realm of public international law. In general, justifying the legitimacy of governance from consent can be traced back to a medieval maxim as early as the first half of the 14th century, quod omnes tangit ab omnibus aprobari debet, meaning “what touches all must be approved by all.”118 As for how this consent has been given to constitute governmental legitimacy, many theorists, such as Locke, Rousseau, and Kant all boiled it down to a social contract.119 Henkin explained well that: [a] legitimate political society is based on the consent of the people, reflected in a social contract among the people to institute a government. The Social Contract generally takes the form of a constitution, which also establishes a framework of government and a blueprint for its institutions.120 In fact, social contract theory is also the foundation of the legitimacy of international governance. In his discussion of the relationship of individuals to the state under the framework of sovereignty in the international legal system, Brand suggested that the international legal framework is a “two-tiered social

114 Japan – Alcoholic Beverages II, WTO Appellate Body Report, WT/DS8/AB/R (4 October 1996), 14. 115 Isabelle Van Damme, Treaty Interpretation by the WTO Appellate Body (Oxford: Oxford University Press, 2009), 367. 116 Jackson, Sovereignty, the WTO and Changing Fundamentals of International Law, 114. 117 Wolfe, “Arguing and Bargaining in the WTO,” 19. 118 J. G. Merquior, Rousseau and Weber: Two Studies in the Theory of Legitimacy (London: Routledge & Kegan Paul, 1980), 3. 119 J. Delbrück, “Exercising Public Authority beyond the State: Transnational Democracy and/ or Alternative Legitimation Strategies?” 32 Indiana Journal of Global Legal Studies (2003). 120 Louis Henkin, Constitutionalism, Democracy, and Foreign Affairs (New York: Columbia University Press, 1990), 5.

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contract,” “under which the individual relates to the state in domestic law, and only the state relates to the international legal order in international law.”121 In his discussion of the “Mythology of Sovereignty,” Henkin argued that states are subject to the International Social Contract, and “the end of the Second World War saw a new social contract represented in the UN Charter.”122 Yet, while countries are the law-makers of international law, they at the same time are bound by international law. In general, there is no more superior authority above the countries.123 Therefore, state consent has been the foundation of the source of the binding force of international law. Henkin suggested that “state consent is the foundation of international law” and that “that law is binding on a state only by its consent remains an axiom of the political system, an implication of state autonomy.”124 The WTO judicial bodies’ emphasis on the importance of the “common intentions” in treaty interpretation indicates the significance of consent in consensus decision-making. In EC – Computer Equipment, where the Appellate Body resorted to the “common intentions of all members” to deal with the issue of what LAN equipment should cover in EC’s tariff classification, the WTO Appellate Body stated that “[t]he purpose of treaty interpretation under Article 31 of the Vienna Convention is to ascertain the common intentions of the parties.”125 This “common intention” approach has been repeatedly cited in later cases. It has indeed been a very consistent jurisprudence of WTO panels and the Appellate Body to resort to the “common intentions of all parties” for treaty interpretation in WTO dispute settlement process.126 In EC – Computer Equipment, the EC’s argument serves as a good illustration of this line of logic, in which the EC argued that “the existence of a common intention forms the

121 Ronald A. Brand, “Sovereignty: The State, the Individual, and the International Legal System in the Twenty 1st Century,” 25 Hastings International and Comparative Law Review (2002), 286–287. 122 Louis Henkin, “The Mythology of Sovereignty,” in R. St. J. Macdonald (ed.), Essays in Honour of Wang Tieya (Dordrecht: Martinus Nijhoff, 1993), 356. 123 According to Ernst-Ulrich Petersmann, this indeed is the general principle underlying the consensus practice in the WTO framework. See text associated with footnote 12 above. 124 Louis Henkin, International Law: Politics and Values First mentioned in footnote 27. 125 EC – Computer Equipment, WTO Appellate Body Report, WT/DS62/AB/R (5 June 1998), para. 84. Emphasis original. 126 See, e.g. EC – Chicken Cuts, WTO Appellate Body Report, WT/DS269/286/AB/R (12 September 2005), para. 250; US – Gambling, WTO Panel Report, WT/DS285/R (10 November 2004), para. 6.136, or WTO Appellate Body Report, WT/DS285/AB/R (7 April 2005), paras. 159–160; EC – Bananas III (Article 21.5 – Ecuador), WTO Appellate Body Report, WT/DS27/AB/RW2/ECU (26 November 2008), paras. 408–409, and footnote to para. 445; EC and Certain Member States – Large Civil Aircraft, WTO Appellate Body Report, WT/DS316/AB/R (18 May 2011), para. 845; Thailand – Cigarettes (Philippines), WTO Appellate Body Report, WT/DS371/AB/R (17 June 2011), para. 201.

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basis for the mutual consent of the signatories to be bound by an international agreement.”127 As “common intentions” are extremely crucial to WTO agreement interpretation,128 consensus and single undertaking are of fundamental significance to WTO decision-making. This brings us to the overarching concept of the importance of the “general will” to a social compact. According to Rousseau, for the “general will” to be “always right and … [tend] to the public advantage,” the general will must be general in its purpose as well as in its nature … should spring from all for it to apply to all; and … [lose] its natural rectitude when it is directed towards any particular and circumscribed object – for in judging what is foreign to us, we have no sound principle of equity to guide us.129 According to Rousseau, the general will derives its generality from the “common interest” that unites its members, and its clear expression demands the absence of “sectional associations” within.130 Inasmuch as this holds true, the disparity in the WTO due to the fragmentation between developed and developing countries will certainly destroy the “general will” expressed through consensus or in single undertaking, thus raising doubts against WTO legitimacy. This further leads us to the question of the jurisprudential implications of decision-making by consensus for WTO legitimacy.

2.4.2 A critique of the consensus principle’s contractarian deficit As indicated above, the consensus decision-making in the WTO in general or the reverse consensus in the DSU process in particular contains some inevitable issues, including deference to trading powers, the disenfranchising effect, and the sluggishness or even paralysis impacts. As the natural extension of the consensus decision-making, the single undertaking rule too internalizes the possibility of encroaching on the regime’s entirety when it bends to the reality of power asymmetry in the WTO. Further examination of this significance, following the logical line of relations between “common intentions” and agreement interpretation, consensus/single undertaking and WTO decision-making, and “general will” and a social compact, leads us to their common ground, the dependence on members’ consent.

127 EC – Computer Equipment, Appellate Body report, para. 11. Emphasis added. 128 For more discussion and critique of the “common intention” approach of treaty interpretation, see analysis infra Chapter 3. 129 Jean-Jacques Rousseau, The Social Contract (London: Penguin Books, 1968; translated by Maurice Cranston), 75. 130 Ibid., 76, 73.

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The common dependence on members’ consent further brings us to its roots in jurisprudence, the contractarian justification of legitimacy. Under classic social contract theory, autonomous and independent individuals submit themselves to the social contract – through consent – yet at the same time remain free and autonomous. According to Rousseau, the contractarian social compact is a form of association “which will defend the person and goods of each member with the collective force of all, and under which each individual, while uniting himself with the others, obeys no one but himself, and remains as free as before.”131 This unfortunately builds social contract’s governance legitimacy on a circular reasoning: when, by submitting himself to the social compact, the individual obeys no one but himself and stays free and autonomous, the individual contracts with no one but himself too.132 This unfortunate circularity renders the consent elusive and unattainable. In the same vein, decision-making by consensus or single undertaking in the WTO framework binds members to the trading regime through their consent. Therefore, decision-making by consensus inevitably encounters the same theoretical issues as traditional social contract theory does. Moreover, eminent legal historian Henry Maine criticized social contract theory as lawyers’ ahistoric “superstition,” a misuse of the “Roman jurisprudence of Contract.”133 According to Maine, social contract theory was first developed as a political explanation of monarchical authority using legal terms from the Rome Law of Contract, responding to the decay of the feudal system and the decline of the authority of the Pope after the Reformation. Therefore, “[t]he Roman jurisprudence of Contract had performed for the relation of sovereign and subject precisely the same service which, in a humbler sphere, it rendered to the relation of persons bound together by an obligation of ‘quasicontract’.”134 Maine thus pointed out, “attribut[ing] political rights and duties to an Original Compact between the governed and the governor” is a “famous error.”135 By making the social contract into the first mover of social development, the traditional social contract theory perceives the social development as a sudden leap from the state of nature to the state of civil society upon the birth of a social contract rather than a gradual and imperceptible process.136 There have long been great concerns about applying classic contractarian justification to explain governance legitimacy. Many later perspectives, including

131 Ibid., 60. 132 There is a wide range of postmodernist critique on social contract theory’s circular reasoning, see e.g. Anthony Carty, “Introduction: Post-Modern Law,” in Anthony Carty (ed.), Post-Modern Law: Enlightenment, Revolution and the Death of Man (Edinburgh: Edinburgh University Press, 1990), 23. 133 Henry Maine, Ancient Law (London: J.M. Dent & Sons Ltd., 1917), 52–53, 202–203. 134 Ibid., 203. 135 Ibid., 202. 136 Ibid., 68. According to Maine, Hobbes and Locke share this problem with each other, although they might be categorized into different schools of social contract theory.

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those from legal realists such as Maine, legal positivists such as Ronald Dworkin, neo-classical libertarians such as Hayek, neo-contractarians such as John Rawls, or in some post-modernist critiques such as that of Carty, in one way or another, suggested we should exercise great caution in taking this static, linear leap depiction of social development.137 Hayek’s description of social institutions as a spontaneous self-extended order of human cooperation is a good example. According to Hayek, social development depends on the “Extended Order of human cooperation,” and “the extended order resulted not from human design or intention but spontaneously.”138 Moreover, as Hayek suggested, social systems or institutions “are determined not simply by preceding causes but as part of a process of unconscious self-organisation of a structure or pattern.”139 Here the development of social institutions is a spontaneous selfextended evolution process rather than a linear development. As a matter of fact, not only social institutions in general, but also the WTO in particular, like most other multilateral treaty frameworks, is an open and nonexclusive arrangement, a living organic institution of a gradual and imperceptible process of evolution instead of a product of a sudden leap from the state of nature to the state of civil society upon the birth of a social contract.140 Pauwelyn described WTO’s dynamic nature as follows: [Most provisions of these modern multilateral treaties] are part of a framework or system that is continuously confirmed, implemented, adapted, and expanded, for example, by means of judicial decisions, interpretations, new norms, and the accession of new state parties (for which both the new party and the reciprocal acceptance of all, or a majority of, the existing parties are required). Not only were such treaty norms consented to when they originally emerged, but they continue to be confirmed, either directly or indirectly, throughout their existence, in particular when monitored and evolving within the context of an international organization (e.g., the WTO).141

137 For Maine and Carty, see literatures cited above. For Ronald Dworkin, see Law’s Empire (Cambridge, MA: Belknap Press, 1986), 225–226, where Dworkin discussed legal institution as “an unfolding political narrative” and law as integrity through the chain of authors of a developing story; for John Rawls, see A Theory of Justice (Cambridge, MA: Belknap Press, 1999; rev. ed.), where Rawls provided a “revision” of the classic social contract theory. 138 F. A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960), 59; The Fatal Conceit: The Errors of Socialism (London: Routledge, 1988), 6. 139 Hayek, The Fatal Conceit, 9. He also argued that “the extended order” is neither instinct nor reason but rather something in between. Ibid., 11 ff. chapter I. 140 See also discussion infra 2.4.3, for details on WTO as an incomplete contract and its evolutionary nature. 141 Joost Pauwelyn, “The Role of Public International Law in the WTO: How Far Can We Go?” 95 The American Journal of International Law (2001), 545–546.

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Therefore, the static and once-and-for-all “Original Compact” in social contract theory will have particular difficulties when it meets the dynamic, living institution of the WTO treaty framework. As Van Damme suggested “[t]he common intention is only formed once the treaty language has been drafted and will develop over time and with the accession of new parties.”142 Many examinations have demonstrated this unfinished feature of the WTO treaty framework. In his discussion of the GATT/WTO legal system, Hudec suggested that international trade law differs from domestic legal systems in its “overriding concern for ‘flexibility’ – the insistence that the law’s coercive pressures be applied in a controlled fashion which allows room for maneuver at every stage of the process,” moreover, this flexibility gives the GATT/WTO “a capacity for creative development,” some “possibility of growth.”143 Arup too, in discussion of both the “deregulatory” and “strong re-regulatory” dimensions of WTO agreements, suggested that, while WTO agreements “impose disciplines, in many respects they are best regarded as ‘unfinished stories’” with room for mediation through successive negotiations as well as adjustment in particular cases through the dispute settlement process.144 Therefore, consensus decision-making’s quest for members’ consent in “common intentions” must be understood as a dynamic process rather than at a static point of time. As the WTO is a living dynamic evolving over time, the static and once-andfor-all “Original Compact” in social contract theory fails to provide the contractarian consent needed in consensus decision-making. The social contract theory fails in its own terms in justifying consensus decision-making in the WTO, as it fails to ensure a dynamic process of forming consensus. Consensus decisionmaking therefore causes disenfranchisement in the WTO framework, and further collapses WTO legitimacy. To understand the evolutionary nature of member consent is therefore the key to WTO legitimacy.

2.4.3 The evolutionary nature of consent and the dynamic WTO legitimacy As a simple application of social contract theory – though it might be an unconscious application – the dependence of consensus decision-making on soliciting members’ consent, and the reliance on common intentions of all parties in WTO agreement interpretation, appears to be more destructive than constructive in public international law. The key lies in the failure of this application’s

142 Van Damme, Treaty Interpretation by the WTO Appellate Body, 313. 143 Robert E. Hudec, Essays on the Nature of International Trade Law (London: Cameron May, 1999), 75–76. 144 Christopher Arup, The New World Trade Organization Agreements: Globalizing Law Through Services and Intellectual Property (Cambridge: Cambridge University Press, 2000), 12–13, 40. Emphasis added.

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recognition of the evolutionary nature of members’ consent in the WTO framework. First of all, the so-called “common intentions of all parties” appear to be elusive or even unattainable.145 The purpose of treaty interpretation, as Jennings and Watts suggested, “is to establish the meaning of the text which the parties must be taken to have intended it to bear in relation to the circumstances with reference to which the question of interpretation has arisen.”146 Parties’ intention is therefore of fundamental importance. However, “[a]lthough interpretation calls for the parties’ intentions to be ascertained,” Jennings and Watts suggested that, “on inquiry their intentions as regards the matter in issue may prove uncertain and elusive, sometimes to the point of non-existence.”147 In general, a treaty’s provisions are “normally to be interpreted on the basis of their meaning at the time the treaty was concluded.”148 This is particularly true regarding treaties involving a few parties that do not have much subsequent development. When dealing with the term “dispute” in both 1836 and 1787 treaties in US Nationals in Morocco, ICJ suggested that “it is necessary to take into account the meaning of the word ‘dispute’ at the times when the two treaties were concluded.”149 However, when provisions involved are not static but evolving, things should be different as “in some respects the interpretation of a treaty’s provisions cannot be divorced from developments in the law subsequent to its adoption.”150 Indeed, the intentions of the parties of a multilateral treaty have never been static and fixed at the time of the treaty’s conclusion, but rather are dynamic and evolving. In Namibia (Legal Consequences) Advisory Opinion, the ICJ recognized “the primary necessity of interpreting an instrument in accordance with the intentions of the parties at the time of its conclusion,” yet emphasized that where concepts embodied in a treaty are “not static” and “by definition, evolutionary,” their “interpretation cannot remain unaffected by the subsequent development of law.”151 “Moreover,” the ICJ suggested, “an international instrument has to be interpreted and applied within the framework of the entire legal system prevailing at the time of the interpretation.”152

145 For a critical examination of the “common intention” approach of treaty impterpretation, see discussion infra Chapter 3, sections 3.3 and 3.4 in particular. 146 Robert Jennings and Arthur Watts, Oppenheim’s International Law (London: Longman Group UK Ltd., 1992, 9th ed., vol. I), 1267. 147 Ibid. 148 Ibid., 1282. 149 Rights of United States of America in Morocco, ICJ Reports 1952, 176, 189. 150 Jennings and Watts, Oppenheim’s International Law, 1282. 151 Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, ICJ Reports 1971, 31. 152 Ibid.

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This “evolutionary interpretation” approach was followed by the Appellate Body in the US – Shrimp case. In US – Shrimp, to interpret the term “exhaustible natural resources” in GATT Article XX(g), a provision crafted more than 50 years ago, the Appellate Body suggested that the term “must be read by a treaty interpreter in the light of contemporary concerns of the community of nations about the protection and conservation of the environment.”153 The Appellate Body continued that “the generic term ‘natural resources’ in Article XX(g) is not ‘static’ in its content or reference but is rather ‘by definition, evolutionary’.”154 As WTO obligations are continuing obligations, Pauwelyn suggested that the Appellate Body’s interpretation indicates the triumph of the “evolutionary interpretation” approach over the “contemporaneous interpretation” approach of treaty interpretation.155 As the “common intentions” of all members is unattainable, members’ consent, where consensus decision-making and the single undertaking rule ground their legitimacy, is also elusive. Jackson explained very well the evolutionary nature of members’ consent in the WTO framework: There are some important lessons in the GATT/WTO story … Perhaps the most significant lesson is that human institutions inevitably evolve and change, and concepts which ignore that, such as concepts which try to cling to “original intent of draftspersons,” or some inclination to disparage or deny the validity of some of these evolutions and changes, could be damaging to the broader purposes of the institutions. Governments (or societies) which consent to become members will not be frozen in time …156 The evolutionary nature of members’ consent is a natural result deriving from the fact that the WTO is an incomplete contract, an ever evolving and openended institution. As an open institution, the 2009 World Trade Report emphasized the importance of the balance between commitments and flexibility for the WTO regime.157 The 2009 World Trade Report explained that: [A] trade agreement is a contract that does not specify rights and duties of all parties in all possible future states of the world. Trade agreements are incomplete by nature and flexibilities offer an avenue for dealing with difficulties arising from contractual incompleteness in an agreement. Contract may also be incomplete by choice. Governments opt for flexibilities as

153 US – Shrimp, WTO Appellate Body report (12 October 1998), para. 129. 154 Ibid., para. 130. 155 Joost Pauwelyn, “The Nature of WTO Obligations,” Jean Monnet Working Paper No. 1/ 02 (2002). Available at: < https://jeanmonnetprogram.org/archive/papers/02/020101. html > (accessed 1 November 2019). 156 Jackson, Sovereignty, the WTO and Changing Fundamentals of International Law, 82. 157 WTO Secretariat, World Trade Report 2009: Trade Policy Commitments and Contingency Measures (2009, hereafter, the 2009 World Trade Report), xiii.

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Moreover, as the WTO Agreement by nature is a contract, it is naturally subject to the restraint of contract frustration. The GATT Secretariat’s note to the Negotiation Group on Dispute Settlement in the Uruguay Round discussing Article XXIII of GATT 1947 provides a good example of the evolving nature of the provisions, and thus the WTO regime. The GATT Secretariat stated: The drafters conceived Article XXIII not only as a dispute settlement clause but, notably as regards “situations complaints” in terms of Article XXIII:1 (c), also as a sort of escape clause in situations of changed circumstances (somewhat like the general legal concepts of “contract frustration” and “clausula rebus sic stantibus”).159 This “incomplete contract” approach reveals and relocates members’ consent expressed in the WTO “contract” in an evolving process. Indeed, the WTO is an open, non-exclusive regime. In most of the concluding processes of international treaty arrangements, while some countries that take part in treaty negotiations might not join the treaty in the end, those acceding countries might have never participated in the negotiation process in the first place. This is particularly the case in the establishment of the WTO. Pauwelyn suggested that modern multilateral treaties, including the WTO Agreement, are “continuing treaties” and this type of treaty norm “does not reflect a once-and-for-all expression of state consent.”160 According to Pauwelyn, [it] would be absurd and inconsistent with the genuine will of states to “freeze” such rules into the mold of the time when they were originally created and to label them an expression of state consent limited to, say, 15 April 1994.161 The WTO’s nature as an incomplete contact and the evolutionary nature of member’s consent carry fundamental implications for our examination of WTO legitimacy. As the WTO “contract” is incomplete, members’ consent is therefore evolving; consensus and single undertaking will then need to be understood as a process of evolution instead of a static framework. Under the current decisionmaking mechanism, from the deference to trading powers and disenfranchising effect in consensus decision-making, to the loss of the institutional checks and

158 Ibid., xiv. 159 GATT Secretariat, Non-Violation Complaints under GATT Article XXIII:2 (MTN.GNG/ NG13/W/31, 1 July 1989), 30. Emphasis original. 160 Joost Pauwelyn, “The Role of Public International Law,” 546. 161 Ibid.

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balances against the juridical bodies in reverse consensus, and to single undertaking’s bending towards power asymmetry, all reveal a static mechanism of consent and an unfortunate reliance on contractarian first mover’s proof of legitimacy. The “common intentions” become only “particular intentions” or the Appellate Body’s intentions, and consensus reflects only consent from those few dominant players. The developing members, though consisting the majority of the membership, indeed expressed their consent once only at the founding moment of the WTO framework and their consent has been essentially absent thereafter. As the current decision-making mechanism fails to provide a framework to solicit members’ consent through a dynamic process, the “general will” is no longer general, the common intentions are no longer common, and any consensus reached thus has not been fully consented. The members’ consent needed to build the consensus and single undertaking has thus vanished. WTO legitimacy collapses under the current mechanism of decision by consensus.

2.5 Conclusion: consensus yet consented? The international trading regime, from the GATT to the WTO, has significantly improved the international rule of law, in particular in the area of multilateral decision-making. The function and progress of the decision-making process under DSU, in particular, has regulated international trade and tamed trading powers with great success. The consensus principle’s recognition of sovereign equality and the single undertaking’s intention of giving voice and veto to all members to level the playing field in particular deserve great applause. A closer look at the consensus decision-making in the WTO, however, reveals some practical flaws in the decision-making mechanism. Firstly, consensus decision-making causes issues of paralysis and disenfranchisement in the realm of WTO general decision-making. Moreover, reverse consensus – introduced in the field of WTO dispute settlement as the cure to GATT’s paralysis in dispute settlement – leads to the loss of institutional checks and balances against the Appellate Body’s de facto judicial finality in the dispute settlement process.162 Secondly, single undertaking, as the natural extension of the consensus decision-making, bends to the power asymmetry reality in the WTO and causes new fragmentation of the “general will” in the WTO regime. All this transcends the limits of the WTO’s original institutional design set through the membership’s consent. Therefore, decision-making by consensus in reality has failed to achieve its institutional purpose of leveling the playing field.

162 Of course, the issues relating to consensus in general decision-making and reverse consensus in dispute settlement are different in nature and each has its own significance. The issue of consensus in general decision-making, however, goes to the roots of the WTO mechanism, and its resolution will iron out the institutional issue of reverse consensus in the dispute settlement process.

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A further look at the theoretical justification of decision-making by consensus raises some critical concerns about WTO legitimacy. In the same way that “general will” underlies the social compact and “common intention” underlies treaty interpretation, consensus and single undertaking are significant to WTO decision-making and build their legitimacy on member’s consent. However, when consensus only locates consent statically at a fixed moment or place, as indicated in WTO decision-making reality where consent from the membership is fragmented and disenfranchised, the contractarian consent encounters significant theoretical difficulties. This is because the WTO is an incomplete contract and member consent is by nature evolutionary. When decision-making by consensus fails to reflect members’ consent and single undertaking develops a new fragmentation of WTO’s “general will,” consensus reached has not been fully consented and the WTO decision-making process loses its legitimacy. Theoretical enquiry into the reality of WTO decision-making by consensus gives us a disappointing picture of the international rule of law in the international trading regime. A revisit of the decision-making mechanism in the WTO is absolutely necessary. As a matter of fact, there is a rich literature on the reform of the WTO mechanism. In consideration of the diversity of WTO membership and the difficulty of reaching consensus, Lawrence proposed a “club-of-clubs” approach to WTO reform, a GATT-like plurilateral framework mechanism where WTO core agreements are supplemented with additional “clubs” to which only some members would subscribe.163 Lawrence emphasized the strict voluntariness of the approach and suggested that any absence of consensus would disqualify these clubs from being part of the single undertaking.164 Lawrence believed that the “club-of-clubs” approach would “enhance the legitimacy of the WTO” by helping members to avoid undertaking obligation involuntarily.165 From a different perspective, the 2007 Warwick Report on the future of the multilateral trading system proposed a “critical mass” approach to decision-making to relax the rigidity of single undertaking,166 while Hufbauer and Schott further suggested a more flexible threshold test of “substantial coverage” of world trade or production in the affected sector.167 The “critical mass” approach, Low argued,

163 Robert Z. Lawrence, “Rulemaking Amidst Growing Diversity: A Club-of-Clubs Approach to WTO Reform and New Issue Selection,” 9.4 Journal of International Economic Law (2006), 823–835. 164 Ibid., 826. 165 Ibid., 835. 166 University of Warwick, The Multilateral Trade Regime: Which Way Forwards? The report of the first Warwick Commission (2007), 28–32. See also Low, “WTO Decision-Making for the Future,” 6. Low suggested, in the post-Uruguay negotiation of the Information Technology Agreement for example, a critical mass exists “when a sufficient number of parties that do not represent the entire membership agree upon a common course of cooperative action to be taken under the auspices of the WTO.” 167 Gary Clyde Hufbauer and Jeffrey J. Schott, “Will the World Trade Organization Enjoy a Bright Future?” Policy Brief, PB12-11 (Peterson Institute for International Economics,

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offers several advantages, including differentiating efficiently in the levels of rights and obligations among a community of highly diverse economies and “promoting greater efficiency at lower cost in multilaterally-based negotiations on trade rules.”168 Some other suggestions went even further. Baldwin for example, argued that global trade has evolved from traditional trade to supplychain trade and this “globalization’s second unbundling – the internationalization of supply chains” – challenges the current WTO regime and calls for a WTO 2.0.169 In a WTO 2.0, Baldwin proposed removing the special and differential treatment concept in the current WTO regime as he held that it is “harmful rather than helpful to developing nations,” and membership would depend only on the “old [GATT] Quad and the new manufacturing giants, particularly China” as “the vast majority of WTO members are only tangentially involved in supply-chain trade.”170 Yet our analysis indicates that the problem is not the consensus principle itself, rather its functioning mechanism. Therefore, as a temporary solution, either the “club-of-clubs” approach or the “critical mass” approach would help secure WTO legitimacy. Taking into account the current WTO consensus’s failure of the incorporation of developing members’ consent, special and differential treatment to developing countries will need to remain in place to balance the injustice done to developing countries in undertaking obligations involuntarily. The long term solution to the legitimacy deficit of the consensus principle, however, depends on the success of the capacity building of developing countries, and the construction of a more flexible mechanism to embrace consent from both the poor and the rich as well as to balance the interests of both the weak and the powerful for the sake of the rule of law. This can only be done if we return the consensus forming mechanism to a dynamic process of evolution that recognizes the diverse interests of all members. More broadly, under a unified jurisprudence of WTO as an international social contract on trade building on the dynamics between states, international institutions, and individuals, we found a critical perspective to understand the nature of the WTO consensus decision-making. As the unified jurisprudence critically suggests, consensus decision-making’s reliance on a static “original compact” as the first mover offers little justification for WTO legitimacy. Rather, the static “original compact” indeed leads to a disenfranchisement issue and consent fragmentation in WTO consensus decision-making. The evolutionary nature of consent in fact necessitates an evolutionary view of the WTO

May 2012), 8. Hufbauer and Schott suggested that “‘[c]ritical mass,’ interpreted as 90 percent or more of world trade in the relevant sector, would be a show-stopper for launching plurilateral talks within the WTO framework.” Ibid. 168 Low, “WTO Decision-Making for the Future,” 12. 169 Richard Baldwin, “WTO 2.0: Global Governance of Supply-chain Trade,” Policy Insight, No. 64 (Centre for Economic Policy Research, December 2012). 170 Ibid., 11.

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international social contract on trade, which allows a holistic view of the force, means, and ends of the constitutional evolution fully aimed at the benefit of individuals.171

Bibliography General Arup, Christopher. The New World Trade Organization Agreements: Globalizing Law through Services and Intellectual Property (Cambridge: Cambridge University Press, 2000). Bacchus, James. “Groping toward Grotius: The WTO and the International Rule of Law,” 44.2 Harvard International Law Journal (2003), 533–550. Baldwin, Richard. “WTO 2.0: Global Governance of Supply-Chain Trade,” Policy Insight, No. 64 (Centre for Economic Policy Research, December 2012). Bellmann, Christophe, Jonathan Hepburn, and Marie Wilke. “The Challenges Facing the Multilateral Trading System in Addressing Global Public Policy Objectives,” in Gilles Carbonnier (ed.), International Development Policy: Aid, Emerging Economies and Global Policies (London: Palgrave Macmillan, 2012), 117–140. Bhagwati, Jagdish. “Fifty Years: Looking Back, Looking Forward,” in the WTO Secretariat (ed.), From GATT to the WTO: The Multilateral Trading System in the New Millennium (The Netherlands: Kluwer Law International, 2000), 57–65. Bourgeois, Jacques. “The Umpire Needs Better Rules of the Game,” in Giorgio Sacerdoti, Alan Yanovich and Jan Bohanes (eds.), The WTO at Ten: The Contribution of the Dispute Settlement System (Cambridge: Cambridge University Press, 2006), 235–245. Brand, Ronald A. “Sovereignty: The State, the Individual, and the International Legal System in the Twenty First Century,” 25 Hastings International and Comparative Law Review (2002), 279–295. Brinza, Daniel. “DSU Reform: If It Is Not Broken – Improve It?” in Giorgio Sacerdoti, Alan Yanovich and Jan Bohanes (eds.), The WTO at Ten: The Contribution of the Dispute Settlement System (Cambridge: Cambridge University Press, 2006), 246–258. Brownlie, Ian. The Rule of Law in International Affairs: International Law at the Fiftieth Anniversary of the United Nations (The Hague Leiden: Martinus Nijhoff Publishers, 1998). Carty, Anthony. “Introduction: Post-Modern Law,” in Anthony Carty (ed.), Post-Modern Law: Enlightenment, Revolution and the Death of Man (Edinburgh: Edinburgh University Press, 1990), 1–38. Conti, Joseph A. Between Law and Diplomacy: The Social Contexts of Disputing at the World Trade Organization (Stanford, CA: Stanford University Press, 2011). Cottier, Thomas. “Resolving Underlying Balance-of-power Issues,” in Giorgio Sacerdoti, Alan Yanovich and Jan Bohanes (eds.), The WTO at Ten: The Contribution of the Dispute Settlement System (Cambridge: Cambridge University Press, 2006), 259–265.

171 For more details of the force, means, and ends of the WTO constitutional evolution and the unified WTO jurisprudence, see discussion supra 1.3.2, and infra Chapter 7.

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Cottier, Thomas. “The Legitimacy of WTO Law,” in Linda Yueh (ed.), The Law and Economics of Globalisation: New Challenges for a World in Flux (Cheltenham: Edward Elgar Publishing, 2009), 11–48. Cottier, Thomas. “A Two-Tier Approach to WTO Decision-Making,” in Debra P. Steger (ed.), Redesigning the World Trade Organization for the Twenty-first Century (Ottawa: Wilfrid Laurier University Press, 2010), 43–66. Deere Birkbeck, Carolyn and Catherine Monagle. Strengthening Multilateralism: A Mapping of Proposals on WTO Reform and Global Trade Governance (Geneva/Oxford: ICTSD and the Global Economic Governance Programme, 2009). Delbrück, J. “Exercising Public Authority beyond the State: Transnational Democracy and/or Alternative Legitimation Strategies?” 32 Indiana Journal of Global Legal Studies (2003), 29–43. Dworkin, Ronald. Law’s Empire (Cambridge, MA: Belknap Press, 1986). Ehlermann, Claus-Dieter and Lothar Ehring. “The Authoritative Interpretation under Article IX:2 of the Agreement Establishing the World Trade Organization: Current Law, Practice and Possible Improvements,” 8.4 Journal of International Economic Law (2005), 803–824. Elsig, Manfred. “WTO Decision-Making: Can We Get a Little Help from the Secretariat and the Critical Mass?” in Debra P. Steger (ed.), Redesigning the World Trade Organization for the Twenty-first Century (Ottawa: Wilfrid Laurier University Press, 2010), 67–90. GATT Secretariat. Non-Violation Complaints under GATT Article XXIII:2 (MTN.GNG/ NG13/W/31, 1 July 1989). Hayek, F. A. The Constitution of Liberty (Chicago: University of Chicago Press, 1960). Hayek, F. A. The Fatal Conceit: The Errors of Socialism (Abingdon: Routledge, 1988). Heisenberg, Dorothee. “Informal Decision-Making in the Council: The Secret of the EU’s Success?” in Sophie Meunier and Kathleen R. McNamara (eds.), Making History: European Integration and Institutional Change at Fifty (New York: Oxford University Press, 2007), 67–88. Henkin, Louis. Constitutionalism, Democracy, and Foreign Affairs (New York: Columbia University Press, 1990). Henkin, Louis. “The Mythology of Sovereignty,” in R. St. J. Macdonald (ed.), Essays in Honour of Wang Tieya (Dordrecht: Martinus Nijhoff, 1993), 351–358. Henkin, Louis. International Law: Politics and Values (The Hague: Kluwer Academic Publishers, 1995). Hindley, Brian. “What Subjects are Suitable for WTO Agreement?” in Daniel L. M. Kennedy and James D. Southwick (eds.), The Political Economy of International Trade Law: Essays in Honor of Robert E. Hudec (New York: Cambridge Unviersity Press, 2002), 157–170. Howse, Robert. “The Most Dangerous Branch? WTO Appellate Body Jurisprudence on the Nature and Limits of the Judicial Power,” in T. Cottier, P.C. Mavroidis and P. Blatter (eds.), The Role of the Judge in International Trade Regulation: Experience and Lessons for the WTO (Ann Arbor: University of Michigan Press, 2003), 11–42. Hudec, Robert E. Essays on the Nature of International Trade Law (London: Cameron May, 1999). Hufbauer, Gary Clyde and Jeffrey J. Schott. “Will the World Trade Organization Enjoy a Bright Future?” Policy Brief, PB12-11 (Peterson Institute for International Economics, May 2012). Hughes, Valerie. “The WTO Dispute Settlement System – From Initiating Proceedings to Ensuring Implementation: What Needs Improvement?” in Giorgio Sacerdoti,

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Alan Yanovich, and Jan Bohanes (eds.), The WTO at Ten: The Contribution of the Dispute Settlement System (Cambridge: Cambridge University Press, 2006), 193–234. International Law Commission. Yearbook of the International Law Commission 1966 (New York: UN, 1966, vol. 2). Ismail, Faizel and Brendan Vickers, “Towards Fair and Inclusive Decision-making in WTO Negotiations,” in Carolyn Deere Birkbeck (ed.), Making Global Trade Governance Work for Development: Perspectives and Priorities from Developing Countries (Cambridge: Cambridge University Press, 2011). Jackson, John H. “The WTO Dispute Settlement Procedures: A Preliminary Appraisal,” in Jeffrey J. Schott (ed.), The World Trading System: Challenges Ahead (Washington, DC: Institute for International Economics, 1996), 153–165. Jackson, John H. The World Trading System: Law and Policy of International Economic Relations (Cambridge, MA: MIT Press, 1997, 2nd ed.). Jackson, John H. The Jurisprudence of GATT & the WTO: Insights on Treaty Law and Economic Relations (Cambridge: Cambridge University Press, 2000). Jackson, John H. Sovereignty, the WTO and Changing Fundamentals of International Law (Cambridge: Cambridge University Press, 2006). Jennings, Robert and Arthur Watts. Oppenheim’s International Law (London: Longman Group UK Ltd., 1992, 9th ed., vol. I). Lawrence, Robert Z. “Rulemaking Amidst Growing Diversity: A Club-of-Clubs Approach to WTO Reform and New Issue Selection,” 9.4 Journal of International Economic Law (2006), 823–835. Lee, Roy S. “Multilateral Treaty-making and Negotiation Techniques: An Appraisal,” in B. Cheng and E.D. Brown eds., Contemporary Problems of International Law: Essays in Honour of Georg Schwarzenberger on His Eightieth Birthday (London: Stevens & Sons Ltd., 1988), 157–176. Levy, Philip I. “Do We Need an Undertaker for the Single Undertaking? Considering the Angles of Variable Geometry,” in Simon J. Evenett and Bernard M. Hoekman (eds.), Economic Development and Multilateral Trade Cooperation (New York: Palgrave Macmilan, 2006), 417–437. Low, Patrick. “WTO Decision-Making for the Future,” WTO Staff Working Paper ERSD2011-05 (2 May 2011). Maine, Henry. Ancient Law (London: J.M. Dent & Sons Ltd., 1917). Mendoza, Miguel Rodriguez and Marie Wilke. “Revisiting the Single Undertaking: Towards a More Balanced Approach to WTO Negotiations,” in Carolyn Deere Birkbeck (ed.), Making Global Trade Governance Work for Development: Perspectives and Priorities from Developing Countries (Cambridge: Cambridge University Press, 2011), 486–506. Merquior, J. G. Rousseau and Weber: Two Studies in the Theory of Legitimacy (London: Routledge & Kegan Paul, 1980). Mitchell, Andrew. “Due Process in WTO disputes,” in Rufus Yerxa and Bruce Wilson (eds). Key Issues in WTO Dispute Settlement: The First Ten Year (Cambridge: Cambridge University Press, 2005), 144–160. Narlikar, Amrita. World Trade Organization: A Very Short Introduction (Oxford: Oxford University Press, 2005). Oesch, Matthias. Standards of Review in WTO Dispute Resolution (Oxford: Oxford University Press, 2003). Panitchpakdi, Supachai. “The WTO at Ten: Building on Ten Years of Achievements,” in Giorgio Sacerdoti, Alan Yanovich and Jan Bohanes (eds.), The WTO at Ten: The

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Contribution of the Dispute Settlement System (Cambridge: Cambridge University Press, 2006), 7–12. Pauwelyn, Joost. “The Nature of WTO Obligations,” Jean Monnet Working Paper No. 1/ 02 (2002). Pauwelyn, Joost. “The Role of Public International Law in the WTO: How Far Can We Go?” 95 The American Journal of International Law (2001), 535–578. Petersmann, Ernst-Ulrich. The GATT/WTO Dispute Settlement System: International Law, International Organizations and Dispute Settlement (London: Kluwer Law International, 1997). Rawls, John. A Theory of Justice (Cambridge, MA: Belknap Press, 1999, rev. ed.). Rousseau, Jean-Jacques. The Social Contract (London: Penguin Books, 1968, translated by Maurice Cranston). Ruggiero, Renato. “The Future Path of the Multilateral Trading System,” speech delivered at Seoul, Korea on 17 April 1997. Schott, Jeffrey J. “Challenges Facing the World Trade Organization,” in Jeffrey J. Schott (ed.), The World Trading System: Challenges Ahead (Washington, DC: Institute for International Economics, 1996), 3–24. Siebert, Horst. “What Does Globalization Mean for the World Trading System?” in the WTO Secretariat (ed.), From GATT to the WTO: The Multilateral Trading System in the New Millennium (London: Kluwer Law International, 2000), 137–166. Steinberg, Richard H. “In the Shadow of Law or Power? Consensus-Based Bargaining and Outcomes in the GATT/WTO,” 56.2 International Organization (Spring, 2002), 339–374. UNIDO. Public Goods for Economic Development (Vienna: UNIDO, 2008). University of Warwick, The Multilateral Trade Regime: Which Way Forwards? The report of the first Warwick Commission (2007). Van Damme, Isabelle. Treaty Interpretation by the WTO Appellate Body (Oxford: Oxford University Press, 2009). Van den Bossche, Peter. “The Making of the ‘World Trade Court’: The Origins and Development of the Appellate Body of the World Trade Organization,” in Rufus Yerxa and Bruce Wilson (eds.), Key Issues in WTO Dispute Settlement: The First Ten Years (Cambridge: Cambridge University Press, 2005), 63–79. VanGrasstek, Craig and Pierre Sauvé. “The Consistency of WTO Rules: Can the Single Undertaking Be Squared with Variable Geometry?” 9.4 Journal of International Economic Law (2006), 837–864. Wolfe, Robert. “Arguing and Bargaining in the WTO: Does the Single Undertaking Make a Difference?” Paper prepared for presentation to the Canadian Political science Association (Vancouver, Canada, June 4–6, 2008). WTO, World Trade Report 2009: Trade Policy Commitments and Contingency Measures (Geneva: WTO Publications, 2009). Yerxa, Rufus. “The Power of the WTO Dispute Settlement System,” in Rufus Yerxa and Bruce Wilson (eds.), Key Issues in WTO Dispute Settlement: The First Ten Years (Cambridge: Cambridge University Press, 2005), 3–6. Ziegler, Andreas R. and Yves Bonzon, “How to Reform WTO Decision-making? an Analysis of the Current Functioning of the Organization from the Perspective of Efficiency and Legitimacy,” NCCR Trade Regulation Working Paper No. 2007/23 (May 2007).

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Cases Brazil – Desiccated Coconut, WT/DS22/AB/R (21 February 1997). EC – Aircraft, WT/DS316/AB/R (18 May 2011). EC – Bananas III (Article 21.5 – Ecuador), WT/DS27/AB/RW2/ECU (26 November 2008). EC – Chicken Cuts, WT/DS269/286/AB/R (12 September 2005). EC – Computer Equipment, WT/DS62/AB/R (5 June 1998). EC – Hormones (US), WT/DS26/AB/R (16 January 1998). ICJ, Rights of United States of America in Morocco, ICJ Reports 1952. ICJ, Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, ICJ Reports 1971. Japan – Film, WT/DS44/R (21 March 1998). Japan – Alcoholic Beverages II, WT/DS8/AB/R (4 October 1996). Thailand – Cigarettes (Philippines), WT/DS371/AB/R (17 June 2011). US – Gambling, WT/DS285/AB/R (7 April 2005). US – Shrimp, WT/DS58/AB/R (12 October 1998). US – Wool Shirts and Blouses, WT/DS33/AB/R (25 April 1997).

3

GATT The “common intention” approach of treaty interpretation1

Building on a critical examination of a high-profile WTO case, this chapter continues the critique of the contractarian myth of WTO jurisprudence in the area of treaty interpretation. Through an analysis of the general exception jurisprudence in China-Raw Materials, this chapter offers a critique of the “common intention” approach of treaty interpretation that asserts members’ common intentions via the Vienna Convention on the Law of Treaties (1969 VCLT) as the customary interpretative rules. As the chapter will reveal, misled by the confusion developed previously on China’s trading rights commitments, the Panel and Appellate Body failed to recognize the unforeseeable nature of general exceptions. Beginning with a misinterpretation of how an accession protocol forms “an integral part of the WTO Agreement,” the common intention approach carries a clear judicial activist tendency. Moreover, this activist approach reveals an “origin-seeking retrospective” mechanism that locates “common intentions” statically at the founding moment of the treaty framework, causing a failure to apply the contingency measures that balance the rigidity of the regime. The approach’s failure to acknowledge differences and flexibility further undermines WTO legitimacy. Its contractarian obsession with “common intentions” as a quest for legitimate consent fails on its own terms. Moreover, this contractarian obsession with “common intentions” indeed is parallel to WTO consensus decision-making’s reliance on a static “original compact” as the first mover for the regime’s legitimacy mentioned in the chapter above. The judicial activism tendency inherent in the “common intention” approach disturbs the balance in the tripartite dynamics between the states, international institutions, and individuals in the process of the constitutional evolution of the global trading regime. This chapter therefore calls for extreme caution to be applied to the “common intention” approach to allow a more dynamic understanding of evolving “common intentions” that ensures future growth of the WTO regime as a living international social contract on trade.

1 An earlier version of this chapter has been published. Wenwei Guan, “How General Should the GATT General Exceptions Be?: A Critique of the ‘Common Intention’ Approach of Treaty Interpretation,” 48.2 Journal of World Trade (2014), 219–258. Revision of the article included in this book with permission from the publisher, Kluwer Law International, ©2014.

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3.1 Introduction The balance between rigidity – as a rule-based legal system – and flexibility – from various contingency measures accommodating members’ policy considerations – is of fundamental importance to the function of the WTO. On the one hand, the WTO regime creates a seamless framework regulating international trade by providing a full-scale international trade regime regarding treatments beyond, within, or crossing the borders and on both private and governmental market behaviors. While the non-discrimination mechanism regulates treatments beyond borders through the MFN principle and regulates treatments within borders through the national treatment principle, the WTO’s market access regime against tariff and non-tariff barriers ensures smooth border crossings.2 In addition to subsidy and the countervailing regime’s constraining governments’ market distortion behaviors, the WTO’s antidumping regime makes it possible to limit private behaviors that create market distortion.3 On the other hand, flexibility is also available in various contingency measures under the WTO framework, such as the general exception, economic emergency exception, and regional integration exception under the GATT 1994 or the GATS.4 These various contingency measures allow members flexibility in implementing national policies. An appropriate balance between flexibility and commitments must be struck in order to maintain the effectiveness of the international trading system. In general, flexibility from the contingency measures in the WTO framework balancing the rigidity of trade policy commitments has made the rule-oriented regime a robust system.5 Among these various contingency measures, the general exception in GATT 1994 has been one of the most well-established safety valves, allowing WTO members to balance other public policy goals with the free trade mandate of the WTO regime. A high-profile case, China – Raw Materials, on the application of general exceptions to China’s various export restraint measures has drawn much

2 For Most-Favored-Nation (MFN) treatment, see Art. I of the General Agreement on Tariffs and Trade (GATT) 1994, Art. II of the General Agreement on Trade in Services (GATS), and Art. 4 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS); for national treatment, see Art. III of the GATT 1994, Art. XVII of the GATS, and Art. 3 of the TRIPS. While MFN requirement equalizes treatments to other members beyond the border, national treatment mandates equal treatment between imported goods/service providers and national goods/service providers within border. Non-discrimination principle therefore mandates equal treatments within and beyond border. See discussion supra 1.1. 3 For WTO’s antidumping regime, see Art. VI of the GATT 1994 and Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement); for WTO’s subsidy and countervailing regime, see Art. VI and Art. XVI of the GATT 1994 and the Agreement on Subsidies and Countervailing Measures. 4 For general exception, see Art. XX of GATT 1994 and Art. XIV of GATS; for economic emergency exception, see Art. XIX, GATT 1994; and for regional integration exception, see Art. XXIV of GATT 1994 and Art. V of GATS. 5 WTO Secretariat, World Trade Report 2009: Trade Policy Commitments and Contingency Measures (hereafter, World Trade Report 2009), 2009.

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attention to the application of contingency measures to justify trade restraint practices in the WTO.6 This case is considered as a prelude to the fight against China’s attempts to influence the global trade of rare earth.7 Building on their success in the case, the United States, the EU, and Japan brought another WTO case challenging China’s rare earth exportation regime.8 The application of the general exception in the China – Raw Materials case – including of course the China – Rare Earths case – will have significant impact on members’ sovereignty over the exploration of their natural resources.9 However, neither GATT panels nor WTO panels and the Appellate Body have developed a coherent set of jurisprudence in applying the general exceptions. Rather, the interpretations in applying general exceptions are sometimes misleading or even conflicting. GATT panels have struggled with the application of GATT Article XX and have developed a variety of inconsistent interpretations.10 Neither have WTO panels or the Appellate Body developed a coherent set of interpretations of general exceptions during their adjudication practices so far.11 In the two most recent China related cases that involve the issue of general exceptions, the Appellate Body dealt with similar situations differently. In China – Raw Materials, the Appellate Body rejected China’s reference to GATT’s general exception clause.12 However, in China – Publications and Audiovisual Products, the Appellate Body completed the Panel’s analysis and suggested that China may resort to the justifi-

China – Raw Materials, WTO Appellate Body Report, WT/DS398/AB/R (30 January 2012). 7 Julia Ya Qin, “The Predicament of China’s ‘WTO-Plus’ Obligation to Eliminate Export Duties: A Commentary on the China-Raw Materials Case,” Editorial Comments, 11 Chinese Journal of International Law (2012), para. 4. 8 China – Rare Earths, DS431/432/433. The Appellate Body Report was adopted on 29 August 2014. 9 Geert Van Calster, “China, Minerals Export, Raw and Rare Earth Materials: A Perfect Storm for World Trade Organization Dispute Settlement,” 22(1) Review of European Community & International Environmental Law (2013), 117–122. See also, Julia Ya Qin, “The Predicament of China’s ‘WTO-Plus’ Obligation,” para. 25. 10 See, e.g. US – Canadian Tuna, adopted GATT Panel Report (L/5198 – 29S/91, 22 February 1982); Thailand – Cigarettes, adopted GATT Panel Report (DS10/R – 37S/200, 7 November 1990); US – Tuna (Mexico), un-adopted GATT Panel Report (DS21/R – 39S/ 155, 3 September 1991); US – Tuna (EEC), un-adopted GATT Panel Report (DS29/R, 16 June 1994). 11 See, e.g. US – Gasoline, WTO Panel Report, WT/DS2/R (29 January 1996), and WTO Appellate Body Report, WT/DS2/AB/R 9 (29 April 1996); US – Shrimp, WTO Panel Report, WT/DS58/R (15 May 1998); EC – Asbestos, WTO Panel Report, WT/DS135/R (18 September 2000). See also, Ingo Venzke, “Making General Exceptions: the spell of precedents in developing article XX GATT into standards for domestic regulatory policy,” 12(5) German Law Journal (2011), 1111–1140. 12 China – Raw Materials, WTO Appellate Body Report, para. 307. 6

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cation of general exceptions in fulfillment of China’s trading rights commitments laid down in China’s Accession Protocol.13 This draws our attention to the Appellate Body’s jurisprudence regarding general exceptions. How general do the general exceptions mean to be in GATT 1994? Building on a critical examination of above two cases, this chapter offers a critical analysis of the WTO’s jurisprudence of general exceptions and the implications of the WTO Appellate Body’s interpretative approach, the “common intention oriented approach” of treaty interpretation.14 In section two, this chapter reveals that the common intention approach’s failure to apply general exceptions in China – Raw Materials is mostly due to a confusion developed in the analysis of China’s trading rights commitments in a previous case. Also, the Panel and Appellate Body’s errors in understanding the unforeseeable nature of contingency measures have misdirected the application of Article XX of GATT 1994 in the case. In section three, beginning with a critique of the case’s interpretation of how the accession protocol constitutes an integral part of the WTO Agreement, this chapter offers a critical examination of the common intention interpretation approach. This chapter reveals that the judicial activist common intention approach deviates from the general interpretative practice of public international law, and its contractarian obsession with the elusive or even unattainable “common intentions” contains serious theoretical deficits. Further analysis in section four suggests that the common intention approach’s judicial activist deficit and the lost contractarian consent in treaty interpretation creates an “originseeking retrospective” mechanism. Through this “origin-seeking retrospective” mechanism, the WTO can only find its legitimacy from the static common intentions at the founding moment of the trading regime. WTO legitimacy collapses when the approach loses sight of dynamic consent, due to the approach’s contractarian obsession with this illusory static common intention at the founding moment. Building on the above critical examination, this chapter calls for extreme caution in using the problematic “common intention” approach. The chapter concludes that the “common intentions” of all members can only be found in an evolving process – instead of at a static founding moment – allowing differences to enrich the evolution of the WTO framework. Flexibility of contingency measures can then balance the rigidity of the framework, which together makes the WTO framework an effective, robust, and evolving trading regime.

13 China – Publications and Audiovisual Products, WTO Appellate Body Report, WT/DS363/ AB/R (21 December 2009), para. 233. 14 For the “common intention oriented interpretation approach,” see infra a brief introduction in section 2.1, and detailed discussion in sections 3.1–3.3.

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3.2 How general should the GATT general exceptions be? 3.2.1 Panel and Appellate Body’s analysis in China – Raw Materials The China – Raw Materials case concerns China’s various restraint measures, including export duties, export quota, export licensing, and minimum export price requirement on the exportation of certain raw materials. The US, EU, and Mexico brought the complaint to the WTO dispute settlement body claiming that China’s export restraint measures were inconsistent with China’s commitments under China’s Accession Protocol.15 According to the Accession Protocol, “China shall eliminate all taxes and charges applied to exports unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the provisions of Article VIII of the GATT 1994.”16 By reference to China – Publications and Audiovisual Products, China claimed that the inherent right to regulate trade allows China to resort to general exception clause for its WTO-inconsistent export restraint measures.17 In that case, the issue put focus on Paragraph 5.1 of China’s Accession Protocol on China’s trading rights commitment in which the Appellate Body confirmed China’s right to resort to general exceptions for justification.18 In relation to enterprise trading rights, China’s Accession Protocol states: Without prejudice to China’s right to regulate trade in a manner consistent with the WTO Agreement, China shall progressively liberalize the availability and scope of the right to trade, so that, within three years after accession, all enterprises in China shall have the right to trade in all goods throughout the customs territory of China, except for those goods listed in Annex 2A which continue to be subject to state trading in accordance with this Protocol. Such right to trade shall be the right to import and export goods. … China shall complete all necessary legislative procedures to implement these provisions during the transition period.19 In China – Publications and Audiovisual Products, the Appellate Body pointed out that the introductory clause of Paragraph 5.1 of China’s Accession Protocol “is a reference to China’s power to subject international commerce to regulation,” and the wording of “consistent with the WTO Agreement” within the introductory clause indicates the exercise of this power “must be shown to conform to WTO discipline.”20 The Appellate Body therefore concluded that

15 China – Raw Materials, WTO Appellate Body Report, paras. 1, 2. 16 Paragraph 11.3, Protocol on the Accession of the People’s Republic of China (China’s Accession Protocol). 17 China – Raw Materials, WTO Appellate Body Report, para. 49. 18 Ibid., para. 49. 19 Paragraph 5.1, China’s Accession Protocol. 20 China – Publications and Audiovisual Products, WTO Appellate Body Report, paras. 220, 222.

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“China may rely upon the introductory clause of paragraph 5.1 of its Accession Protocol and seek to justify these provisions as necessary to protect public morals in China, within the meaning of Article XX(a) of the GATT 1994.”21 The result of confirming China’s reference to general exception in GATT 1994 might be right; its reasoning unfortunately is, however, misleading as the Appellate Body failed to appreciate the all-embracing nature of general exception and the meaning of accession protocol as an integral part of the WTO Agreement.22 The Appellate Body’s analysis in this case misled the Panel and Appellate Body’s analysis later on in China – Raw Materials. In China – Raw Materials, both the Panel and Appellate Body relied on the 1969 Vienna Convention on the Law of Treaties (1969 VCLT) as the customary rules of interpretation of public international law for agreement interpretation.23 According to the Panel in the case, general exceptions apply only to violations of the GATT 1994, and China’s recourse to the justifications of Article XX was allowed by the Appellate Body in China – Publications and Audiovisual Products because Paragraph 5.1 successfully incorporates Article XX of the GATT 1994 into the Protocol “by way of reference.”24 However, Article XX was not intended to apply to Paragraph 11.3 of China’s Accession Protocol, as “no such [referencing] language is found in Paragraph 11.3 of China’s Accession Protocol.”25 The Panel therefore concluded that: [T]he wording and the context of Paragraph 11.3 precludes the possibility for China to invoke the defence of Article XX of the GATT 1994 for violations of the obligations contained in Paragraph 11.3 of China’s Accession Protocol. … [T]here is no basis in China’s Accession Protocol to allow the application of Article XX of the GATT 1994 to China’s obligations in Paragraph 11.3 of the Accession Protocol.26 Similarly, the Appellate Body in China – Raw Materials was also misled. The Appellate Body in China – Raw Materials looked at the text and the context of

21 Ibid., para. 233. 22 For discussion of the all-embracing nature of general exception, see infra section 3.2.2; and for discussion on the meaning of accession protocol as an integral part of the WTO Agreement, see infra section 3.3.1. 23 China – Raw Materials, WTO Panel Report, para. 7.115, or Appellate Body report, para. 278. The Vienna Convention on the Law of Treaties (1969 VCLT), done at Vienna, 23 May 1969, 1155 UNTS 331; 8 I.L.M., 679. 24 China – Raw Materials, WTO Panel Report, paras. 7.153, 7.119. 25 Ibid., para. 7.154. 26 Ibid., paras. 7.158, 7.159. The Panel further pointed out that (para. 7.159): To allow such exceptions to justify a violation when no exception was apparently envisaged or provided for, would change the content and alter the careful balance achieved in the negotiation of China’s Accession Protocol. It would thus undermine the predictability and legal security of the international trading system.

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Paragraph 11.3 of the Protocol as guided by the 1969 VCLT. Body stated that:

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[A]s China’s obligation to eliminate export duties arises exclusively from China’s Accession Protocol, and not from the GATT 1994, we consider it reasonable to assume that, had there been a common intention to provide access to Article XX of the GATT 1994 in this respect, language to that effect would have been included in Paragraph 11.3 or elsewhere in China’s Accession Protocol.28 Relying on the 1969 VCLT as the customary rules of treaty interpretation to identify parties’ common intentions in the agreement, the Appellate Body here established the “common intention oriented approach” of treaty interpretation.29 As the immediate consequence of the approach’s application, the Appellate Body therefore upheld the Panel’s finding that “there is no basis in China’s Accession Protocol to allow the application of Article XX of the GATT 1994 to China’s obligations in Paragraph 11.3 of the Accession Protocol.”30 However, the Appellate Body’s analysis in China – Publications and Audiovisual Products is problematic, which misled the China – Raw Materials case later on. First of all, the Appellate Body’s analysis is logically problematic and unreasonable. Following the Appellate Body’s reasoning, as Paragraph 5.1 is the only place that contains the “without prejudice” reference, any other commitments in the Accession Protocol should be interpreted in a way causing prejudice against China’s right to regulate trade. For other WTO members, therefore, their “right to regulate trade” will be subject to prejudice if their Accession Protocols do not contain the same reference as paragraph 5.1 does. It should be mentioned here that there is no agreed discipline on export restrictions and taxes under current WTO framework.31 Japan, Switzerland, and European Communities have been advocating in the Doha Development Round negotiations to strengthen the disciplines and even eliminate export taxes.32 This has not been very successful so far. China is the only current WTO member that has imposed on itself self restraint measures of exportation taxes and charges.33 China’s self restraint commitments are therefore voluntary

27 China – Raw Materials, WTO Appellate Body Report, para. 278. 28 Ibid., para. 293. Emphasis added. 29 For the chapter’s critique of the “common intention oriented approach” of treaty interpretation, see infra discussion sections 3.3.1–3.3.3. 30 Ibid., para. 307. 31 WTO Secretariat, “Agriculture Negotiations: Backgrounder.” Available online at WTO official website: www.wto.org/english/tratop_e/agric_e/negs_bkgrnd09_taxes_e.htm (accessed 26 November 2019). 32 See e.g. F. Williams, “EU Aims to Curb Export Taxes in Doha Talks,” Financial Times (London, 30 March 2006). 33 China – Publications and Audiovisual Products, WTO Appellate Body Report, para. 83.

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offers without fair consideration in return.34 China’s “WTO-Plus” obligation to eliminate export taxes and charges is considered to be inconsistent with and thus should give way to the principle of permanent sovereignty over natural resources in international law.35 Denying legitimate flexibility of general exceptions under the GATT framework to China’s commitments under Paragraph 11.3 of the Accession Protocol creates prejudice against China’s right to regulate trade in a WTO consistent manner. China’s reference to general exceptions under paragraph 5.1 unfortunately misled the discussion. Secondly, China – Publications and Audiovisual Products reveals the Appellate Body’s failure to understand the context and nature of the trading rights commitments in paragraph 5.1. Under the Protocol, just after section 5 “right to trade” about trading rights of enterprises and individuals, section 6 “state trading” covers administration of state trading enterprises. Within this context, Paragraph 5.1 of the Protocol deals with who has the right to trade instead of what goods are to be traded and how. General exception to trade in terms of what goods are to be traded and how is therefore irrelevant. In fact, the US in the case argued that the right to regulate trade “applies to measures addressing the goods being traded rather than the traders of those goods.”36 In the context of the trading rights commitments, the Working Party Report states that: With respect to the grant of trading rights to foreign enterprises and individuals … [t]he representative of China emphasized that foreign enterprises and individuals with trading rights had to comply with all WTO-consistent requirements related to importing and exporting, such as those concerning import licensing, TBT and SPS, but confirmed that requirements relating to minimum capital and prior experience would not apply.37 This clearly indicates that the trading rights commitments cover only trader issues instead of goods issues that are to be covered in other commitments relating to licensing, TBT and SPS. The Appellate Body actually admitted that this context “shed[s] light on the types of regulatory measures in respect of trade in goods.”38 It is therefore problematic of the Appellate Body to regard “the obligations assumed by China in respect of trading rights, which relate to traders,

34 Paragraphs 155 and 156 of the Report of the Working Party on the Accession of China (Working Party Report, WT/ACC/CHN/49, 1 October 2001), which are identical to paragraph 11.3 of China’s Accession Protocol, are not included into the WTO Agreement via paragraph 342 of the Working Party Report. 35 Julia Ya Qin, “The Predicament of China’s ‘WTO-Plus’ Obligation,” para. 25. 36 China – Publications and Audiovisual Products, WTO Appellate Body Report, para. 207. Emphasis added. 37 Paragraph 84(b), Working Party Report. 38 China – Publications and Audiovisual Products, WTO Appellate Body Report, paras. 224–225. Emphasis added.

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and the obligations imposed on all WTO Members in respect of their regulation of trade in goods, as closely intertwined.”39 Also, the Appellate Body’s error indicates that the nature of China’s trading rights commitments has been misunderstood. As the wording “without prejudice to China’s right to regulate trade” in the Protocol indicates, granting enterprises the “right to trade” will be a legitimate limit to China’s right to regulate trade, which entitles enterprises to have China refrain from doing acts that might harm enterprises. What then the trading rights commitments under paragraph 5.1 recognize is a “negative right” to grant enterprises right to foreign trade that they did not have before. This by nature is a negative right, “a right entitling a person to have another refrain from doing an act that might harm the person entitled.”40 On the contrary, a “positive right” means “a right entitling a person to have another do some act for the benefit of the person entitled.”41 Therefore, the trading rights commitments, instead of providing for the grant of positive right to exploit certain subject matter, provide for the grant of negative rights to prevent certain acts from being performed by the government. The “negative right” nature excludes the Appellate Body’s broad interpretation embracing what goods are to be traded and how under the trading rights commitments. Finally, the Appellate Body’s interpretation also contains a serious jurisprudential problem. Before WTO entry, the right to engage with foreign trade was limited to foreign-invested enterprises (FIEs), registered foreign trade companies, and certain state-owned enterprises (SOEs). Should this situation continue, China for sure will violate its trading rights commitments. China’s amendment to the Foreign Trade Law in 2004, three years after WTO entry, lifted the ban to foreign trade, through which all enterprises and individuals in China have enjoyed the right to foreign trade since then.42 If the trading rights commitments concern the trader issue only, China’s trading rights commitments were then fulfilled. Taking trading rights commitments as something related to what goods were to be traded and how would make it a commitment covering licensing, TBT, SPS, and other issues that have been covered by other commitments, which renders the scope and extent of the trading rights commitments uncertain and further makes the three year transition period meaningless. Therefore, taking the trading rights commitments as ones that cover both trader and goods issues, the fulfillment of the commitment in three years after entry becomes impossible to assess. This in turn is against the general principle of interpretation as emphasized by the Appellate Body in US – Gasoline that “interpretation must

39 40 41 42

Ibid., para. 226. Emphasis added. Bryan A. Garner, Black’s Law Dictionary (St. Paul, MN: Thomson Reuters, 2009, 9th ed.). Ibid. Art. 8, the newly added provision in PRC Foreign Trade Law in 2004 extends the coverage of “foreign trade business operators” to all enterprises, organizations, and individuals.

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give meaning and effect to all the terms of a treaty.”43 As the trading rights commitments deal with who has the right to trade instead of what goods are to be traded and how, China’s measures concerning how reading materials, sound recordings, and films to be imported are irrelevant to the trading rights commitments under Paragraph 5.1 of China’s Accession Protocol. It is important to know that, the WTO as an emancipatory international social contract on trade, ultimately aims at benefiting individuals through securing equal treatments to traders in various capacities in the global marketplace.44 Therefore, the confusion developed in applying general exceptions to Paragraph 5.1 of China’s Accession Protocol unfortunately affected later analysis in China – Raw Materials. Moreover, as will be revealed next, the Appellate Body’s errors travel beyond this, covering the understanding of the nature of general exceptions as legitimate contingency measures in the WTO framework. Most importantly, the Appellate Body’s interpretation approach – asserting the “common intentions” of all members by using the 1969 VCLT as the codified customary rules of interpretation – reveals some inherent jurisprudential deficits.45

3.2.2 The all-embracing and unforeseeable nature of general exceptions In addition to the error of misinterpretation of China’s trading rights commitments as indicated above, the Panel and Appellate Body in China – Raw Materials also erred in their understanding of the nature of general exceptions. As an international trading framework, the fundamental function of the WTO is of course to promote free trade. In order to maintain the effectiveness of the regime, however, the rigidity of rules and commitments promoting free trade are subject to checks and balances with flexibility accommodating the political needs of members.46 The 2009 World Trade Report well illustrates the tension between trade policy commitments and contingency measures:

43 US – Gasoline, WTO Appellate Body Report, 23. 44 See discussion supra 1.2.3. 45 For the common intention approach’s jurisprudential deficits, see analysis infra sections 3.3.1–3.3.3. 46 See Peter Sutherland et. al., The Future of the WTO: Addressing institutional challenges in the new millennium (the Sutherland Report) (Geneva: WTO Press, 2004). The Sutherland Report states (para. 39, emphasis original): It is important to grasp the central role of the WTO’s rules. Neither the WTO nor the GATT was ever an unrestrained free trade charter. In fact, both were and are intended to provide a structured and functionally effective way to harness the value of open trade to principle and fairness. In so doing they offer the security and predictability of market access advantages that are sought by traders and investors. But the rules provide checks and balances including mechanisms that reflect poltical realism as well as free trade doctrine. It is not that the WTO disallows market protection, only that it sets some strict disciplines under which governments may choose to respond to special interests.

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Trade agreements define rules for the conduct of trade policy. These rules must strike a balance between commitments and flexibility. Too much flexibility may undermine the value of commitments, but too little flexibility may render the rules unsustainable.47 Therefore, contingency measures – called also escape clauses, trade remedies, or safety valves – are provided in various agreements in the WTO framework to offer members certain flexibility in fulfilling their WTO obligations. Under the current GATT 1994 framework, general exceptions under Article XX, security exceptions under Article XXI, economic emergency exceptions under Article XIX, regional integration exceptions under Article XXIV, and balance-ofpayment exceptions under Articles XII and XVIII:b provide contingency measure flexibility to members for balancing the rigidity of the trading framework. Moreover, the existence of contingency measures is not just for the sake of convenience, rather is a practical necessity due to the nature of the WTO trading regime. As the 2009 World Trade Report pointed out: [A] trade agreement is a contract that does not specify rights and duties of all parties in all possible future states of the world. Trade agreements are incomplete by nature and flexibilities offer an avenue for dealing with difficulties arising from contractual incompleteness in an agreement. Contract may also be incomplete by choice. Governments opt for flexibilities as a trade-off between the benefits of a more detailed agreement and the costs associated with writing such an agreement.48 This “incomplete contract” approach reveals very well the unforeseeable nature of the circumstances for invoking contingency measures.49 Therefore, “the fundamental reason” for incorporating certain contingency measures into trade agreements “is for governments to manage circumstances that cannot be anticipated prior to their occurrence.”50 The GATT Secretariat’s note to the Negotiation Group on Dispute Settlement in the Uruguay Round discussing Article XXIII of GATT 1947 provides a good example of the escape clause’s application under unforeseeable circumstances. The GATT Secretariat stated: The drafters conceived Article XXIII not only as a dispute settlement clause but, notably as regards “situations complaints” in terms of Article XXIII:1 (c), also as a sort of escape clause in situations of changed circumstances

47 48 49 50

World Trade Report 2009, xiii. Ibid., xiv. See critique supra 2.4.3 on the static contractarian reading of the WTO framework. World Trade Report 2009, xiii.

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This is basically why the safety valves, trade remedies, or escape clauses are also called contingency measures. The word “contingency” as a noun means “a future event or circumstance which is possible but cannot be predicted with certainty,” or as in philosophy, “the absence of necessity or the fact of being so without having to be so.”52 In addition to their unforeseeability, the general exceptions are in nature contingency measures with very general application. As the word “general exceptions” implies, Article XX covers a wide range of GATT obligations. As an adjective, the word “general” means “affecting or concerning all or most things, or widespread.”53 Compared with other exceptions, such as security exceptions, economic emergency exceptions, and regional integration exceptions, Article XX has more general application. This in fact is consistent with the textual meaning of the word “general.” The Appellate Body’s interpretation in US – Gasoline case confirms this reading of the nature of general exceptions. When discussing the introductory clause, the “chapeau” of Article XX of GATT 1994, the Appellate Body stated: The chapeau says that “nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures …” The exceptions listed in Article XX thus relate to all of the obligations under the General Agreement: the national treatment obligation and the most-favoured-nation obligation, of course, but others as well.54 This discussion reveals the nature of the extensive coverage of Article XX, which indicates that the GATT general exceptions are indeed “very general.” The Appellate Body’s interpretation of confirming the exception applicable to “all of the obligations under the General Agreement” denotes its nature of general application. As long as it is an obligation under the GATT 1994 framework, the Article XX mechanism should apply provided the related requirements are satisfied. General exception provision’s early drafting history also indicates Article XX’s nature of general application to GATT obligations. The current general exceptions Article XX and security exceptions Article XXI were combined together as Article 32 in the earliest draft of the International Trade Organization charter

51 GATT Secretariat, Non-Violation Complaints under GATT Article XXIII:2 (MTN.GNG/ NG13/W/31, 1 July 1989), 30. Emphasis original. 52 Oxford Dictionaries, available online at: www.lexico.com/en/definition/contingency (accessed 26 November 2019). 53 Oxford Dictionaries, available online at: www.lexico.com/en/definition/general (accessed 26 November 2019). 54 US – Gasoline, WTO Appellate Body Report, 24. Emphasis added.

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proposed by the US – the US draft – and remained combined in the later drafts as Article 37 of the London and New York drafts. These provisions, however, were split into two separate articles in the Geneva draft and the final draft, Havana Charter for an International Trade Organization, i.e. Article 43 of General Exceptions to Chapter IV Commercial Policy (currently Article XX) and Article 94 of General Exceptions (currently security exceptions Article XXI).55 The GATT Secretariat pointed out that [t]he clear intention of the separation into two articles was, as appears from the title, to have the provisions of Article 43 (XX) relate to the commercial policy chapter, while those of Article 94 (XXI) were to be exceptions to the Charter as a whole.56 This drafting history indicates drafters’ intention of applying general exceptions to the obligations under the GATT, which came from a substantial part of the Commercial Policy chapter in the never-adopted Havana Charter. Moreover, as contingency measures to balance the rigidity of the commitments and due to their nature of general application, resorting to general exceptions is a right of a member whenever certain unforeseeable circumstances occurred. Therefore, from the perspective of the invoking party, it is a right to be protected under the WTO Agreement. As the Appellate Body insisted in US – Shrimp, “a balance must be struck between the right of a Member to invoke an exception under Article XX and the duty of that same Member to respect the treaty rights of the other Members.”57 As it is a right of the member, the member concerned should not be prevented from invoking general

55 For details of the early drafting process of Article XX, see Padideh Ala’i, “Free Trade or Sustainable Development? An Analysis of the WTO Appellate Body’s Shift to a More Balanced Approach to Trade Liberalization,” 14(4) American University International Law Review (1999), 1132–1136. 56 GATT Secretariat, “Negotiating Group on GATT Articles: Article XXI,” 2 (MTN.GNG/ NG7/W/16, 18 August 1987). Document of the Uruguay Round Negotiations. 57 US – Shrimp, WTO Appellate Body Report (12 October 1998), para. 156. Emphasis added. The Appellate Body also stated (para. 159): The task of interpreting and applying the chapeau is, hence, essentially the delicate one of locating and marking out a line of equilibrium between the right of a Member to invoke an exception under Article XX and the rights of the other Members under varying substantive provisions (e.g., Article XI) of the GATT 1994, so that neither of the competing rights will cancel out the other and thereby distort and nullify or impair the balance of rights and obligations constructed by the Members themselves in that Agreement. The location of the line of equilibrium, as expressed in the chapeau, is not fixed and unchanging; the line moves as the kind and the shape of the measures at stake vary and as the facts making up specific cases differ.

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exceptions under Article XX, unless the right is explicitly abandoned by the member concerned. This flexibility inherent in contingency measures reflects the evolving nature of the WTO as an international social contract on trade founded on the fundamental state primacy within the tripartite dynamics of the global trading framework.58 As the general exceptions are contingency measures to provide flexibility in unforeseeable circumstances, reference to its application should not be required due to the unforeseeability of the circumstances for invoking the measures. When it comes to China’s certain commitments in trade of goods under the China’s Accession Protocol, Article XX’s “general” application should of course cover these commitments concerned without any incorporation “by way of reference.”

3.3 Judicial activist “common intention” approach of treaty interpretation The section above indicates the Panel and Appellate Body in China – Raw Materials were unfortunately misled by previous discussions of China’s trading rights commitments, and erred in understanding the nature of contingency measures. The Panel and Appellate Body’s errors have much to do with the “common intention approach” asserting the common intentions of WTO members through using the 1969 VCLT as the applicable rules of interpretation. At the very start of the “common intention approach” is a discussion asserting the accession protocol as “an integral part of the WTO Agreement” that tries to justify the reference to the 1969 VCLT yet develops a series of theoretical issues. In this section, this chapter further reveals the inherent judicial activism and theoretical deficits of this interpretation approach in relation to the Panel and Appellate Body’s errors in China – Raw Materials and implications.

3.3.1 Accession protocol as an integral part of the WTO Agreement Under the WTO’s accession process, a protocol of accession is a membership treaty signed between the current WTO members and the WTO-member-to-be applying for WTO membership. The “final package” of the accession – consisting of the Working Party Report on the accession, the protocol, and the lists of commitments – takes effect upon the applying member’s WTO entry. As the Panel in China – Raw Material suggested, it is well recognized that “the intensively negotiated content of an accession package is the ‘entry fee’ to the WTO system.”59 Therefore, the WTO member’s commitments as the final result of the accession negotiation are integrated into the WTO Agreement as concession schedules through being attached to the Accession Protocol as lists of commitments. The listed schedules have been recognized as part of respective annexed agreements of the WTO Agreement. In US – Gambling, for example, a member’s service schedules are recognized as “an integral

58 See discussion supra 1.2.1. 59 China – Raw Materials, WTO Panel Report, para. 7.112.

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part” of the GATS. Therefore, it would be unreasonable to recognize the schedules attached to an accession protocol as a part of the certain WTO annexed Agreement yet deny the relevant part of the accession protocol to be part of that WTO annexed Agreement concerned. An accession protocol is therefore considered as part of the WTO Agreement. In fact, China’s WTO Accession Protocol states: The WTO Agreement to which China accedes shall be the WTO Agreement as rectified, amended or otherwise modified by such legal instruments as may have entered into force before the date of accession. This Protocol, which shall include the commitments referred to in paragraph 342 of the Working Party Report, shall be an integral part of the WTO Agreement.61 There are several cases involving issues related to China’s Accession Protocol, of which the Panels, Appellate Body, and involving parties all recognize that China’s Accession Protocol forms an integral part of the WTO Agreement.62 As the immediate legal consequence of being an integral part of the WTO Agreement, the interpretation of an accession protocol is subject to customary interpretative rules of public international law, which is often referred to the 1969 VCLT.63 In fact, the purpose of the analysis recognizing the Protocol as an integral part of the WTO Agreement in those several cases involving China is to and only to justify resorting to the Vienna Convention for interpretation of China’s Accession Protocol.64 In China – Raw Materials, for example, after asserting that China’s Accession Protocol forms “an integral part” of the WTO Agreement, the Appellate Body continued that: As such, the customary rules of interpretation of public international law, as codified in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (the “Vienna Convention”), are, pursuant to Article 3.2 of the DSU, applicable in this dispute in clarifying the meaning of Paragraph 11.3 of the Protocol.65 [Original footnotes omitted.]

60 See US – Gambling, WTO Appellate Body Report, WT/DS285/AB/R (1 April 2005), para. 182. 61 Paragraph 1.2, China’s Accession Protocol. 62 See, e.g. China – Auto Parts, WTO Panel Report, WT/DS339/R (18 July 2008), para. 7.740, or Appellate Body Report, WT/DS339/AB/R (15 December 2008), para. 213; US – Anti-Dumping and Countervailing Duties (China), WTO Appellate Body Report, WT/ DS379/AB/R (11 March 2011), para. 210; US – Tyres (China), WTO Appellate Body Report, WT/DS399/AB/R (5 September 2011), para. 118. 63 China – Auto Parts, WTO Panel Report, para. 7.741; Appellate Body Report, para. 213. 64 See, e.g. China – Raw Materials, WTO Panel Report, paras. 7.112–7.115. 65 China – Raw Materials, WTO Panel Report, para. 7.115, or Appellate Body Report, para. 278.

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The analysis is unfortunately problematic or unnecessary at least. As the Appellate Body pointed out in US – Gasoline that the WTO Agreement and covered agreements are “not to be read in clinical isolation from public international law,” their interpretation of course is subject to “customary rules of interpretation of public international law.”66 Unfortunately, the Appellate Body then stops here without asking further questions, such as “What does the word ‘integral’ mean?” “Of which annexed Multilateral Trade Agreement is the Protocol an integral part?” or “What other legal consequence is to form an integral part of any annexed Multilateral Trade Agreement in addition to being subject to the 1969 VCLT?” In fact, these several questions the Appellate Body missed bear fundamental importance to our analysis. In addition to being used in mathematics meaning “of or denoted by an integer,” the word “integral” as an adjective describes a relationship between things meaning “necessary to make a whole complete,” or “essential or fundamental.”67 In this context, the word “integral” denotes the reliance of the “whole” on the “part,” which means the “part” – the various commitments in the Protocol – brings meaning to the “whole” – the various mechanisms, such as non-discrimination principle and general exceptions, in the WTO Agreement and related covered agreements. Denying the Accession Protocol’s legitimate access to general exceptions is to reject the “integral” reliance of the WTO Agreement on the Protocol. The “give and take” nature of WTO negotiation confirms this reading of accession protocols as an integral part of the WTO Agreement. An accession protocol, as the final result of the “give and take” negotiations between various specific members, represents commitments among all negotiating members and concerns all covered agreements unless specified.68 Therefore, as the second, yet more important, immediate legal consequence of being an integral to the WTO Agreement, commitments made through an accession protocol and attached service schedules become legally binding upon WTO entry. As a matter of fact, even commitments made in the Working Party Report on accession are binding and enforceable too. In China – Auto Parts, the Panel suggested that: All parties agree that China’s commitments under its Working Party Report are enforceable in WTO dispute settlement proceedings. The Accession Protocol is an integral part of the WTO Agreement pursuant to Part I, Article 1.2 of the Accession Protocol. In turn, paragraph 342 of China’s Working Party Report incorporates China’s commitments under its Working Party Report, including paragraph 93, into the Accession Protocol.

66 US – Gasoline, WTO Appellate Body Report, 17. 67 Oxford Dictionaries, available online at: www.lexico.com/en/definition/integral (accessed 26 November 2019). 68 EC – Computer Equipment, WTO Appellate Body Report, WT/DS62/67/68/AB/R(5 June 1998), para. 109.

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Therefore, China’s commitment in paragraph 93 of the Working Party Report is also an integral part of the WTO Agreement.69 [Original footnotes omitted.] There is no exception when it comes to the case of the China’s Accession Protocol. As an integral part, the China’s Accession Protocol, without specific reference, recognizes the binding effect of the WTO annexed Agreements very clearly, saying that: Except as otherwise provided for in this Protocol, those obligations in the Multilateral Trade Agreements annexed to the WTO Agreement that are to be implemented over a period of time starting with entry into force of that Agreement shall be implemented by China as if it had accepted that Agreement on the date of its entry into force.70 It would be the natural logical consequence of the above cited paragraph of China’s Accession Protocol that China, without specific reference, shall enjoy contingency measures available in the Multilateral Trade Agreements annexed to the WTO Agreement as if China had accepted that Agreement on the date of its entry into force, “except as otherwise provided for in the Protocol.” Moreover, the WTO Agreement of which the China’s Accession Protocol forms an integral part is not only limited to the WTO Agreement (the Marrakesh Agreement Establishing the World Trade Organization), but also covers its annexed Multilateral Trade Agreements, such as the GATT 1994 and the GATS. As the WTO Agreement indicates, “[t]he agreements and associated legal instruments included in Annexes 1, 2 and 3 (hereinafter referred to as ‘Multilateral Trade Agreements’) are integral parts of this [WTO] Agreement, binding on all Members.”71 In its discussion of the phrase “in a manner consistent with the WTO Agreement” in China – Publications and Audiovisual Products, the Appellate Body asserted that the phrase “refer[s] to the WTO Agreement as a whole, including its Annexes.”72 Therefore, commitments made in China’s Accession Protocol relating to trade-in-goods, such as Article 5.1 on trading rights and Article 11.3 on export taxes and charges, naturally fall into the reins of the GATT 1994, regardless of referencing to the GATT 1994 or not. China’s commitments thus should not be denied access to contingency measures under the GATT 1994 for the reason of no specific reference made. By the same token, for those trade-in-goods commitments made in the

69 China – Auto Parts, WTO Panel Report, para. 7.740; Appellate Body Report, para. 213. 70 Paragraph 1.3, China’s Accession Protocol. 71 Art. II.2, Marrakesh Agreement Establishing the World Trade Organization (the WTO Agreement). 72 China – Publications and Audiovisual Products, WTO Appellate Body Report, para. 222. Emphasis original.

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Protocol, China should not deny GATT 1994’s non-discrimination principle or antidumping and countervailing duty measures for the reason that there is no specific reference that has been made. The Appellate Body erred in both cases in missing the point on how an accession protocol forms “an integral part of the WTO Agreement.” More than justifying the legitimacy of the interpretative rules from the Vienna Convention, being “an integral part” of the WTO Agreement also means that the Protocol fits into both the rigidity and flexibility of the regime of certain annexed Multilateral Trade Agreements in the WTO framework. Without any reference, trade-in-goods commitments in China’s Accession Protocol should naturally enjoy the general exceptions of the GATT 1994, unless the Protocol particularly provides otherwise.

3.3.2 Vienna Convention as the applicable interpretative rules 3.3.2.1 Vienna Convention as codified “customary rules of interpretation” Moreover, the common intention approach’s misinterpretation of the accession protocol as an integral part of the WTO Agreement further leads to the Panel and Appellate Body’s problematical reference to the 1969 VCLT as “customary rules of interpretation of public international law.” Under the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), the clarification of the provisions of the covered agreements during dispute settlement process should be made in accordance with “customary rules of interpretation of public international law.” The DSU states: The dispute settlement system of the WTO … serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law.73 As to what constitutes the “customary rules of interpretation of public international law,” the Appellate Body has little hesitation. The Appellate Body in China – Raw Materials asserted that Articles 31 and 32 of the 1969 VCLT are the codified “customary rules of interpretation of public international law.”74 Similarly, in China – Publications and Audiovisual Products, the Appellate Body confirmed that the 1969 VCLT has codified the “customary rules of interpretation of public international law.”75 Indeed, both China and the US, the two sides of the case, acknowledge that the Vienna Convention codifies the interpretative rules of customary international law.76

73 74 75 76

Art. 3.2, Dispute Settlement Understanding (DSU). Emphasis added. China – Raw Materials, WTO Appellate Body Report, para. 278. China – Publications and Audiovisual Products, WTO Appellate Body Report, para. 348. Ibid., paras. 48, 86. The US currently is not a member of the 1969 Vienna Convention.

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As a matter of fact, confining applicable rules of WTO Agreement interpretation to 1969 VCLT has long been the consistent jurisprudence of WTO panels and the Appellate Body since WTO’s very first case, the US – Gasoline, even since WTO’s inception.77 The general rule of interpretation in Article 31 of the 1969 VCLT – as general international law to interpret the WTO Agreement and covered agreements – has been further confirmed in many other cases.78 Similarly, Article 32 of the 1969 VCLT has also been accorded to the same recognition in WTO’s dispute resolution practice.79 Therefore, recognizing the rules of interpretation in the 1969 VCLT as customary rules or general international law to interpret WTO and covered agreements has become a wellestablished jurisprudence. Not only in interpretations of the WTO general agreements, but also in interpretation of related tariff concession schedules and interpretation of government procurement and service schedule, has the 1969 VCLT acquired the same recognition.80 However, it is quite unreasonable, if not impossible, for a treaty created in Vienna in 1969 to codify interpretative rules of a treaty framework founded in 1995. To use the Appellate Body’s words rejecting China’s Accession Protocol’s access to general exceptions, “we consider it reasonable to assume that, had there been a common intention [of the founding members] to” confirm that the customary rules of interpretation of public international law have been codified in the 1969 VCLT, “language to that effect would have been included in” Article 3.2 of the DSU.81 Moreover, not all the WTO Members are contracting

77 US – Gasoline, WTO Appellate Body Report, 15–16. It is technically the WTO’s second case. However, the first case brought to the WTO, Malaysia – Prohibition of Imports of Polyethylene and Polypropylene, the panel of which was never set up, was terminated as Singapore, the complainant, decided to withdraw its complaint completely. 78 See, e.g. India – Patent (US), WTO Appellate Body Report, WT/DS50/AB/R (19 December 1997), para. 46; US – DRAMS, WTO Panel Report, WT/DS99/R (29 January 1999), para. 6.13; and Mexico – Telecoms, WTO Panel Report, WT/DS204/R (2 April 2004), para. 7.44. 79 See, e.g. Japan – Alcoholic Beverages II, WTO Appellate Body Report, WT/DS8/10/11/ AB/R (4 October 1996), pp. 10–12; Mexico – Telecoms, WTO Panel report, para. 7.67; and US – Export Restraints, WTO Panel Report, WT/DS194/R (29 June 2001), para. 8.64. 80 For concession schedules interpretation, see, e.g. EC – Poultry, WTO Appellate Body Report, WT/DS69/AB/R (13 July 1998), paras. 82–83; Korea – Various Measures on Beef, WTO Appellate Body Report, WT/DS161/169/AB/R (11 December 2000), para. 96; and EC – Chicken Cuts, WTO Appellate Body Report, WT/DS269/286/AB/R (12 September 2005), paras. 148, 175. For government procurement and service schedule interpretation, see, e.g., Korea – Government Procurement, WTO Panel Report, WT/DS163/R (1 May 2000), para. 6.16; Canada – Dairy, WTO Appellate Body Report, WT/DS103/113/AB/R (13 October 1999), para. 138; US – Export Restraints, WTO Panel Report, para. 8.64; US – Gambling, WTO Appellate Body Report, paras. 159–160. 81 For the Appellate Body’s words used to reject China’s reference to the general exception, see China – Raw Materials, WTO Appellate Body Report, para. 293.

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parties of the 1969 VCLT.82 By “clarifying” the meaning of the Article 3(2) of the DSU, the Appellate Body’s WTO agreement interpretation jurisprudence contains a clear stretching effect of the application of the 1969 VCLT. Unfortunately, the drafting history indicates that the 1969 VCLT has never intended to be a full codification of existing law on treaties. Under the UN Charter, the General Assembly is entrusted to initiate studies and make recommendations for the purpose of encouraging the progressive development and codification of international law.83 The International Law Commission (ILC) was therefore established in 1949 and selected codification of the law of treaties as one of the most prioritized topics in its first session.84 The ILC then considered the topic at its 2nd, 3rd, 8th, and 13th to 18th sessions in 1950, 1951, 1956, 1959, and 1961 to 1966 respectively. At ILC’s 18th session in 1966, the Commission completed the second reading of the draft articles and adopted its final report on the Law of Treaties, which was discussed in UN Conference on the Law of Treaties convened by the General Assembly in 1968 and 1969 at Vienna and adopted at the end of second session on 22 May 1969. One thing that should be particularly mentioned here is that the ILC has double functions in both “progressive development of international law” and “codification of international law.”85 Therefore, in addition to codifying the existing law, provisions included in the draft articles also reflect those practices of States in which the law has not yet been sufficiently developed. In its second report to the General Assembly on draft articles of the Convention on Special Missions, the ILC stated that: It is the invariable practice of the [International Law] Commission when drafting articles incorporating rules of international law to combine straightforward codification (if there are sufficient customary or written rules of

82 As of January 2018, the 1969 VCLT has only 116 signature countries so far. Some WTO Members, such as the United States, Iran, Ireland, and Afghanistan, have signed but not yet ratified the Convention. For details of the membership, see UN site at: https://treaties.un. org/Pages/ViewDetailsIII.aspx?src=TREATY&mtdsg_no=XXIII-1&chapter=23& Temp=mtdsg3&clang=_en (accessed 26 November 2019). 83 Art. 13.1, Charter of the United Nations (UN Charter). 84 Yearbook of the International Law Commission 1949 (YILC 1949), 48–49, 58. 85 Art. 15 of the Statute of International Law Commission (adopted by the UN General Assembly in resolution 174 (II) of 21 November 1947) states (emphasis added): In the following articles the expression ‘progressive development of international law’ is used for convenience as meaning the preparation of draft conventions on subjects which have not yet been regulated by international law or in regard to which the law has not yet been sufficiently developed in the practice of States. Similarly, the expression ‘codification of international law’ is used for convenience as meaning the more precise formulation and systematization of rules of international law in fields where there already has been extensive State practice, precedent and doctrine.

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international law) with the method of progressive development of international law (in cases where, although there are no such rules, certain trends exist in international relations, or in cases where it is necessary to make good a deficiency or to alter existing rules).86 At 1968’s UN Conference on the Law of Treaties, delegations from some countries, such as Ghana, Greece, Liberia, Nigeria, Afghanistan, and Tanzania, raised doubts as to the existence of general rules of treaty interpretation.87 It is, therefore, unreasonable to assert that rules of interpretation in the 1969 VCLT codify existing customary rules of interpretation of public international law. As a matter of fact, WTO judicial practice so far has transcended the interpretative rules “codified” in the 1969 VCLT. Under the 1969 VCLT, treaty interpretation should be done “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.”88 According to the 1969 VCLT, the “context” of interpretation includes the text of the treaty, and any related agreement or instrument made between parties, by taking into account any subsequent agreement, practice, and relevant applicable rules.89 Treaty preparatory work or conclusion circumstances might also used as “supplementary means” of interpretation to determine the meaning of the terms of the treaty.90 Ironically, the subsequent practice of WTO panels and the Appellate Body has resorted to a broader range of customary interpretative rules than those “codified” in Articles 31 and 32 of the 1969 VCLT. Several other rules of interpretation have been used in the dispute settlement process, such as the principle of effective treaty interpretation in US – Gasoline which is followed in Japan – Alcoholic Beverages II, Korea – Dairy, and US – Section 211 Appropriations Act.91 On

86 Yearbook of the International Law Commission 1965 (YILC 1965), vol. 2, 113. Emphasis added. 87 UN Conference on the Law of Treaties: First Session Official Records (Vienna, 26 March – May 1968), p. 170, 172, 181, and 271. The Greek delegation, for example, stated that (172): [T]he interpretation of a treaty was essentially a mental process of attempting to establish the intention of the parties to the treaties as expressed in words. There was no absolute interpretation with a given text; there were usually several possible interpretations. Consequently, interpretation could not obey set rules. If a treaty contained one or more rules as to its interpretation, those rules themselves would need to be interpreted, but at that point no rules of interpretation would be available. 88 89 90 91

Art. 31, the 1969 VCLT. Ibid. Ibid., Art. 32. See US – Gasoline, Appellate Body Report, 23, which refers to ICJ’s Corfu Channel case, Territorial Dispute case (Libyan Arab Jamahiriya v. Chad), ILC Yearbook 1966 and other scholarly writings; Japan – Alcoholic Beverages II, Appellate Body Report, 18; Korea – Dairy,

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other occasions, WTO panels and the Appellate Body apply the principle of presumption against conflict in EC – Bananas III, the principle of non-retroactivity of treaties in Brazil – Desiccated Coconut, EC – Hormones, and Canada – Patent Term, and the proportionality principle in US – Cotton Yarn and US – Line Pipe.92 Under the 1969 VCLT, the WTO Dispute Settlement Body’s adopting reports from the panels and the Appellate Body forms the “subsequent practice” of the WTO members, the “context” for treaty interpretation as “codified” in the 1969 VCLT.93 Taking this “context” of the DSU Agreement into consideration, a reasonable interpretation will lead to a conclusion that the WTO members have never intended to confine the “customary rules of interpretation of public international law” to Articles 31 and 32 of the 1969 VCLT only.

3.3.2.2 The activist tendency in applying the Vienna Convention Most importantly, the Panel and Appellate Body’s common intention approach deviates from general jurisprudence. The Appellate Body’s assertion presents a clear and almost definite answer to the long-debated question of whether there are unified rules of treaty interpretation in public international law. However, no agreement has been established in public international law on whether there is a unified system of treaty interpretation. Fitzmaurice pointed out in 1952 that it has always been a controversial issue whether or not there are rules of treaty interpretation in public international law.94 According to Fitzmaurice, although through practice, it is “inevitable” that the International Court of Justice (ICJ) “should in fact develop a jurisprudence on the subject [of treaty interpretation], reducible to a set of coherent propositions or principles,” ICJ, however, “has made no pronouncement on the desirability or otherwise of having definite rules of interpretation.”95 In its discussion of the draft of the

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WTO Appellate Body Report, WT/DS98/AB/R (14 December 1999), para. 82; and US – Section 211 Appropriations Act, WTO Appellate Body Report, WT/DS176/AB/R (2 January 2002), para. 338. See also, US – Underwear, WTO Appellate Body Report, WT/DS24/ AB/R (10 February 1997), 16; Argentina – Footwear (EC), WTO Appellate Body Report, WT/DS121/AB/R (14 December 1999), para. 81. See EC – Bananas III, WTO Panel Report, WT/DS27/R (9 September 1997), paras. 7.157–7.163; Brazil – Desiccated Coconut, WTO Appellate Body Report, WT/DS22/AB/R (21 February 1997), 14; EC – Hormones, WTO Appellate Body Report, WT/DS26/AB/R (16 January 1998), para. 128; Canada – Patent Term, WTO Appellate Body Report, WT/ DS170/AB/R (18 September 2000), paras. 72–74; US – Cotton Yarn, WTO Appellate Body Report, WT/DS192/AB/R (8 October 2011), paras. 119–120; and US – Line Pipe, WTO Appellate Body Report, WT/DS202/AB/R (15 February 2002), paras. 257 and 259. Art. 31, the 1969 VCLT. G. G. Fitzmaurice, “The Law and Procedure of the International Court of Justice: Treaty Interpretation and Certain Other Treaty Points,” 28 British Year Book of International Law (1951), 1–3. Ibid., 6.

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Vienna Convention on the Law of Treaties in 1966 – the treaty preparatory work and conclusion circumstances – the ILC held a similar point of view.96 According to the ILC, the codified principles and maxims of treaty interpretation in the law of treaties are “non-obligatory” in nature, and the application of many of these principles and maxims “is discretionary rather than obligatory” and treaty interpretation “is to some extent an art, not an exact science.”97 This has so far always been the case among contemporary mainstream scholars of public international law. In relation to general rules of treaty interpretation, Brownlie suggested that many of these rules of treaty interpretation are “general, question-begging, and contradictory.”98 Therefore, the general international practice from the ICJ to public international law academia has always been to take extreme caution in confirming the existence of general rules or a definite system of treaty interpretation. WTO panels and the Appellate Body significantly deviate from the general jurisprudence of public international law. This deviation of the Appellate Body’s agreement interpretation jurisprudence from general international practice presents a challenge to public international law. First of all, it has been generally established that the decisions of the international dispute settlement body has a limited effect only. Under the ICJ Stat-

96 Yearbook of the International Law Commission 1966 (YILC 1966), vol. 2, 218. The ILC stated: The utility and even the existence of rules of international law governing the interpretation of treaties are sometimes questioned. The first two of the Commission’s Special Rapporteurs on the law of treaties in their private writings also expressed doubts as to the existence in international law of any general rules for the interpretation of treaties. 97 Ibid. The ILC suggested: [These codified principles and maxims] are, for the most part, principles of logic and good sense valuable only as guides to assist in appreciating the meaning which the parties may have intended to attach to the expressions that they employed in a document. Their suitability for use in any given case hinges on a variety of considerations which have first to be appreciated by the interpreter of the document; the particular arrangement of the words and sentences, their relation to each other and to other parts of the document, the general nature and subject-matter of the document, the circumstances in which it was drawn up, etc. Even when a possible occasion for their application may appear to exist, their application is not automatic but depends on the conviction of the interpreter that it is appropriate in the particular circumstances of the case. 98 Ian Brownlie, Principles of Public International Law (Oxford: Oxford University Press, 2008, 7th ed.), 631.

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ute, the ICJ’s jurisdiction is voluntary in nature.99 Not only is the jurisdiction of the ICJ voluntary in nature, but the effect of the ICJ’s decision is also rather limited. According to the ICJ Statute, “[t]he decision of the Court has no binding force except between the parties and in respect of that particular case.”100 This in fact is also the case in the WTO framework. Except for the biding legal effect on parties of the given dispute, neither panel reports nor Appellate Body reports have any universal effects. As the Appellate Body pointed out in Japan – Alcoholic Beverages II: [a]dopted panel reports are an important part of the GATT acquis. They are often considered by subsequent panels. They create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute. However, they are not binding, except with respect to resolving the particular dispute between the parties to that dispute.101 It has been a well-established jurisprudence throughout GATT and WTO dispute resolution practice that panel or Appellate Body reports are not binding precedents and the principle of stare decisis – a mechanism well-established in the common law legal tradition – does not apply to the interpretations of GATT/ WTO Panels or the WTO Appellate Body.102 Therefore, WTO panels and the Appellate Body’s role in WTO dispute resolution should be rather passive and limited, no more than an “honest broker” of the WTO Members as a whole. However, in sharp contrast to the ICJ’s voluntary jurisdiction, WTO panels and the Appellate Body’s jurisdiction is compulsory and exclusive.103 Under the DSU, any WTO member can initiate the dispute resolution process when the member

99 100 101 102

Art. 36(1), the Statute of the International Court of Justice (ICJ Statute). Ibid., Art. 59. Japan – Alcoholic Beverages II, WTO Appellate Body Report, 13. For GATT practice, see, e.g. EEC – Dessert Apples (Chile), adopted GATT Panel Report, BISD 36S/93 (22 June 1989), para. 12.1; EEC – Apples (US), adopted GATT Panel Report, BISD 36S/135 (22 June 1989), para. 5.1; US – Tuna (EEC), unadopted GATT Panel Report, DS29/R (16 June 1994), para. 3.74. For WTO practice, see, e.g. Japan – Alcoholic Beverages II, WTO Appellate Body Report, 13; India – Patents (EC), WTO Panel Report, WT/DS79/R (24 August 1998), para. 7.30. See also confirming opinions expressed by many countries in various reports, US – Stainless Steel (Mexico), WTO Panel Report, WT/DS344/R (20 December 2007), para. 7.20; US – Softwood Lumber V, WTO Appellate Body Report, WT/DS/264/AB/R (11 August 2004), para. 110; US – Upland Cotton, WTO Appellate Body Report, WT/ DS/267/AB/R (3 March 2005), para. 192. 103 Arts. 23.1 and 6.1, DSU Agreement. See also, US – Section 301 Trade Act, WTO Panel Report, WT/DS152/R (22 December 1999), para. 7.43 (emphasis added): Article 23.1 … imposes on all Members to ‘have recourse to’ the multilateral process set out in the DSU when they seek the redress of a WTO inconsistency. In these circumstances, Members have to have recourse to the DSU dispute settlement system to the exclusion of any other system, in particular a system of unilateral enforcement of WTO rights and obligations. This, what one could call

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concerned considers that “any benefits accruing to it directly or indirectly” under the WTO Agreements “are being impaired by measures taken by another Member.”104 Building on the principles of Most-Favored-Nation treatment and National treatment, the individual process of dispute resolution gains its far reaching effects, through which the compulsory jurisdiction of the WTO panels and Appellate Body weaves a seamless web over disputes between members. From this regard, WTO panels and the Appellate Body’s deviation from general international practice indicates an overly active, even aggressive approach to treaty interpretation jurisprudence, which indicates clearly the general tendency of “judicial activism” in the Appellate Body’s jurisprudence. Secondly, the “judicial activism” in WTO jurisprudence might not be consistent with what the members intended when they concluded the WTO Agreement. Under the DSU, “[r]ecommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.”105 According to Jackson, this DSU provision “resonates in the direction of a caution to the panels to use judicial restraint and avoid being too activist.”106 In EC – Hormones, the Appellate Body actually accepted the principle of judicial restraint in its discussion of the principle of in dubio mitius as a “supplementary means” of treaty interpretation.107 Similar language can also be seen in the Standard of Review principle in WTO antidumping regime.108 Also, it was suggested that the WTO panels and Appellate Body cannot make law. When discussing Article 3.2 of the DSU in US – Wool Shirts and Blouses, the Appellate Body stated that: Given the explicit aim of dispute settlement that permeates the DSU, we do not consider that Article 3.2 of the DSU is meant to encourage either panels or the Appellate Body to “make law” by clarifying existing provisions of the WTO Agreement outside the context of resolving a particular dispute.109 Therefore, the function of WTO panels and the Appellate Body is quite limited in the dispute resolution process, and judicial restraint instead of judicial activism should be the norm. This is probably the inevitable consequence of the fact

“exclusive dispute resolution clause,” is an important new element of Members’ rights and obligations under the DSU. 104 Art. 3.3, DSU Agreement. 105 Ibid., 3.2. See also Art. 19.2, DSU Agreement. 106 John Jackson, “The WTO Dispute Settlement Procedures: A Preliminary Appraisal,” in Jeffrey J. Schott (ed.), The World Trading System: Challenges Ahead (Washington DC: Peterson Institute, 1996), 163. This was cited by Japan in Japan – Film in calling for juridical restraints. Japan – Film, WTO Panel Report, WT/DS44/R (21 March 1998), para. 6.3. 107 EC – Hormones, WTO Appellate Body Report, para. 165 and footnote 154. 108 Art. 17.6, WTO Antidumping Agreement. 109 US – Wool Shirts and Blouses, WTO Appellate Body Report, WT/DS33/AB/R (25 April 1997), 19.

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that the WTO derives its authority from members’ consent and operates within the reins of the state primacy.110 Not only do WTO panels and the Appellate Body have no authority to make law, but neither do they have any authority to interpret or amend the law in a strict sense. In the WTO framework, the authority to interpret or amend the WTO Agreement and the Multilateral Trade Agreements are vested exclusively on the Ministerial Conference and the General Council.111 Of course, the WTO panels and the Appellate Body will need to interpret laws in order to deliver the judgments of the cases according to those laws. However, this interpretation should only be done to the extent that it “assist[s] in appreciating the meaning which the parties may have intended to attach to the expressions that they employed in a document,” as expressed in Article 3.2 of the DSU; no more, no less.112 Therefore, it is somewhat misleading to take panels and the Appellate Body as the judicial organs of the WTO.113 If ever we take WTO panels or Appellate Body members as judges, they are judges who cannot make law and deliver judicial interpretation with universal effect – judges more in a continental rather than common law tradition. However, by confining the “customary rules of interpretation of public international law” stated in Article 3(2) of the DSU to the 1969 VCLT, the agreement interpretation jurisprudence of WTO panels and the Appellate Body indicates a certain law-making or law-interpreting effect with a clear tendency of “judicial activism.” This tendency of “judicial activism” deviates from the general practice of public international law from the ICJ to academia. It is also inconsistent with WTO members’ expectation embodied in the DSU. As a matter of fact, the problematic “judicial activism” can also be seen in agreement interpretation jurisprudence in resorting to “common intentions of all parties” for treaty interpretation.

3.3.3 The “common intentions” of all WTO members 3.3.3.1 The “common intention” quest and its contractarian foundation The chapter’s analysis above reveals that the Panel and Appellate Body’s interpretation approach is problematic in confining “customary rules of interpretation of public international law” to the 1969 VCLT. This problem is related to their errors in interpreting how the accession protocol forms an integral part of the WTO Agreement in China – Raw Materials. Moreover, as this section will show, the approach’s obsession with the “common intention of all WTO members” contains

110 111 112 113

See discussion supra 1.2.1. Arts. 9.2 and 10, WTO Agreement. See also, Art. 28, GATT 1994. YILC 1966, vol. 2, 218. For discussion of taking the Panels and the Appellate Body as the judiciary in analogy to a domestic system of separation of powers, see F. Roessler, “Are the Judicial Organs of the World Trade Organization Overburdened?” in R.B. Porter, P. Sauve, and A. Subramanian (eds.), Efficiency, Equity, and Legitimacy: The Multilateral Trading System in the Millennium (Washington DC: Brookings Institution Press, 2001).

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also some inherent jurisprudential deficits in its judicial activist tendency. To show its obsession with the “common intention” of all WTO members, the Appellate Body in China – Raw Materials stated: Moreover, as China’s obligation to eliminate export duties arises exclusively from China’s Accession Protocol, and not from the GATT 1994, we consider it reasonable to assume that, had there been a common intention to provide access to Article XX of the GATT 1994 in this respect, language to that effect would have been included in Paragraph 11.3 or elsewhere in China’s Accession Protocol.114 This is the key where the Appellate Body denied China’s reference to Article XX of the GATT 1994, as there is no “common intention” of all WTO members so intended. In China – Publications and Audiovisual Products, when dealing with the question of whether China’s GATS schedule entry on “sound recording distribution services” covers distribution of sound recordings in a non-physical form through electronic means, the Appellate Body suggested that: We further note that the purpose of treaty interpretation under Articles 31 and 32 of the Vienna Convention is to ascertain the “common intention” of the parties, not China’s intention alone. We recall that, in this respect, in US – Gambling, the Appellate Body found that “the task of ascertaining the meaning of a concession in a Schedule, like the task of interpreting any other treaty text, involves identifying the common intention of Members”. The circumstances of the conclusion of the treaty may thus be relevant to this “common intention”.115 Therefore, what matters is the common intention of all WTO members in interpreting China’s WTO Accession Protocol. The early establishment of the “common intention” approach can be traced back to the Appellate Body’s analysis in EC – Computer Equipment, where the Appellate Body resorted to the “common intentions of all members” to deal with the issue of what LAN equipment should cover in EC’s tariff classification, which stated: The purpose of treaty interpretation under Article 31 of the Vienna Convention is to ascertain the common intentions of the parties. These common intentions cannot be ascertained on the basis of the subjective and unilaterally determined “expectations” of one of the parties to a treaty. Tariff concessions provided for in a Member’s Schedule – the interpretation of which is at issue here – are reciprocal and result from a mutuallyadvantageous negotiation between importing and exporting Members.

114 China – Raw Materials, WTO Appellate Body Report, para. 293. Emphasis added. 115 China – Publications and Audiovisual Products, WTO Appellate Body Report, para. 405. Emphasis original.

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This “common intention” approach has been repeatedly cited in later cases. It has indeed been a very consistent jurisprudence of WTO panels and the Appellate Body to resort to the “common intentions of all parties” for treaty interpretation in WTO dispute settlement process.117 The approach’s recourse to the “common intentions” of all members is an intentional or unintentional application of the social contract theory in international law. Similar to terms of a contract in domestic law, the adopted text of an international treaty “is the result … of the meeting of minds … [and] the meeting of various motives.”118 It is probably in this regard that the Appellate Body states in Japan – Alcoholic Beverage II that “[t]he WTO Agreement is a treaty – the international equivalent of a contract.”119 Therefore, that “the treaty is presumed to reflect the common intention of the parties” becomes a natural “fiction.”120 To resort to the intentions of the contracting parties in treaty interpretation has its merits. In fact, recourse to consent for legitimate binding force is in fact an application of social contract theory in the realm of public international law. In general, justifying the legitimacy of governance from consent can be traced back as early as the first half of the 14th century, a medieval maxim, quod omnes tanget, meaning what touches all must be approved by all.121 As for how this consent has been given to constitute the governmental legitimacy, many

116 EC – Computer Equipment, WTO Appellate Body Report, para. 84. Emphasis original. 117 See, e.g. EC – Chicken Cuts, WTO Appellate Body Report, para. 250; US – Gambling, WTO Panel Report, WT/DS285/R (10 November 2004), para. 6.136, or Appellate Body Report, paras. 159–160; EC – Bananas (21.5 II – Ecuador), WTO Appellate Body Report, WT/DS27/AB/RW2/ECU (26 November 2008), paras. 408–409, and footnote to para. 445; EC – Aircraft, WTO Appellate Body Report, WT/DS316/AB/R (18 May 2011), para. 845; Thailand – Cigarettes (Philippines), WTO Appellate Body Report, WT/DS371/ AB/R (17 June 2011), para. 201. 118 Roy S. Lee, “Multilateral Treaty-making and Negotiation Techniques: An Appraisal,” in B. Cheng and E.D. Brown (eds.), Contemporary Problems of International Law: Essays in Honour of Georg Schwarzenberger on his Eightieth Birthday (London: Stevens & Sons Ltd., 1988), 160. 119 Japan – Alcoholic Beverage II, WTO Appellate Body Report, 14. 120 Isabelle Van Damme, Treaty Interpretation by the WTO Appellate Body (Oxford: Oxford University Press, 2009; thereafter, Treaty Interpretation), 367. 121 J. G. Merquior. Rousseau and Weber: Two Studies in the Theory of Legitimacy (London: Routledge & Kegan Paul, 1980), 3.

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theorists, such as Locke, Rousseau, and Kant all boil it down to a social contract.122 Henkin explained well that: [a] legitimate political society is based on the consent of the people, reflected in a social contract among the people to institute a government. The Social contract generally takes the form of a constitution, which also establishes a framework of government and a blueprint for its institutions.123 Social contract theory is also the foundation of the legitimacy of international governance. In his discussion of the relationship of individuals to the state under the framework of sovereignty in the international legal system, Brand suggested that the international legal framework is a “two-tiered social contract,” “under which the individual relates to the state in domestic law, and only the state relates to the international legal order in international law.”124 In his discussion of the “Mythology of Sovereignty,” Henkin argued that states are subject to the International Social Contract, and “the end of Second World War saw a new social contract represented in the UN Charter.”125 Yet, while countries are the law-makers of international law, they at the same time are bound by international law. In general, there is no more superior authority above the countries. Therefore, state consent has been the foundation of the source of the binding force of international law. Henkin suggested that “state consent is the foundation of international law” and that “that law is binding on a state only by its consent remains an axiom of the political system, an implication of state autonomy.”126 In EC – Computer Equipment, the EC’s argument serves as a good illustration of this line of logic, which has been summarized in the report as follows: According to the European Communities, the existence of a common intention forms the basis for the mutual consent of the signatories to be bound by an international agreement. This common intention finds its authentic expression in the text of the treaty, not in the subjective expectations of one or other of the parties to the agreement. The European Communities states that the rules of the Vienna Convention on the Law of Treaties (the “Vienna

122 J. Delbrück, “Exercising Public Authority beyond the State: Transnational Democracy and/ or Alternative Legitimation Strategies?” 32 Indiana Journal of Global Legal Studies (2003). 123 Louis Henkin, Constitutionalism, Democracy, and Foreign Affairs (New York: Columbia University Press, 1990), 5. 124 Ronald A. Brand, “Sovereignty: The State, the Individual, and the International Legal System in the 21st Century,” 25 Hastings International and Comparative Law Review (2002), 286–287. 125 Louis Henkin, “The Mythology of Sovereignty,” in R. St. J. Macdonald (ed.), Essays in Honour of Wang Tieya (Dordrecht: Martinus Nijhoff, 1993), 356. 126 Louis Henkin, International Law: Politics and Values, 27.

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GATT Convention”) on the interpretation of international agreements are based on this fundamental consideration…The European Communities also submits that “protocols and certifications relating to tariff concessions” are an integral part of the GATT 1994 and, therefore, are part of an international multilateral agreement which is the result of a “meeting of the minds” and not the sum of subjective perceptions or expectations.127 [Original footnotes omitted.]

Therefore, if the common intentions of an agreement can be asserted, the binding force of that given agreement will be evident. The “common intention” approach will then also further justify the legitimacy of the treaty framework of the current WTO regime.

3.3.3.2 The deficits of the “common intention” approach To depend on common intentions of all parties in WTO agreement interpretation, however, as a simple application of the social contract theory – though it might be an unconscious application – appears to be more destructive than constructive in public international law for several reasons. First of all, the so-called “common intentions of all parties” appear to be elusive or even unattainable. The purpose of treaty interpretation, as Jennings and Watts suggested, “is to establish the meaning of the text which the parties must be taken to have intended it to bear in relation to the circumstances with reference to which the question of interpretation has arisen.”128 Parties’ intention is therefore of fundamental importance. However, “[a]lthough interpretation calls for the parties’ intentions to be ascertained,” Jennings and Watts suggested that, “on inquiry their intentions as regards the matter in issue may prove uncertain and elusive, sometimes to the point of non-existence.”129 In general, a treaty’s provisions are “normally to be interpreted on the basis of their meaning at the time the treaty was concluded.”130 This is particularly true regarding treaties involving a few parties that do not have much subsequent development. When dealing with the term “dispute” in both 1836 and 1787 treaties in US Nationals in Morocco, ICJ suggested that “it is necessary to take into account the meaning of the word ‘dispute’ at the times when the two treaties were concluded.”131 However, when provisions involved are not static but evolving, things should be different as “in some respects the interpretation of a treaty’s provisions cannot be divorced from developments in the law subsequent to its adoption.”132

127 EC – Computer Equipment, WTO Appellate Body Report, para. 11. Italics original, underline added. 128 Robert Jennings and Arthur Watts, Oppenheim’s International Law (Longman Group UK Ltd., 1992, 9th ed., Vol. I), 1267. 129 Ibid. 130 Jennings and Watts, Oppenheim’s International Law, 1282. 131 Rights of United States of America in Morocco, ICJ Reports 1952, 176, 189. 132 Jennings and Watts, Oppenheim’s International Law, 1282.

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Indeed, the intentions of the parties of a multilateral treaty have never been static and fixed at the time of the treaty’s conclusion, but rather are dynamic and evolving. In Namibia (Legal Consequences) Advisory Opinion, the ICJ recognized “the primary necessity of interpreting an instrument in accordance with the intentions of the parties at the time of its conclusion,” yet emphasized that where concepts embodied in a treaty are “not static” and “by definition, evolutionary,” their “interpretation cannot remain unaffected by the subsequent development of law.”133 “Moreover,” the ICJ suggested, “an international instrument has to be interpreted and applied within the framework of the entire legal system prevailing at the time of the interpretation.”134 This “evolutionary interpretation” approach was followed by the Appellate Body in US – Shrimp case. In US – Shrimp, to interpret the term “exhaustible natural resources” in GATT Article XX(g), a provision crafted more than 50 years ago, the Appellate Body suggested that the term “must be read by a treaty interpreter in the light of contemporary concerns of the community of nations about the protection and conservation of the environment.”135 The Appellate Body continued that “the generic term ‘natural resources’ in Article XX(g) is not ‘static’ in its content or reference but is rather ‘by definition, evolutionary’.”136 As WTO obligations are continuing obligations, Pauwelyn suggested that the Appellate Body’s interpretation indicates the triumph of the “evolutionary interpretation” approach over the “contemporaneous interpretation” approach of treaty interpretation.137 The second issue comes from panels and the Appellate Body’s failure to acknowledge the somewhat distinctive nature of WTO commitments and the incomplete nature of the WTO treaty framework. Theoretically, under the Most-Favored-Nation principle, WTO negotiation is conducted under the principle of single undertaking, which means there is no agreement on anything until there is an agreement on everything. This give and take nature of the WTO negotiation does engrave some special features in WTO commitments, in particular those in concession schedules. Under GATT 1994, to modify or withdraw a concession in a schedule, the applicant contracting party needs only renegotiate with the initial contracting party and with any other contracting party who has a principal supplying interest, and subject to consultation with any other contracting party who has a substantial interest in the concession.138 In

133 Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, ICJ Reports 1971, 31. 134 Ibid. 135 US – Shrimp, WTO Appellate Body Report (12 October 1998), para. 129 136 Ibid., para. 130. 137 Joost Pauwelyn, “The Nature of WTO Obligations,” Jean Monnet Working Paper No. 1/ 02 (2002). Available at: https://jeanmonnetprogram.org/archive/papers/02/020101. html (accessed 26 November 2019). 138 Art. 28.1, GATT 1994.

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this regard, it is problematic to consider concession schedules completely as something reflecting the common intentions of all contracting parties.139 In particular, those agreements done more through “green room” discussions might reflect only the intentions of several great powers in the WTO rather than reflecting the common intentions of all negotiating parties.140 Also, the common intention approach reveals its failure to understand the incomplete nature of the WTO treaty framework.141 As Van Damme suggested, “[t]he common intention is only formed once the treaty language has been drafted and will develop over time and with the accession of new parties.”142 Many examinations have demonstrated this unfinished feature of the WTO treaty framework. In his discussion of the GATT/WTO legal system, Hudec suggested that international trade law differs from domestic legal systems in its “overriding concern for ‘flexibility’ – the insistence that the law’s coercive pressures be applied in a controlled fashion which allows room for maneuver at every stage of the process,” moreover, this flexibility gives the GATT/WTO “a capacity for creative development,” some “possibility of growth.”143 Arup too, in discussion of the both “deregulatory” and “strong re-regulatory” dimensions of WTO agreements, suggested that, while WTO agreements “impose disciplines, in many respects they are best regarded as ‘unfinished stories’” with room for mediation through successive negotiations as well as adjustment in particular cases through the dispute settlement process.144 Therefore, common intention even as reflected in the text might still be incomplete, which necessitates the provisions of various contingency measures in the WTO framework. As revealed above, the common intention approach has been the main cause leading to the Appellate Body’s failure to apply the contingency measures in China – Raw Materials in which the Appellate Body rejected China’s claim to general exceptions.145 Finally, WTO panels and the Appellate Body’s interpretation jurisprudence deviates clearly from the general treaty interpretation practice of public

139 Isabelle Van Damme, “The Interpretation of Schedules of Commitments,” 41(1) Journal of World Trade (2007), 12. 140 Van Damme, Treaty Interpretation, 317. 141 See supra discussion 3.2.2 on “incomplete contract” approach in World Trade Report 2009. 142 Van Damme, Treaty Interpretation, 313. 143 Robert E. Hudec, Essays on the Nature of International Trade Law (London: Cameron May, 1999), 75–76. 144 Christopher Arup, The New World Trade Organization Agreements: Globalizing Law Through Services and Intellectual Property (Cambridge: Cambridge University Press, 2000), 12–13, 40. Emphasis added. He also argued that “[w]hile, on the one hand, they [WTO agreements] give some support to mutual recognition and harmonization of regulatory standards, on the other they limit the capacity of members to express their regulatory concerns on a unilateral basis.” Ibid., 41. Similarly, he argued that “[i]f the WTO agreements concede space to variations in national regulation by restraining the scope, specificity and compulsion of their norms, another, explicit concession is that certain legitimate regulatory purposes justify exceptions being made to compliance with those norms.” Ibid., 75. 145 See supra discussion 3.2.1.

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international law. It is generally accepted that there are three general schools of treaty interpretation: the “intentions of the parties” school, the “textual” or “ordinary meaning of the words” school, and the “teleological” or “aims and objects” school.146 According to Fitzmaurice, the ICJ as a whole favors the “textual method,” while “some of the individual Judges are teleologists.”147 More importantly, with the existence of the dichotomy of these two views, according to Fitzmaurice, [n]evertheless it has been common to both points of view to avoid recourse to travaux preparatoires, and relegate to a secondary place any direct inquiry into the intentions of the parties as being per se the object of interpretation.148 Fitzmaurice also detailed the rationale behind ICJ’s favoring text over intentions, which is that after prolonged negotiations, parties should have embodied their intentions in a text, “formally agreed, concluded, and drawn up,” in which the true intentions are to be found.149 The common practice of international law is also well reflected in the 1969 VCLT which states that “[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.”150 In its meeting going though the final draft of the 1969 VCLT, the International Law Commission pointed out that the “meaning of the text” is the fundamental element and starting pointed of interpretation, and that it is desirable to accord the “meaning of text” this significance in treaty interpretation.151 Textual interpretation has been so far the first choice of interpretation and well-established within mainstream public international law academia, as “what matters is the intention of the parties as expressed in the text.”152 WTO panels and Appellate Body’s jurisprudence deviates significantly from the general practice in public international law.

3.4 The legitimacy deficit of the “common intention” approach 3.4.1 The activist legitimacy deficit and WTO’s institutional flaw The discussion above demonstrates that the interpretation approach of asserting common intentions via 1969 VCLT contains inherent theoretical deficits. Both

146 Fitzmaurice, “The Law and Procedure of the International Court of Justice,” 1. See also, Isabelle Van Damme, “Treaty Interpretation by the WTO Appellate Body,” 21(3) European Journal of International Law (2010), 616–618. 147 Ibid., 7. 148 Ibid. 149 Ibid., 11–12. 150 Art. 31.1, the 1969 VCLT. Emphasis added. 151 YILC 1966, vol. 2, 219–220. 152 Brownlie, Principles of Public International Law, 631.

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WTO panels and the Appellate Body came to confining customary rules of interpretation to the 1969 VCLT during their problematic interpretation of how the Accession Protocol forms an integral part of the WTO Agreement. This problematic application of the 1969 VCLT means that a 1969 convention codifies the interpretative rules of a 1995-founded trading framework, which is a bizarre law-making effort revealing the judicial activist tendency of WTO panels and the Appellate Body. The interpretation approach’s obsession with “common intentions,” on the other hand, makes the current trading framework subject to the constraint of the founding intentions of the trading framework. This static and rigid common intention approach leaves no room for the application of contingency measures, which leads to the Appellate Body’s failure to apply general exception measures to paragraph 11.3 of China’s Accession Protocol. Therefore, the common intention approach of treaty interpretation explains all the failures of applying Article XX of GATT 1994 in China – Raw Materials. In addition to the problems above, the interpretative approach reveals a deeprooted institutional deficit of the WTO framework in the context of the tension between “judicial interpretation” vs. “authoritative interpretation.” The lawmaking move of confining the “customary rules of interpretation of public international law” to the 1969 VCLT essentially constitutes an ultra vires attempt that cannot be challenged under the current institutional framework. The WTO panels and Appellate Body’s clarifications of the WTO agreements as “judicial interpretation” are effective only to concerned parties in given cases without universal effect.153 The “authoritative interpretation” power is solely reserved to the Ministerial Conference and the General Council only. According to the WTO Agreement, the Ministerial Conference and the General Council are vested with “the exclusive authority to adopt interpretations of this [WTO] Agreement and of the Multilateral Trade Agreements.”154 From an institutional design perspective, this authoritative interpretation “gives the political bodies of the WTO an opportunity to refine existing trade rules,” as well as “to correct (overturn) an interpretation given by a panel or the Appellate Body.”155 The authoritative interpretation is therefore considered as a “necessary instrument of checks and balances” against the judicial interpretation made by panels and the Appellate Body.156 However, as the adoption requires a three-fourths majority of members, the authoritative interpretation under Article IX:2 has never had any practice so far. In fact, even if the Ministerial Conference or General Council wants to overturn the “judicial interpretation” through “authoritative interpretation,” the three-fourths procedure requirement will be much more

153 See supra discussion 3.3.2.2. 154 Art. IX:2, the WTO Agreement. 155 Claus-Dieter Ehlermann and Lothar Ehring, “The Authoritative Interpretation under Article IX:2 of the Agreement Establishing the World Trade Organization: Current Law, Practice and Possible Improvements,” 8(4) Journal of International Economic Law (2005), 812. 156 Ibid.

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bothersome compared with panel and the Appellate Body report’s adoption through “reverse consensus,” a quasi-automatic adoption process. The imbalance of the tension between “judicial interpretation” vs. “authoritative interpretation” means that decisions from panels and the Appellate Body gain the “de facto finality as interpretations of the law, even if they lack de jure finality.”157 The imbalance between “judicial interpretation” vs. “authoritative interpretation” has enormous political significance under the contemporary institutional framework of the WTO. As Oesch suggested, “[t]he WTO internal institutional structure has not (yet) developed according to a constitutional tradition of separation and balance of powers.”158 There is no body in the WTO that assumes a truly executive function which can offer checks and balances against the “judicial function” of panels and the Appellate Body. Against the background of the WTO scholarship which is undergoing a paradigm shift from “functionalism to constitutionalism,” the role of panels and the Appellate Body in the dispute settlement process is heading towards a less deferential and more intrusive direction.159 Against this background, we see no remedy for the institutional imbalance between “judicial interpretation” vs. “authoritative interpretation.” The lost balance between “judicial interpretation” vs. “authoritative interpretation” challenges and questions the legitimacy of panels and the Appellate Body’s judicial activism. Under the DSU, the findings and recommendations from panels and the Appellate Body “cannot add to or diminish the rights and obligations provided in the covered agreements.”160 Any activist move from panels and the Appellate Body will certainly raise legitimacy question and inevitably carry significant implications.

3.4.2 The lost contractarian consent and implications Judicial activism’s legitimacy deficit leads us further to the issue of contractarian consent, the foundation of the source of the binding force of international law.161 However, as the analysis indicated above, the “common intention” – where the state consent derive from – is elusive or even unattainable in the WTO framework.162 As a matter of fact, whether the intentions of the parties are relevant to treaty interpretation has long been a controversial issue.163 In

157 Robert Howse, “The Most Dangerous Branch? WTO Appellate Body Jurisprudence on the Nature and Limits of the Judicial Power,” in T. Cottier, P.C. Mavroidis and P. Blatter (eds.), The Role of the Judge in International Trade Regulation: Experience and Lessons for the WTO (Ann Arbor, MI: University of Michigan Press, 2003), 15. 158 Matthias Oesch, Standards of Review in WTO Dispute Resolution (Oxford: Oxford University Press, 2003), 234. 159 Ibid., 239–243. 160 Art. 19.2, DSU Agreement. See also Art. 3.2, DSU Agreement. 161 For common intention approach’s contractarian foundation, see supra discussion 3.3.3.1. 162 See supra discussion 3.3.3.2. 163 Fitzmaurice, “The Law and Procedure of the International Court of Justice,” 3–5.

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a sharp contrast to the close and inclusive system of domestic contracts, international regimes like the WTO are open and non-exclusive arrangements. In most of the concluding process of international treaty arrangements, while some countries that take part in treaty negotiations might not join the treaty in the end, those acceding countries might have never participated in the negotiation process in the first place. This is particularly the case in the establishment of the WTO. As an open and non-exclusive international treaty framework, the evolving nature of the WTO makes it very difficult, if not impossible, to assert the “common intentions of all members.” John Jackson once pointed out that, There are some important lessons in the GATT/WTO story … Perhaps the most significant lesson is that human institutions inevitably evolve and change, and concepts which ignore that, such as concepts which try to cling to “original intent of draftspersons,” or some inclination to disparage or deny the validity of some of these evolutions and changes, could be damaging to the broader purposes of the institutions. Governments (or societies) which consent to become members will not be frozen in time …164 As the common intention of all members is unattainable, the state consent on which contractarian legitimacy builds become therefore lost in the obsession with the “common intentions.” Pauwelyn suggested that modern multilateral treaties, including the WTO treaty, are “continuing treaties” and this type of treaty norm “does not reflect a once-and-for-all expression of state consent.”165 According to Pauwelyn, [it] would be absurd and inconsistent with the genuine will of states to “freeze” such rules into the mold of the time when they were originally created and to label them an expression of state consent limited to, say, 15 April 1994.166 Pauwelyn suggested that [most provisions of these modern multilateral treaties] are part of a framework or system that is continuously confirmed, implemented, adapted, and expanded, for example, by means of judicial decisions, interpretations, new norms, and the accession of new state parties (for which both the new party and the reciprocal acceptance of all, or a majority of, the existing parties are required). Not only were such treaty norms

164 John Jackson, Sovereignty, the WTO, and Changing Fundamentals of International Trade Law (Cambridge: Cambridge University Press, 2006), 82. 165 Joost Pauwelyn, “The Role of Public International Law in the WTO: How Far Can We Go?” 95 The American Journal of International Law (2001), 535, 546. 166 Ibid.

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consented to when they originally emerged, but they continue to be confirmed, either directly or indirectly, throughout their existence, in particular when monitored and evolving within the context of an international organization (e.g., the WTO).167 As a matter of fact, WTO’s single undertaking negotiation framework not only makes “common intention of all members” unattainable, but also presents challenges to the legitimacy of the trading framework. Under the single undertaking negotiation principle, there is no agreement on anything until there is an agreement on everything. For those joining the WTO after its establishment, acceding to the WTO or not is a “like it or lump it” situation. It is almost impossible that the “intentions” of the late acceding parties would be acknowledged in the WTO agreements. In this regard, by intentionally or unintentionally applying social contract theory to international affairs and thus grounding legitimacy on consent, the intention school’s interpretation in fact destroys the legitimacy of the international regime as it creates difficulty in reflecting the late acceding parties’ intentions and consents.168 Moreover, the interpretative approach’s obsession with the “common intentions” of all members appears to be more destructive than constructive to the future development of the WTO as an open and non-exclusive international trading regime. By resorting to the “intentions of the parties,” the intention school’s inability to acknowledge the intentions of late acceding parties will inevitably force a tracing back to the intentions of the founding fathers, in which is embedded an “origin-seeking retrospective effect.” It is in this regard that the intention school is also called a “founding fathers” school.169 Upon its establishment, the reflection of the founding fathers’ intention brings in the founding parties’ consent, which obviously legitimizes the binding force of the treaty regime. However, the reflection of late acceding parties’ consent becomes something impossible due to the “origin-seeking retrospective” mechanism. This “origin-seeking retrospective” mechanism therefore creates two theoretical problems. Firstly, the failure of the incorporation of the late acceding parties’ consent renders the enlarged treaty regime illegitimate. Secondly, the treaty regime will maintain the purity of the founding parties’ intentions due to the function of the “origin-seeking retrospective” mechanism, which renders the development and legal evolution of the treaty regime almost impossible. This “origin-seeking retrospective” mechanism also creates a practical fallacy in which a 1969 convention – the 1969 VCLT – codified the rules of interpretation of a 1995 treaty framework, the WTO trading regime.170

167 Ibid., 545–546. 168 For the three general schools of treaty interpretation in public international law, see supra discussion 3.3.3.2, in the later part of the section. 169 Fitzmaurice, “The Law and Procedure of the International Court of Justice,” 1. 170 See cited text in relation to footnote 65 above and related discussion supra 3.3.1.

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Therefore, panels and the Appellate Body’s judicial activism disturbs the balance between “judicial interpretation” vs. “authoritative interpretation” in the WTO framework. The common intention approach’s obsession with the elusive and unattainable “common intention” creates the “origin-seeking retrospective” mechanism which challenges the development and legal evolution of the WTO regime. What implications does this present to WTO legitimacy?

3.4.3 The contractarian legitimacy deficit in the WTO framework This brings us to the root of the jurisprudence of the common intention approach, the contractarian justification of legitimacy. While in social contract theory autonomous and independent individuals submit themselves to the social contract – through consent – yet at the same time remain free and autonomous, the common intention approach binds sovereign countries to the trading regime through consent found in common intentions.171 However, when the “originseeking retrospective” mechanism justifies the legitimacy of the trading regime only through the “common intentions” of the founding members, the common intention approach inevitably encounters the same theoretical deficit of the traditional social contract theory. Eminent legal historian Henry Maine criticized social contract theory as lawyers’ ahistoric “superstition,” a misuse of the “Roman jurisprudence of Contract.”172 As Maine pointed out, “attribut[ing] political rights and duties to an Original Compact between the governed and the governor” is a “famous error.”173 By making the social contract into the first mover of social development, the traditional social contract theory perceives the social development as a sudden leap from the state of nature to the state of civil society upon the birth of a social contract rather than a gradual and imperceptible process.174 Similarly, the common intention approach’s “origin-seeking retrospective” mechanism makes the gradual and imperceptible process of growth of the WTO impossible as it keeps returning back to the common intentions of the founding members, the point of origin of the birth of the WTO. The common intention approach’s intentional or unintentional misuse of social contract theory constructs the “common intentions of all members” at

171 For social contract theory’s justification, see e.g. Jean-Jacques Rousseau, The Social Contract (London: Penguin Books, 1968), 60. 172 Henry Maine, Ancient Law (London: J.M. Dent & Sons Ltd., 1917), 52–53, 202–203. 173 Ibid., 202. As Maine explained, the social contract theory was first developed as a political explanation of monarchical authority using legal terms from Rome Law of Contract in the process of the decay of the Feudal System and the decline of the authority of the Pope after the Reformation. Therefore, “[t]he Roman jurisprudence of Contract had performed for the relation of sovereign and subject precisely the same service which, in a humbler sphere, it rendered to the relation of persons bound together by an obligation of ‘quasi-contract’.” Ibid., 203. 174 Ibid., 68. According to Maine, Hobbes and Locke share this problem with each other, although they might be categorized into different schools of social contract theory.

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the founding moment as the first mover of the WTO trading regime, and thus reinforces its inability to perceive the evolving nature of the WTO regime. It further completes the “incomplete contract” and finishes the “unfinished stories,” which leaves no room for the application of contingency measures. The socalled common intentions of all members, thus frozen at the founding moment of the WTO’s creation, further strengthen the rigidity of the trading regime. The flexibility of the contingency measure to balance the rigidity of the rules becomes unavailable. Under the “origin-seeking retrospective” mechanism, it is, therefore, not surprising at all to see the failure to apply the contingency measures to Paragraph 11.3 of the Protocol. Contrary to the general exceptions’ unforseeable and forward-looking nature, the decision reveals the Panel and Appellate Body’s backward-looking and closed instead of forward-looking and open perspective on WTO commitments. It is also not surprising to see that the “customary rules of interpretation of public international law” in a 1995 trading framework were confined backwards by a 1969 treaty framework. The obsession with the common intentions at the founding moment therefore sets a limit on WTO jurisprudence, a limit both as an end and a beginning where various non-legal challenges end and legitimacy begins.175 The function of this limit is an “exercise of purity” which is produced by the “culture of dominance.”176 Furthermore, this perspective creates a myth of legal transcendence serving as the “ultimate power to determine, define and exclude,” as a “legally-sanctioned oppression” showing the WTO regime’s inability to appreciate difference.177 To borrow a term from critical legal theory, the common intention approach’s “origin-seeking retrospective” mechanism is “an economy of sameness.”178 The most significant jurisprudential issue is the fundamental challenge it presents to the possible development and evolution of an open and non-exclusive international regime. This “origin-seeking retrospective” mechanism’s inability to accept difference further challenges the WTO’s legitimacy. As the most sophisticated world trading system in history, the WTO is grounded on Ricardo’s theory of comparative advantage, the fundamental theoretical assumption that underpins liberal trade policies.179 According to this principle, free trade makes every participating country better off because of the existence of differences in production. Something fundamental in the theory of comparative advantage is that difference is the fundamental feature of the constitution of

175 Margaret Davies, Delimiting the Law: Postmodernism and the Politics of Law (London & Chicago: Pluto Press, 1996), 18. 176 Ibid., 20. 177 Ibid., 40–41. 178 Ibid., 110. 179 John Jackson, The World Trading System: Law and Policy of International Economic Relations (Cambridge, MA: MIT Press, 1997, 2nd ed.), 14–18. See also, WTO, Trading into the Future, 8.

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international trade system. When it comes to the question of fairness of international trade law, Jackson argued that some of the “unfairness” problems are in fact “difference” problems. To maintain the differences is fundamental to WTO legitimacy.180 Hudec also emphasized the fundamental significance of differences to the WTO in his case study of complaints that resort to the “level-playing-field” fairness concept in order to protest imports from developing countries with lower environmental standards. He argued that it is widely agreed that “some differences in competitive conditions between countries are both natural and proper,” and are “universally considered to be a fair and proper basis of international trade”.181 Arup too in his examination of the role of WTO agreements in the globalization of law argued that difference and diversity are inevitable and invaluable during the process of globalization. According to Arup, while globalization “produces convergence or homogeneity in law,” “difference remains sustainable”; moreover, globalization as a process of “unity in diversity” is a “negotiated and contingent” process of global “structuration.”182 However, as the common intention approach keeps returning to intentions of the founding fathers, all the difference and diversity are purified and standardized. It should be reiterated here that, from the GATT to the WTO, the global trading regime as an international social contract on trade has always been an open and evolutionary framework embrassing differences.183 The common intention approach, therefore, as “an economy of sameness,” fundamentally undermines the legitimacy of the WTO trading regime and leaves no room for the regime’s future evolution. The contractarian obsession with the common intentions, aiming at the quest of consent for legitimacy, actually creates the legitimacy deficit of the WTO framework.

3.5 Concluding remarks Building on the analysis of China – Raw Materials, this chapter critically examines the application of Article XX of GATT 1994 to paragraph 11.3 of China’s Accession Protocol. The chapter’s analysis reveals that both the Panel and Appellate Body’s decisions were misled by discussions of China’s trading rights commitments in a previous case, and erred in understanding the nature of general exceptions as contingency measures. Beyond China – Raw Materials, beginning with the problematic interpretation of how an accession protocol forms an integral part of the WTO Agreement, WTO panels and the Appellate Body have developed a consistent interpretative approach that asserts common intentions of all members through the 1969 VCLT.

180 181 182 183

Ibid., 30, 248. Hudec, Essays on the Nature of International Trade Law, 272. Arup, The New World Trade Organization Agreements, 7, 19, 21. See discussion supra 1.1 and 1.3 in particular.

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This common intention approach, however, deviates significantly from the general practice of public international law. Stemming from its problematic analysis of the Protocol as an integral part of the WTO Agreement, the Panel and Appellate Body confine “customary rules of interpretation of public international law” to Articles 31 and 32 of the 1969 VCLT. This activist deviation from general jurisprudence of public international law implies a dangerous “judicial activism” tendency. The Panel and Appellate Body’s recourse to “common intentions” of all members in order to deny application of general exceptions to the Protocol further deviates from general jurisprudence of treaty interpretation which also reveals a judicial activism tendency. As the unchallenged “judicial interpretation” power, the Appellate Body gains “de facto finality” as to interpretations of the law; what can be identified as common intention then is the Appellate Body’s intention instead of all WTO members. The WTO is then turning into an Appellate Bodydriven instead of member-driven institution. The common intention approach sets the interpretation of the Protocol in a problematic direction and general exceptions become not “general” at all in China – Raw Materials. A further critical examination reveals that the approach’s contractarian obsession with common intentions fails in its own terms and challenges the legitimacy of the WTO regime. The approach’s “origin-seeking retrospective” mechanism functions as an economy of sameness to exclude differences from the contingency measures, which makes the rigidity of the regime unbalanced. This origin-seeking and backward-looking tendency not only presents challenges to WTO legitimacy, but also prevents the healthy evolution of the trading regime. Therefore, extreme caution should be exercised as to the common intention approach of interpretation in particular and the judicial activism of panels and the Appellate Body in general. The “common intentions” of all WTO members should be located in the evolving process of the trading regime instead of statically at the founding moment of the treaty framework. Reading the “common intentions” of members in process will allow acknowledgment of differences and facilitate the evolution of the WTO framework. Flexibility of contingency measures will then be recognized to balance the rigidity of the framework, which will make the WTO framework an effective, robust, and evolving trading regime. Moreover, general exception in particular or WTO flexibility in general reflects the state primacy in the tripartite dynamics among states, international institutions, and individuals, which warrants cautious attentions to the evolutionary view of the WTO as an international social contract on trade for the benefits of the individuals. Only by being treated as a continuing treaty framework can the WTO be an open, differences-accommodating, forward-looking trading regime that ultimately benefits individuals.

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Bibliography General Ala’i, Padideh. “Free Trade or Sustainable Development? An Analysis of the WTO Appellate Body’s Shift to a More Balanced Approach to Trade Liberalization,” 14.4 American University International Law Review (1999), 1129–1171. Arup, Christopher. The New World Trade Organization Agreements: Globalizing Law through Services and Intellectual Property (Cambridge: Cambridge University Press, 2000). Brand, Ronald A. “Sovereignty: The State, the Individual, and the International Legal System in the Twenty First Century,” 25 Hastings International and Comparative Law Review (2002), 279–295. Brownlie, Ian. Principles of Public International Law (Oxford: Oxford University Press, 2008, 7th ed.). Davies, Margaret. Delimiting the Law: Postmodernism and the Politics of Law (London and Chicago: Pluto Press, 1996). Delbrück, J. “Exercising Public Authority beyond the State: Transnational Democracy And/or Alternative Legitimation Strategies?” 32 Indiana Journal of Global Legal Studies (2003), 29–43. Ehlermann, Claus-Dieter and Lothar Ehring. “The Authoritative Interpretation under Article IX:2 of the Agreement Establishing the World Trade Organization: Current Law, Practice and Possible Improvements,” 8.4 Journal of International Economic Law (2005), 803–824. Fitzmaurice, G. G. “The Law and Procedure of the International Court of Justice: Treaty Interpretation and Certain Other Treaty Points,” 28 British Year Book of International Law (1951), 1–28. Garner, Bryan A. Black’s Law Dictionary (St. Paul, MN: Thomson Reuters, 2009, 9th ed.). Henkin, Louis. Constitutionalism, Democracy, and Foreign Affairs (New York: Columbia University Press, 1990). Henkin, Louis. “The Mythology of Sovereignty,” in R. St. J. Macdonald (ed.), Essays in Honour of Wang Tieya (Dordrecht: Martinus Nijhoff, 1993), 351–358. Henkin, Louis. International Law: Politics and Values (The Hague: Kluwer Academic Publishers, 1995). Howse, Robert. “The Most Dangerous Branch? WTO Appellate Body Jurisprudence on the Nature and Limits of the Judicial Power,” in T. Cottier, P.C. Mavroidis and P. Blatter (eds.), The Role of the Judge in International Trade Regulation: Experience and Lessons for the WTO (Ann Arbor, MI: University of Michigan Press, 2003), 11–42. Hudec, Robert E. Essays on the Nature of International Trade Law (London: Cameron May, 1999). ILC, Yearbook of the International Law Commission 1949 (YILC, 1949). ILC, Yearbook of the International Law Commission 1965 (YILC, 1965), vol. 2. ILC, Yearbook of the International Law Commission 1966 (YILC, 1966), vol. 2. Jackson, John H. “The WTO Dispute Settlement Procedures: A Preliminary Appraisal,” in Jeffrey J. Schott (ed.), The World Trading System: Challenges Ahead (Washington, DC: Peterson Institute, 1996), 153–165. Jackson, John H. The World Trading System: Law and Policy of International Economic Relations (Cambridge, MA: MIT Press, 1997, 2nd ed.).

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Jackson, John H. Sovereignty, the WTO, and Changing Fundamentals of International Trade Law (Cambridge: Cambridge University Press, 2006). Jennings, Robert and Arthur Watts. Oppenheim’s International Law (London: Longman Group UK Ltd., 1992, 9th ed., vol. I). Lee, Roy S. “Multilateral Treaty-making and Negotiation Techniques: An Appraisal,” in B. Cheng and E.D. Brown (eds.), Contemporary Problems of International Law: Essays in Honour of Georg Schwarzenberger on His Eightieth Birthday (London: Stevens & Sons Ltd., 1988), 157–176. Maine, Henry. Ancient Law (London: J.M. Dent & Sons Ltd., 1917). Merquior, J. G. Rousseau and Weber: Two Studies in the Theory of Legitimacy (London: Routledge & Kegan Paul, 1980). Oesch, Matthias. Standards of Review in WTO Dispute Resolution (Oxford: Oxford University Press, 2003). Pauwelyn, Joost “The Role of Public International Law in the WTO: How Far Can We Go?” 95 The American Journal of International Law (2001), 535–578. Pauwelyn, Joost. “The Nature of WTO Obligations,” Jean Monnet Working Paper No. 1/ 02 (2002). Qin, Julia Ya. “The Predicament of China’s ‘WTO-Plus’ Obligation to Eliminate Export Duties: A Commentary on the China-Raw Materials Case,” Editorial Comments, 11 Chinese Journal of International Law (2012), 237–246. Roessler, F. “Are the Judicial Organs of the World Trade Organization Overburdened?” in R.B. Porter, P. Sauve and A. Subramanian (eds.), Efficiency, Equity, & Legitimacy: The Multilateral Trading System in the Millennium (Washington, DC: Brookings Institution Press, 2001), 308–328. Rousseau, Jean-Jacques. The Social Contract (London: Penguin Books, 1968; translated by Maurice Cranston). Secretariat, GATT, “Negotiating Group on GATT Articles: Article XXI,” MTN.GNG/ NG7/W/16 (18 August 1987). Secretariat, GATT, “Non-Violation Complaints under GATT Article XXIII:2,” MTN. GNG/NG13/W/31 (1 July 1989). Van Calster, Geert. “China, Minerals Export, Raw and Rare Earth Materials: A Perfect Storm for World Trade Organization Dispute Settlement,” 22.1 Review of European Community & International Environmental Law (2013), 117–122. Van Damme, Isabelle. “The Interpretation of Schedules of Commitments,” 41.1 Journal of World Trade (2007), 1–52. Van Damme, Isabelle. Treaty Interpretation by the WTO Appellate Body (Oxford: Oxford University Press, 2009). Van Damme, Isabelle. “Treaty Interpretation by the WTO Appellate Body,” 21.3 European Journal of International Law (2010), 605–648. Venzke, Ingo. “Making General Exceptions: The Spell of Precedents in Developing Article XX GATT into Standards for Domestic Regulatory Policy,” 12.5 German Law Journal (2011), 1111–1140. WTO, Report of the Working Party on the Accession of China, Working Party Report, WT/ACC/CHN/49 (1 October 2001). WTO, The Future of the WTO: Addressing Institutional Challenges in the New Millennium, Report by the Consultative Board to the Director-General Supachai Panitchpakdi (The Sutherland Report; Geneva: WTO Publications, 2004). WTO, World Trade Report 2009: Trade Policy Commitments and Contingency Measures (Geneva: WTO Publications, 2009).

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Cases Argentina – Footwear (EC), WT/DS121/AB/R (14 December 1999). Brazil – Desiccated Coconut, WT/DS22/AB/R (21 February 1997). Canada – Dairy, WT/DS103/AB/R (13 October 1999). Canada – Patent Term, WT/DS170/AB/R (18 September 2000). China – Auto Parts, WT/DS339/AB/R (15 December 2008). China – Publications and Audiovisual Products, WT/DS363/AB/R (21 December 2009). China – Rare Earths, WT/DS431/432/433/AB/R (29 August 2014). China – Raw Materials, WT/DS398/AB/R (30 January 2012). EC – Aircraft, WT/DS316/AB/R (18 May 2011). EC – Asbestos, WT/DS135/R (18 September 2000). EC – Bananas (21.5 II – Ecuador), WT/DS27/AB/RW2/ECU (26 November 2008). EC – Bananas III, WT/DS27/AB/R (9 September 1997). EC – Chicken Cuts, WT/DS269/AB/R (12 September 2005). EC – Computer Equipment, WT/DS62/AB/R (5 June 1998). EC – Hormones (US), WT/DS26/AB/R (16 January 1998). EC – Poultry, WT/DS69/AB/R (13 July 1998). EEC – Apples (US), adopted GATT Panel Report BISD 36S/135 (22 June 1989). EEC – Dessert Apples (Chile), adopted GATT Panel Report, BISD 36S/93 (22 June 1989). ICJ, Rights of United States of America in Morocco, ICJ Reports 1952. ICJ, Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, ICJ Reports 1971. India – Patents (EC), WT/DS79/R (24 August 1998). India – Patents (US), WT/DS50/AB/R (19 December 1997). Japan – Alcoholic Beverages II, WT/DS8/AB/R (4 October 1996). Japan – Film, WT/DS44/R (31 March 1998). Korea – Dairy, WT/DS98/AB/R (14 December 1999). Korea – Procurement, WT/DS163/R (1 May 2000). Korea – Various Measures on Beef, WT/DS161/AB/R (11 December 2000). Mexico – Telecoms, WT/DS204/R (2 April 2004). Thailand – Cigarettes, adopted GATT panel report (DS10/R – 37S/200, 7 November 1990). Thailand – Cigarettes (Philippines), WT/DS371/AB/R (17 June 2011). US – Anti-Dumping and Countervailing Duties (China), WT/DS379/AB/R (11 March 2011). US – Canadian Tuna, adopted GATT Panel Report, L/5198 – 29S/91 (22 February 1982). US – Cotton Yarn, WT/DS192/AB/R (8 October 2001). US – DRAMS, WT/DS99/R (29 January 1999). US – Export Restraints, WT/DS194/R (29 June 2001). US – Gambling, WT/DS285/R (10 November 2004); WT/DS285/AB/R (7 April 2005). US – Gasoline, WT/DS2/AB/R (29 April 1996). US – Line Pipe, WT/DS202/AB/R (15 February 2002). US – Section 211 Appropriations Act, WT/DS176/AB/R (2 January 2002). US – Section 301 Trade Act, WT/DS152/R (22 December 1999). US – Shrimp, WT/DS58/R (15 May 1998). US – Softwood Lumber V, WT/DS/264/AB/R (11 August 2004).

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US – Stainless Steel (Mexico), WT/DS344/R (20 December 2007). US – Tuna (EEC), unadopted Panel Report, DS29/R (16 June 1994). US – Tuna (Mexico), unadopted Panel Report, DS21/R – 39S/155 (3 September 1991). US – Tyres (China), WT/DS399/AB/R (5 September 2011). US – Underwear, WT/DS24/AB/R (10 February 1997). US – Upland Cotton, WT/DS/267/AB/R (3 March 2005). US – Wool Shirts and Blouses, WT/DS33/AB/R (25 April 1997).

4

Antidumping The NME normal value determination1

Building on the critical examination of the WTO’s jurisprudential distortion in previous chapters, this chapter brings us back to the reality and examines how goods and traders in “free trade” have been trapped inside an ideological divide of market or non-market economies. This chapter critically examines the normal value determination of non-market economies (NMEs) and its implications for the purpose of contributing to Doha antidumping reform deliberation. From domestic to international arenas, antidumping development has seen significant growth of government paternalistic discretion, turning antidumping into a distributive instrument challenging constitutionalism. Deeply rooted in the ideological divide of the 1950s, NME methodology’s obsession with national divide turns free trade from traders’ commutative exchange to nations’ distributive predation. NME distributive discretion, though against the free market principle, is ironically used to accuse foreign economies of not being free market enough. When products and producers are given certain status via nationality instead of treated individually, antidumping development has been a process “from Status to Contract” and back.

4.1 Introduction From the GATT to the WTO, antidumping has been one of the most contentious, yet most frequently used mechanisms in the multilateral trading framework. On several occasions since the GATT’s establishment in 1947, antidumping has received “elaborate attention” in the international trading framework.2 The AntiDumping Agreement is considered to be the most technical and controversial

1 An earlier version of this chapter has been published. Wenwei Guan, “International Trade ‘from Status to Contract’ and Back: A Critique of the NME Normal Value Determination and Beyond,” 7.1 Journal of East Asia and International Law (2014), 79–106. Revision of the article included in this book with permission from the publisher, Yijun Press, ©2014. 2 Edwin Vermulst, The WTO Anti-Dumping Agreement: A Commentary (New York: Oxford University Press, 2005), 3. Emphasis added.

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agreement within the WTO framework. In WTO’s first decade (1995–2004), 37 out of 89 cases, for which original panel or Appellate Body reports have been circulated to members, were trade remedy cases, and among them, 19 cases were antidumping related.4 As of November 2019, among those 591 cases that have reached the WTO dispute settlement process, 133 cases cite the Anti-Dumping Agreement in their requests for consultations.5 Antidumping is thus considered to be “the most important contingent protection measure” that is provided in the GATT/WTO framework.6 Given the significance of the regime, there has long been rich scholarship on the antidumping system.7 Antidumping reform has therefore long been one of the key issues in the GATT/WTO framework, and yet has faced strong resistance at the same time. In prior negotiations before the Doha Round, the US and the EU successfully “contain[ed] antidumping reform initiatives within narrow limits without any real sacrifice of their own major negotiation objectives.”8 However, recent proliferation of antidumping laws and the threat of abuse have changed the situation.9 Antidumping reform is now one of the key issues of concern in the WTO Membership’s agenda in the Doha Round negotiation.10 So far, consensus has only been reached on the needs of antidumping reform; how to reform the regime itself is still a question. At the November 2001 Doha Ministerial Conference, the WTO members agreed to initiate negotiations in the area of “WTO Rules” related to matters around 3

3 Ibid. at Foreword. Lindsey and Ikenson called antidumping policy “a hot-button issue” in the US trade policy debate. See Brink Lindsey and Daniel J. Ikenson, Antidumping Exposed: The Devilish Details of Unfair Trade Law (Washington DC: Cato Institute, 2003), ix. 4 See, “Selected Statistics: The First Ten Years of the WTO,” in Rufus Yerxa and Bruce Wilson (eds.), Key Issues in WTO Dispute Settlement: The First Ten Years (Cambridge: Cambridge University Press, 2005), 289. 5 For details, see WTO, “Disputes by Agreement,” available at WTO official site: www.wto.org/ english/tratop_e/dispu_e/dispu_agreements_index_e.htm?id=A6 (accessed 26 November, 2019). 6 Aradhna Aggarwal, The Anti-Dumping Agreement and Developing Countries: An Introduction (New Delhi: Oxford University Press, 2007), 3. 7 See, e.g. John H. Jackson and Edwin A. Vermulst (eds.), Antidumping Law and Practice: A Comparative Study (Ann Arbor, MI: University of Michigan Press, 1990); J. Michael Finger (ed.), Antidumping: How It Works and Who Gets Hurt (Ann Arbor, MI: University of Michigan Press, 1993); Brian Hindley and Patrick A. Messerlin, Antidumping Industrial Policy: Legalized Protectionism in the WTO and What to Do about It (Washington: The AEI Press, 1996); Grey Mastel, Antidumping Laws and the U.S. Economy (New York: M.E. Sharpe, 1998); Lindsey and Ikenson, Antidumping Exposed; Reem Anwar Ahmed Raslan, Antidumping: A Developing Country Perspective (London: Kluwer Law International, 2009). 8 Lindsey and Ikenson, Antidumping Exposed, 149. 9 Ibid. 10 According to Lindsey and Ikenson, “there was overwhelming support for the inclusion of antidumping on the agenda of the Doha Round; indeed, the United States was completely isolated in opposition.” Ibid.

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the Anti-Dumping Agreement.11 Negotiations aim at “clarifying and improving disciplines” under the Anti-Dumping Agreement, in particular, the rules regarding “determinations of dumping, injury and causation, and the application of measures.”12 However, in the two versions of draft texts that the Chair of the Negotiating Group on Rules sent to the WTO members, the provisions that are related to dumping determination in Article 2 show no substantial differences from the current WTO antidumping regime.13 This raises a question of concern: does the mechanism of dumping determination in the current antidumping regime fit well into the Doha Development Agenda? If not, what would be the implications for the trading framework and international traders? Relevant to the overarching antidumping reform debates in the Doha Round Negotiation, this chapter offers a critical examination of the dumping determination mechanism. Particular attention will be paid to the non-market economy (NME) methodology of normal value determination focusing on China, because the status of its exports has been controversial in recent WTO relevant literature.14 Mostly based on the textual analysis of the WTO law, some argue that upon the expiration of the 15 year permission of the NME treatment stated in China’s WTO Accession Protocol, “Chinese imports have to be treated with regard to a determination of normal value in the same way as imports from any other WTO member.”15 Others, however, look for inspirations from domestic

11 WTO Declaration of the Fourth Ministerial Conference in Doha, Qatar, adopted on 14 November 2001 (the Doha Declaration, WT/MIN(01)/DEC/1), paras. 28 and 29. The “WTO Rules” negotiation covers subject matters including the Anti-Dumping Agreement, Countervailing Measures as to fisheries subsidies, and WTO provisions applying to regional trade agreements. 12 Ibid., the Doha Declaration, para. 28; WTO Declaration of the Sixth Ministerial Conference in Hong Kong, adopted on 18 December 2005 (the Hong Kong Declaration, WT/MIN (05)DEC), Annex D, para. 4. 13 WTO, Draft Consolidated Chair Texts of the AD and SCM Agreements, TN/RL/W/213 (30 November 2007); New Draft Consolidated Chair Texts of the AD and SCM Agreements, TN/RL/W/236 (19 December 2008). 14 According to China’s WTO Accession Protocol, “the importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.” See Protocol on the Accession of the People’s Republic of China Art. 15(a)(ii). Art. 15(d) of this Protocol also states, “in any event,” this NME treatment “shall expire 15 years after the date of [China’s WTO] accession.” 15 Christian Tietje and Karsten Nowrot, “Myth or Reality? China’s Market Economy Status under WTO Anti-dumping Law after 2016,” Policy Papers on Transnational Economic Law No. 34 (Transnational Economic Law Research Center, Martin-Luther-University, December 2011), 12. See also, Rao Weijia, “China’s Market Economy Status under WTO Antidumping Law after 2016,” 5 Tsinghua China Law Review (2013), 151.

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16

law for the justification to retain the NME methodology. This research, however, will look further into the jurisprudential implications of the NME methodology in particular or antidumping in general of international free trade. This chapter is composed of five parts, including the Introduction and the Conclusion. In section two, the development of the normal value determination methodology will be introduced. While the general methodology – based either on home market prices, third country prices, or on constructed prices – treats foreign products and producers consistently on an individual basis, the NME methodology treats foreign products and producers on a collective basis, as defined by the nature of their national economy. The chapter will argue that the development of the trading regime from GATT to the WTO is not completely a process “from Status to Contract” as Henry Maine referred to it.17 In section three, the chapter will look at the practice and nature of the NME methodology of normal value determination against the general context of treatments of individuals in international law in general, and in the GATT/WTO framework in particular. This section will suggest that, deeply rooted in the ideological divide of the 1950s and 1960s, the NME methodology’s product treatment indicates a classic obsession with national divide in international affairs, distorting free trade, and turning international trade from a traders’ commutative exchange into nations’ distributive predation which creates a “nationality apartheid” in international trade. In section four, the chapter will discuss the rationales behind antidumping in general. The chapter will argue that the development of antidumping sees a great expansion of administrative discretion that is turning antidumping into a paternalistic redistribution instrument. Moreover, this unchallenged paternalistic discretion and distributive rationale challenges modern constitutionalism and threatens the rule of law. Building on these critical examinations, in section five, the chapter will call for a serious revisit to the NME methodology in particular, and the antidumping regime in general, in the international trading regime.

16 Kenneth J. Pierce and Matthew R. Nicely, “Transitioning to China’s Market Economy Antidumping Treatment in 2016,” American Bar Association 2009 Spring Meeting Supplementary Materials (16 February 2013). See also, Garrett E. Lynam, “Using WTO Countervailing Duty Law to Combat Illegally Subsidized Chinese Enterprises Operating in a NonmarketEconomy: Deciphering the Writing on the Wall,” 42.3 Case Western Reserve Journal of International Law (2010), 739. 17 According to Maine, social development in general is a process from “a condition of society in which all the relations of Persons are summed up in the relations of Family … towards … a phase of social order in which all these relations arise from the free agreement of Individuals.” The process from Status to Contract therefore indicates the trend of further emancipation of individuals from status – family in social development and nationality in international trade – restraints. See Henry Maine, Ancient Law (London: J. M. Dent & Sons Ltd, 1917), 99–100. For more details, see discussion infra 4.2.2, 4.3.3.

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4.2 Antidumping development and normal value determination 4.2.1 General methodology of normal value determination The international antidumping regime originates in the domestic experiences dating back to the pre-GATT era.18 From a historical point of view, there are two different origins of the early development of domestic antidumping laws: “a heritage from competition law” in the US and “defusing protectionist pressure” in Canada.19 From a protectionist background in 1904, Canada adopted the first antidumping law to combat dumping from high tariff countries for the purpose of defusing protectionist pressure.20 In contrast to Canadian legislation, the US Antidumping Act of 1916 was to deal with predatory pricing in international trade.21 The expending adoption of antidumping law internationally from Canada to the US, Australia, UK, South Africa, and the European Community indicates the inherent flexibility and convenience of antidumping as a governmental instrument of trade control. During the negotiations to establish the International Trade Organization, the US proposed an antidumping draft based on its Antidumping Act of 1921, which set out the basis for Article VI of the GATT 1947.22 However, antidumping did not become a significant GATT issue until the Kennedy Round (1964–1967), which adopted the 1967 Antidumping Code.23 As the US has never signed the Kennedy Round Antidumping Code, it has little practical significance and was later on superseded by the 1979 Tokyo Round Antidumping Code.24 The Tokyo Code triggered the US’s amendment of antidumping regime in its 1979 Trade Agreement Act.25

18 For details on the “genesis and evolution” of the antidumping regime, see supra note 6, 49–65. 19 Hindley and Messerlin, supra note 7, 23–24. 20 Finger, supra note 7,14–17. 21 The Antidumping Act of 1916 is the Title VIII (“Unfair Competition”) of the Act entitled “An Act to increase the revenue and for other purposes” approved 8 September 1916 (15 USC 72, 39 Stat. 756). The Act had heritage in competition law, mainly from the Sherman Antitrust Act of 1890 and the Wilson Tariff Act of 1894. It is repealed by Section 2006 to the Miscellaneous Trade and Technical Corrections Act of 2004 (H.R. 1047, P. L. 108–429) which was signed into law by President Bush on 3 December 2004. 22 US House of Representatives Committee on Ways and Means, Overview and Compilation of US Trade Statues 2013 (Jan. 2013), at 101. See also supra note 6, 52–54. 23 Supra note 20, 25–26. See also The Kennedy Round Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade [hereinafter Kennedy Round Antidumping Code of 1967], BISD 15S/24 (done at Geneva 30 June 1967, entered into force 1 July 1968). 24 See Tokyo Round Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade [hereinafter Tokyo Round Antidumping Code of 1979], LT/TR/A/1 (done at Geneva 12 April 1979, entered into force 1 January 1980). 25 US House of Representatives Committee on Ways and Means, supra note 22, 102. To carry out the agreements on nontariff measures negotiated in the Tokyo Round, the US enacted

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During the early developmental stage, dumping was generally defined as selling exports at prices below the home market prices or foreign market value. This definition was compared with the domestic prices on an individual basis. The 1916 Antidumping Act defines dumping as an unlawful act importing or selling foreign goods in the US “at a price substantially less than the actual market value or wholesale price” of the goods in the principal markets of the home country or of other third countries to which the goods are exported.26 For dumping determination then, the value to be compared with the US sale price is based on home market value or sale price. Also, the term “person” in the Act “includes partnerships, corporations, and associations.”27 Thus, the Act is referring to importers or products on an individual basis rather than national one. The relationship between international traders is essentially based on the term “contract” as defined individually rather than on the term “status” as defined by nationality. The term “actual market value” was initially defined in the Antidumping Act of 1921 to be determined by usual price or market value in “the principal markets” of the exporting country at the “time of exportation of such merchandise to the United States.”28 Similar definitions can be found in Sec. 402(c) of the Tariff Act of 1930.29 At this stage thus far, the normal value of foreign products for dumping determination purpose is still determined according to the home market price on an individual basis. When the Trade Agreement Act of 1979 repealed the Antidumping Act of 1921 and amended the Tariff Act of 1930, the general methodology of determining foreign market value remained.30 The 1979 Amendment also added exceptional alternatives to the general methodology to include third country price or constructed value to determine the foreign market value.31 The general methodology of normal value determination in the current WTO antidumping regime reflects this domestic practice at the early stage. Under the current WTO antidumping regime, dumping means that “products of one country are introduced into the commerce of another country at less than the normal value of the products,” if the export price of the product “is less than the comparable price, in the ordinary course of trade, for the like product when

26 27 28 29

30 31

the Trade Agreement Act of 1979 (P. L. 96–39, 93 Stat. 144.) and repealed the Antidumping Act of 1921. Antidumping Act of 1916 (39 Stat. 798) § 801. Ibid. § 800. Antidumping Act of 1921 (41 Stat. 13) § 205. Tariff Act of 1930 (46 Stat. 709). § 402(c). The definition of the foreign market value was no longer there after the section was later on amended several times: as added 2 August 1956, ch. 887, § 2(a), 70 Stat. 943; amended Pub. L. 96–39, title II, § 201(a), 26 July 1979, 93 Stat. 194; Pub. L. 96–490, § 2, 2 December 1980, 94 Stat. 2556. Tariff Act of 1930, § 773(a)(1)(A), Title VII, as added by Trade Agreement Act of 1979 (P. L. 96–39, 93 Stat. 182) § 101, Title I. Tariff Act of 1930 §§ 773(a)(1)(B) & 773(a)(2), Title VII, as added by Trade Agreement Act of 1979 (P. L. 96–39, 93 Stat. 182–183) § 101, Title I.

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destined for consumption in the exporting country.”32 However, this home market price based methodology is not applicable when there are neither sales, nor sufficient volume of sales of the like product in the domestic market of the exporting country.33 Rather, what would come into play is the representative “comparable price of the like product when exported to an appropriate third country” – the third country price – or a constructed price based on “the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits.”34 As a matter of fact, when the relationship of “association or a compensatory arrangement between the exporter and the importer or a third party” causes the export price to be unavailable or unreliable, export price may also be constructed.35 The alternatives in special situations, including third country price or constructed price, are not free of controversy. Lindsey and Ikenson argued that the third country price methodology “has no rational relation to the basic concepts, principles, and objectives of the Antidumping Agreement,” and “third-country prices are an inappropriate basis for normal value.”36 However, the determination is still made case by case, on an individual basis, and is expressly allowed in the WTO Agreement. There are not many debates at all about this general methodology of normal value determination, even in the ongoing Rules Negotiation in the Doha Round.37 This general methodology of home market price based determination, with alternatives of third country sale price and constructed price, is well established in the WTO framework.

4.2.2 SCE and NME normal value determination The general methodology of normal value determination building on home market price in the early stage was “enriched” first domestically and then internationally with the introduction of an ideological divide in international trade system during the development of the multilateral trading regime from 1950s onwards. In a 1960 antidumping investigation against bicycles from Czechoslovakia, the US Department of Treasury’s determined fair value was based, not on Czech’s home market price, but on the price of similar West Germany bicycles, because Czech is a state-controlled economy (“SCE”).38 This SCE categorization

32 33 34 35 36 37

Art. VI.1(a), GATT 1994. See also Art. 2.1, WTO Antidumping Agreement. Art. VI.1(b), GATT 1994. See also Art. 2.2, WTO Antidumping Agreement. Ibid. Art. 2.3, WTO Antidumping Agreement. Lindsey and Ikenson, supra note 7, 170. For details on the Doha Round Negotiation, see Ian F. Fergusson, World Trade Organization Negotiations: The Doha Development Agenda, Congressional Research Service Report (RL32060, 12 December 2011), available at: https://fas.org/sgp/crs/misc/RL32060.pdf (accessed 26 November 2019). 38 Charles Owen Verrill, Jr., “Nonmarket Economy Dumping: New Directions in Fair Value Analysis,” 1989(2) Brigham Young University Law Review (1989), 449–450.

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was clearly due to the influence of the ideological divide as Czech was one of those communist countries “whose economies do not allow for competitive pricing of goods as in the US.”39 The US Department of Treasury’s practice was later codified by the 1975 Amendment to the Antidumping Act of 1921.40 In 1975, the US substantially amended Section 205 of the Antidumping Act of 1921 that defines the “Foreign Market Value” by singling out goods from “the economy of the country from which the merchandise is exported is state-controlled” to an extent that sales or offers of sales of the goods do not permit a general determination based on home market price.41 According to the 1975 Amendment, the foreign market value of goods from SCEs will be determined on the basis of either the “prices … at which such or similar merchandise of a non-state-controlledeconomy country or countries is sold” or “the constructed value of such or similar merchandise in a non-state-controlled-economy country or countries.”42 When the Trade Agreement Act of 1979 amended the Tariff Act of 1930, this SCE surrogate methodology of dumping determination remained intact.43 The SCE surrogate methodology was further amended and expanded in 1988 by the Omnibus Trade and Competitiveness Act of 1988.44 The 1988 Amendment defined a non-market economy country as any country that the Commerce Department determines does not “operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise.”45 The foreign market value of the goods from a non-market economy country should be determined “on the basis of the value of the factors of production utilized in producing the merchandise and to which shall be added an amount for general expenses and profit plus the cost of containers, coverings, and other expenses.”46 As Verrill suggested, the new methodology was a choice made after comparing with the surrogate methodology and the “trade-weighted average price” methodology.47 This “factors of production” methodology, however, is not new, but rather appeared in a 1978 draft of proposed US Treasury regulations used in the Polish Golf Car investigation,48 and

39 40 41 42 43 44 45 46 47 48

Ibid., 449 (n. 3). Ibid., 449. Trade Act of 1974 (P. L. 93–167, 88 Stat. 2047) § 321(c). Ibid. Tariff Act of 1930, §773(c), Title VII, as added by Trade Agreement Act of 1979 § 101, Title I, P. L. 96–39, 93 Stat. 184. Omnibus Trade and Competitiveness Act of 1988, passed on 23 August 1988 (H.R. 4848), P. L. 100–418, 102 Stat. 1107. See 19 U.S.C. §1677(18)(A) (added to Sec. 771 of Tariff Act of 1930); Omnibus Trade and Competitiveness Act of 1988, P. L. 100–418, §1316(b), 102 Stat. 1107, 1186 (1988). Tariff Act of 1930 (19 U.S.C. 1677(b)) § 773(c)(1), as amended by Omnibus Trade and Competitiveness Act of 1988 (P. L. 100–418, 102 Stat. 1107, 1186) §1316(a). Supra note 38, 451–453. Kenneth R. Mason, Electric Golf Cars from Poland (US International Trade Commission, June 1980), available at www.usitc.gov/publications/aa1921/pub1069.pdf (accessed 26 November 2019). See also, Donald L. Cuneo and Charles B. Manuel Jr. “Roadblock to

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has been used whenever the surrogate methodology was considered inappropriate.49 Compared with the surrogate methodology, it was considered as indicating “an extension of the special NME rules beyond the ‘communist’ countries to which they have traditionally been applied.”50 Under the new methodology, “Factors of Production” include hours of labor needed, quantities of raw materials used, energy and other utilities consumption, and representative capital cost, etc.51 The application of the new methodology thus, to a certain extent, will differentiate treatments to producers with different production efficiency. Therefore, the dumping determination under this methodology will then take into account certain individual differences between producers. As Verrill suggested, the new methodology’s “recognition of different efficiency achievements” is eventually “a significant and valuable step toward rational application of the antidumping law to NMEs.”52 On the international level, the issue of imports from either SCEs or NMEs was also raised in the 1950s. In 1955, the Contracting Parties to the GATT 1947 amended the Agreement by adding notes to Article VI of the Agreement.53 Generally, comparable prices include third country prices or constructed prices. In accordance with the note, when the general methodology of dumping determination through both comparing export prices and comparable prices is not permitted, alternatives will be available. As amended by this protocol in 1957, the second Supplementary Provision to Article VI.1 of GATT 1947 reads: It is recognized that, in the case of imports from a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State, special difficulties may exist in determining price comparability for the purposes of paragraph 1, and in such cases importing contracting parties may find it necessary to take into account the possibility that a strict comparison with domestic prices in such a country may not always be appropriate.54 This second Supplementary Provision to Article VI.1 has been traditionally used by various national authorities as the legal basis for ignoring the NME prices and costs for the ground of normal value.55 As the NME prices and costs are

49 50 51 52 53 54 55

Trade: the State-Controlled Economy Issue in Antidumping Law Administration,” 5 Fordham International Law Journal (1981), 292–294. Supra note 38, 454–455. Ibid., 453. Ibid. Ibid., 455–456. GATT Protocol Amending the Preamble and Parts II and III (done at Geneva on 10 March 1955), 278 U.N.T.S. 168 (1957). Art. 6(1) (Ad Note 2), GATT 1947, as amended by the Protocol Amending the Preamble and Parts II and III of the General Agreement on Tariffs and Trade, 278 U.N.T.S. 214 (1957). Supra note 2, 44.

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considered unreliable because they are set by the state instead of market forces, surrogate prices or costs in a market economy country are used. Consequentially, “producers in a non-market economy might all be subjected to the same duty rate to avoid circumvention.”56 This amendment to the GATT 1947 was later on successfully incorporated into the Kennedy Round Anti-Dumping Code 1967 and the Tokyo Round AntiDumping Code 1979 respectively by staying: “This Article is without prejudice to the second Supplementary Provision to paragraph 1 of Article VI in Annex I to the General Agreement.”57 It was again incorporated into GATT 1994 in the same way via the WTO Antidumping Agreement.58 On its comment on the Article 2.7 of the Antidumping Agreement, the Appellate Body in EC – Fasteners (China) suggested that: “Article 2.7 of the Anti-Dumping Agreement states that Article 2 is without prejudice to the second Ad Note to Article VI:1 of the GATT 1994, and thus incorporates the second Ad Note to Article VI:1 into the Anti-Dumping Agreement.”59 It is worth mentioning here that, in those two drafts of Chair Texts of WTO Negotiating Group on Rules in Doha Round, there is no change at all to the Article 2.7 of the WTO Anti-Dumping Agreement.60 This provision has been regarded as WTO’s recognition of the NME methodology of dumping determination. The NME methodology of dumping determination is therefore established in both domestic and international antidumping regimes. As shown above, the development of the normal value determination methodology during antidumping evolution presents a complex picture. Because the general methodology treats foreign products and producers on an individual basis, traders would “contract” with each other without restraints of nationalities. They are thus free from “status” limitation. Deeply rooted in the ideological divide from 1950s onwards, the SCE and later the NME methodology of normal value determination treats products and producers on a collective basis, as defined by the nature of the national economy. This collective treatment leads international trade into nation-based transaction, and indeed creates a “nationality apartheid” in international trade based on ideological devide. From the perspective of the general methodology of normal value determination, the development of the international trading regime from GATT to WTO is still in a process of development “from Status to Contract” in Henry Maine’s term.61 The development of

56 Ibid., 44–45. 57 See, Art. 2(g), Kennedy Round Antidumping Code of 1967; Art. 2.7, Tokyo Round Antidumping Code of 1979. 58 Art. 2.7 of the Antidumping Agreement states: “This Article is without prejudice to the second Supplementary Provision to Paragraph 1 of Article VI in Annex I to GATT 1994.” 59 EC – Fasteners (China), WTO Appellate Body Report, WT/DS397/AB/R (15 July 2011), para. 285. 60 WTO Negotiating Group on Rules, Draft Consolidated Chair Texts of the AD and SCM Agreements, TN/RL/W/213 (30 November 2007), 7; New Draft Consolidated Chair Texts of the AD and SCM Agreements, TN/RL/W/236 (19 December 2008), 6. 61 For Maine’s discussion of social development “from Status to Contract,” see supra note 17.

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the SCE and NME methodology, however, indicates something otherwise. We are thus led to the issues of the practice and nature of the NME methodology and its implications for the international trading framework.

4.3 The NME methodology: nationality as status of products in trade 4.3.1 The controversies of the NME methodology NME is neither mentioned nor defined, nor is any methodology prescribed, when the two conditions – country’s complete monopoly of trade and state fixing all domestic prices – are matured in the WTO Antidumping Agreement. This ambiguity leaves an unfortunate gap to be filled up by country practices. Countries vary significantly from each other in terms of “NME” definitions and methodologies taken thereafter. Venezuela, for example, calculates the normal value of imports from “centrally-planned economies” on the basis of sales of like products in a “third country with a market economy and a similar level of development.”62 The EU defines NME as the situation “where the State control over the means of production and State intervention in the economy, including international trade, imply that all the means of production and natural resources belong to one entity, the State.”63 The EU maintains that, in a non-market economy, “all imports from non-market economy countries are therefore considered to emanate from a single supplier, the State,” in which the state is treated as one supplier.64 Quite different from Venezuela or the EU, the US offers an even more complex framework. In the US, the Omnibus Trade and Competitiveness Act of 1988 defines an NME country as one that “does not operate on market principles of cost or pricing structures.”65 Under the Act, the US NME determination considers factors like currency convertibility, negotiability of wage rates, accessibility for foreign investment on joint ventures or other investments, and government control over means of production, resource allocation, and product price.66 The Indian Antidumping Law also offers a similar definition by considering factors of prices and costs determination, applicability of bankruptcy and property laws, and currency convertibility.67 The US has regarded China as an

62 Art. 10, Anti-Dumping Regulations under the Law on Unfair Foreign Trade Practices of Venezuela as cited in WTO Committee on Anti-Dumping Practices Working Group on Implementation, “Art. 2(2) – Calculation of Normal Value: Paper by Venezuela,” G/ADP/ AHG/W/162 (29 September 2004), 3. 63 European Union’s Appellant’s submission, as cited in supra note 59, para. 68. 64 Ibid. 65 19 U.S.C. §1677(18)(A), as added by Tariff Act of 1930, § 771, 1316(b). See also Omnibus Trade and Competitiveness Act of 1988 (P. L. 100–418, 102 Stat. 1107, 1186) §1316(b). 66 Ibid., 19 U.S.C. §1677(18)(B). 67 Raslan, supra note 7, 102.

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NME country in all past antidumping duty investigations and reviews. In a report responding to the request by a private company supported by China’s Ministry of Commerce to re-evaluate China’s NME status, it was considered that China’s banking sector fundamentally distorts financial resources in China, as well as the allocation of other important resources like labor, material inputs, and energy.69 Therefore, the continuing collective influence of the various levels of the PRC government over the banking sector is a critical element of China’s designation as an NME for purposes of the US antidumping law because of the importance of the banking sector for investment and, thus, resource allocation in the economy.70 Moreover, the American NME determination takes a “factors of production” methodology instead of a surrogate methodology.71 The quite significant differences between Venezuela and the US in terms of the NME determination and methodology of dumping determination raise an issue of great concern as to the implications of their application. In contrast to the various practice of its members, the WTO antidumping regime remains silent on NME, which finally triggered debates on the NME dumping determination among the US, China, and some other member countries.72 China, for example, worried about the fair application of the NME methodology; she argued that the NME methodology “creates” dumping easily as importing members have the complete discretion of choosing benchmarking third country.73 China maintained that members’ abuse of the NME methodology for domestic industry protection is in contradiction with the WTO’s basic principle of free trade, and thus the “non-market economy” clauses should be removed.74 As

68 See, e.g. Notice of Final Determination of Sales at Less Than Fair Value and Affirmative Critical Circumstances: Magnesium Metal from the People’s Republic of China, 70 FR 9037 (24 February 2005); Notice of Final Determination of Sales at Less Than Fair Value: Certain Tissue Paper Products from the People’s Republic of China, 70 FR 7475 (14 February 2005); and Notice of Final Determination of Sales at Less Than Fair Value: Certain Frozen and Canned Warmwater Shrimp from the People’s Republic of China, 69 FR 70,997 (8 December 2004). 69 See The People’s Republic of China (PRC) Status as a Non-Market Economy (NME): Memorandum for David Spooner, Assistant Secretary for Import Administration, A-570–901 (15 May 2006), at 7. Available at: https://enforcement.trade.gov/download/prc-nme-status/ prc-nme-status-memo.pdf (accessed 26 November 2019). 70 Ibid. 71 19 U.S.C. §1677(b), as amended by Section 1316(a) to Section 773(c)(1) of Tariff Act of 1930. See also Omnibus Trade and Competitiveness Act of 1988 (P. L. 100–418, 102 Stat. 1107, 1186). 72 See, e.g. WTO Committee on Anti-Dumping Practices, Minutes of the Regular Meeting Held on 24–25 October 2002, G/ADP/M/22 (21 March 2003), paras. 73–75. Here, China indicated concerns about some other members’ unfair NME treatments. 73 WTO Negotiating Group on Rules, Proposal of the People’s Republic of China on the Negotiation on Anti-Dumping, TN/RL/W/66 (6 March 2003), 3. 74 Ibid., 3–4.

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the regular target of the application of the NME methodology, Vietnam also raised similar concerns.75 Regarding the US Trade Policy Review of 2012, Vietnam suggested that the US should review the WTO’s consistency to its NME practice of “country-wide rate in anti-dumping investigations” and to bring an end to the NME practice.76 However, the concerns from the NME targeted countries have not been well received by some of the NME methodology frequent users. The US indicated clear willingness to use the NME methodology to facilitate its domestic law’s promotion of market economy. In response to China’s concerns, the US argued that its NME application is justified because China’s reliance on “excessive, trade-distorting government intervention” indicated that: “China’s movement away from a centrally-planned economy toward a free-market economy governed by rule of law remained incomplete.”77 In summary, as to the treatments of imports from NMEs for antidumping purpose, the state practice of the WTO members varies significantly. The key issue of the NME methodology lies in whether imports from NMEs should be treated as a whole or individually. The controversies between WTO members as to the application of the NME methodology lead us to a further examination of the nature of the NME methodology.

4.3.2 The nature of the NME methodology Alongside the development of the antidumping regime, the normal value determination methodologies have evolved into a complex, general-and-NME -methodology-intertwined legal framework. While general methodology of normal value determination based on home market price offers a solution to the general calculation of normal value, the NME methodology comes into play under special market situations. What then is the relationship between the NME methodology and the general methodology of normal value determination based mainly on exporters’ home market price? When commenting on the Ad Note 2 to Article VI.1 of GATT 1994, the Appellate Body in US – Anti-dumping and Countervailing Duties (China) suggested that this provision “provides the legal basis for the use of surrogate values for NMEs in anti-dumping investigations” and “authorizes recourse to exceptional

75 Vietnam’s WTO entry was conditioned on the possible application of the NME methodology on Vietnam’s exports and Vietnam’s market economy status is to be determined under the national law of the importing WTO Members until 31 December 2018. See WTO Working Party on the Accession of Vietnam, Accession of Viet Nam: Report of the Working Party on the Accession of Vietnam, WT/ACC/VNM/48 (27 October 2006), paras. 255(a) and (d). 76 WTO Trade Policy Review Body, Trade Policy Review: United States (Record of the Meeting), WT/TPR/M/275 (30 April 2013), para. 399. 77 WTO Committee on Subsidies and Countervailing Measures, Minutes of the Regular Meeting Held on 26–27 October 2011, G/SCM/M/79 (2 February 2012), para. 50.

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methods for the calculation of normal value in investigations of imports from NMEs.”78 This comment to some extent clarifies the relationship between the general methodology and the NME methodology of normal value determination. According to the comment, the general methodology of normal value determination is based on the home market value, while the NME methodology is in accordance with “exceptional method” of normal value determination. According to the Ad Note 2 of the GATT 1947 as incorporated into the GATT 1994 by Article 2.7 of the Anti-Dumping Agreement, normal methodology based on “a strict comparison with domestic prices” for dumping determination “may not always be appropriate” only if: (1) the country “has a complete or substantially complete monopoly of its trade”; and (2) “all domestic prices are fixed by the State.”79 According to the Appellate Body in EC – Fasteners (China), this Ad Note indicates that the NME methodology has limited application only: We [the Appellate Body] observe that the second Ad Note to Article VI:1 refers to a “country which has a complete or substantially complete monopoly of its trade” and “where all domestic prices are fixed by the State”. This appears to describe a certain type of NME, where the State monopolizes trade and sets all domestic prices. The second Ad Note to Article VI:1 would thus not on its face be applicable to lesser forms of NMEs that do not fulfil both conditions, that is, the complete or substantially complete monopoly of trade and the fixing of all prices by the State.80 Not only is the NME’s application limited, but also the discretion it provides is specific to the determination of normal value rather than the determination of export prices or calculation of dumping margins. According to the Appellate Body in EC – Fasteners (China), the Ad Note provides “flexibility only in respect of the determination of normal value.”81 Moreover, the Ad Note indicates nothing that “importing Members may depart from the provisions regarding the determination of export prices and the calculation of dumping margins and anti-dumping duties set forth in the Anti-Dumping Agreement and in the GATT 1994.”82 Furthermore, in EC – Fasteners (China), the Appellate Body rejected the EU’s reliance on certain provisions for its justification on country-wide NME dumping determination. This rejection sheds lights on the nature of the NME methodology. Under the current WTO antidumping regime, investigating

78 US – Anti-Dumping and Countervailing Duties (China), WTO Appellate Body Report, WT/DS379/AB/R (11 March 2011), para. 569. Emphasis added. 79 Art. VI.1 (Ad Note 2), GATT 1994. 80 Supra note 59, para. 285 (n. 459). 81 Ibid. Emphasis added. 82 Ibid.

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authorities are required to determine dumping margin individually, except for the statistical sampling when number of exporters, producers, importers or product types is too large to be fully calculated.83 Another exception is allowed when all suppliers cannot be named individually.84 In EC – Fasteners (China), the Communities attempted to justify the application of a country-wide NME dumping determination and the imposition of dumping duty against certain products from China, based on these two provisions.85 The Appellate Body, however, suggested that both determining dumping and imposing antidumping duty need to be carried out on an individual ground.86 The Appellate Body acknowledged that there may be situations where nominally distinct exporters may be treated as a single entity under these two provisions “due to State’s control or material influence in and coordination of these exporters’ pricing and output.”87 However, the Appellate Body considered that the individual treatment test laid down in Article 9(5) of EU’s Basic Antidumping Regulation “is not directed at such an inquiry.”88 The Appellate Body further suggested that “a presumption that the State and all exporters or producers in all industries in NMEs are sufficiently related to constitute a single entity lacks a legal basis in the covered agreement.”89 Therefore, both dumping determination and the dumping duty imposition, as laid down in Articles 6.10 and 9.2, need to be made individually on a case by case basis. In addition, the WTO framework has no legal basis for treating all exporters or producers in an NME country as a single entity. However, the Appellate Body’s decision is not conclusive. It states: In principle there may be situations where nominally distinct exporters may be considered as a single entity for the purpose of determining individual dumping margins and anti-dumping duties under Articles 6.10 and 9.2 of the Anti-Dumping Agreement, due to State’s control or material influence in and coordination of these exporters’ pricing and output.90 When the EU implemented the Appellate Body’s recommendation of bringing Article 9(5) into conformity with the Antidumping Agreement, the new article superseding it indicates that: “An anti-dumping duty shall be imposed in the appropriate amounts in each case, on a non-discriminatory basis on imports of

83 84 85 86 87 88 89 90

Art. 6(10), WTO Antidumping Agreement. Ibid., Art. 9(2). Supra note 59, para. 352. Ibid., para. 339 (n. 512). Ibid., para. 382. Ibid. Ibid., para. 370. Ibid., para. 382.

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91

a product from all sources found to be dumped and causing injury.” As this amends only the imposition of dumping duties, how much this has changed EU’s NME normal value determination practice remains unclear. Therefore, the recognition of the NME methodology under the WTO regime is very limited. The NME methodology is indeed an exceptional alternative to the general methodology of normal value determination based on home market price. The methodology has limited application within a specific scope. However, to what extent normal value determination of NME imports should be made on an individual basis remains unclear.

4.3.3 Nationality in international law: from status to contract The product treatment under the NME methodology is based on nationality. It reflects the traditional way of international legal thinking that sovereign states are the only subjects of international law.92 Under classical international law, “nationality” was the key to linking individuals to international law so that all the trans-border relations between individuals would be summed up in those of countries.93 International law will thus be applied to a natural person via his/ her nationality. It is the same case with a private company or other legal persons.94 Therefore, in international law, there is a “doctrine of the freedom of states in matters of nationality.”95 In the Advisory Opinion concerning the Tunis and Morocco Nationality Decrees, the Permanent Court of International Justice insisted that: “in the present state of international law, questions of nationality are, in opinion of this Court, in principle within this reserved domain.”96 Different treatments based on nationality are generally “admissible” in international law.97 As far as nationality is the ground of product treatment in international trade, the development “from Status to Contract” remains

91 Art. 1, Regulation (EU) No 765/2012 of the European Parliament and of the Council of 13 June 2012 amending Council Regulation (EC) No 1225/2009 on protection against dumped imports from countries not members of the European Community (done in Strasbourg, 13 June 2012), Official J. the European Union L 237/2 (9 March 2012). 92 Louis Henkin, International Law: Politics and Values, 7–8. See also, Ian Brownlie, Rule of Law in International Affairs (The Hague: Martinus Nijhoff Publishers, 1998), 48. See also discussion supra 1.2.1 on “WTO and the Pirmacy of States.” 93 Brownlie, Rule of Law in International Affairs. He argued: “The principal connection between the individual and the system of international law is still via the status of nationality.” See also, Robert Jennings and Arthur Watts, Oppenheim’s International Law (London: Longman Group UK Ltd., 1992, 9th ed.), 857. Jennings and Watts maintained: “Nationality is the principal link between individuals and international law.” 94 Ibid., 859. 95 Ian Brownlie, Principles of Public International Law (New York: Oxford University Press, 2008, 7th ed.), 383. 96 1923 P.C.I.J. (ser. B) No. 4, 24. 97 Supra note 95, 524.

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a fiction. The NME normal value determination methodology treats individual products collectively; it would be justified in the context that individuals are not the subjects of and would not be dealt with by international law without nationality connection. Today, however, a strong trend is to recognize private and individual actors as the subject of international law, especially for human rights protection (political sphere) or for product treatment in international trade (economic sphere). In the political sphere, the individuals came under international law via the human rights protection that was provided by the UN Charter.98 In the economic sphere, meanwhile, the private and individual actors began to be recognized by the GATT/WTO framework. In the Panel Report of US – Sections 301 Trade Act, the WTO Panel stated that “the creation of market conditions conducive to individual economic activity in national and global markets” and “the provision of a secure and predictable multilateral trading system” are two of the important “objects and purposes of the DSU, and the WTO more generally.”99 During its discussion on the direct effect of the GATT/WTO norms, the Panel argued that “[t]he purpose of many disciplines [in the GATT/WTO legal matrix] … is to produce certain market conditions which would allow this individual activity to flourish.”100 The individuals have been also recognized in the course of expanding the non-discrimination principle under the GATT/WTO system. Originally, the non-discrimination principle only addressed products, which means physical items instead of commercial transactions of “transport, transfer of patents, licenses and other ‘invisibles’, or movements of capital.”101 However, as early as the Tokyo Round (1973–1979), the Agreement on Technical Barriers to Trade appears to have extended the protection to “persons” rather than “products.” The Procedures for Assessment of Conformity by Central Government Bodies obliges members to ensure that “conformity assessment procedures are prepared, adopted and applied” so as to grant access for suppliers of like products of other members no less favorable than those accorded to domestic suppliers.102 Such expansion of the application of the non-discrimination principle from products to persons conforms to the nature of the principle. Petersmann argued that the non-discriminatory rule indicates that international trade

98 Supra note 93, at 850 and 988. See also, Thomas M. Franck, The Empowered Self: Law and Society in the Age of Individualism (New York: Oxford University Press, 1999), 237, 280. For details on the development of human rights protection under the UN system, see supra note 93, 993–995 and 1012–1018. 99 US – Section 301 Trade Act, WTO Panel Report, WT/DS152/R (22 December 1999), para. 7.71. Emphasis added. 100 Ibid., para. 7.73. Emphasis added. 101 Arts. 1(1) and 3(4), GATT 1947. Both refer to products only. For details, see Peter Malanczuk, Akehurst’s Modern Introduction to International Law (London: Routledge, 1997, 7th ed.), 229. 102 Art. 5, Agreement on Technical Barriers to Trade. Emphasis added.

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should be “determined in a decentralized manner by the citizens themselves” through the free market and “governmental trade policies should aim at maximizing individual market access and freedom of choice.”103 The nondiscrimination requirement finally removes the nationality constraint, i.e. the “Status” of products and producers. The development of international free trade from GATT to the WTO is a process “from Status to Contract.”104 Recently, there is a strong tendency towards recognizing individuals as the subjects of international law in both the political and economic spheres. The key to this development is to limit government power for the benefits of individual actors. In particular, the Anti-Dumping Agreement requires dumping determination and the imposition of antidumping duty to be made individually on a non-discriminatory basis. Unfortunately, the development of the NME methodology based on nationality, however, leads us to the opposite direction. This puzzle therefore calls for a further examination of the nature and rationale of the antidumping regime in general.

4.4 From status to contract and back: NME treatment and beyond 4.4.1 Antidumping as a paternalistic redistribution instrument The antidumping development has been processing, with antidumping “law” emerging as a major policy instrument in every government. In the US, the departure from criminal statutes to administrative determination is a critical point in the early evolution of antidumping law, because the standards of proof of a criminal offense and administrative dissatisfaction are totally different.105 According to Finger, in its early development, antidumping law in the US was gradually detached from antitrust law.106 This transition “prepared the way for 103 Ernst-Ulrich Petersmann, Constitutional Functions and Constitutional Problems of International Economic Law: International and Domestic Foreign Trade Law and Foreign Trade Policy in the United States, the European Community and Switzerland (Fribourg, Switzerland: University Press, 1991), 108. 104 For more details on the treatment of individuals, see discussion supra 1.2.3. 105 For this transition, see Finger, supra note 20, 22–23. Both the Sherman Act of 1890 and Section 73 of the Wilson Tariff Act of 1894 are criminal statutes dealing with predatory pricing in international trade. Even the first Antidumping Act of 1916 began to deal with “importing below actual market value” through a criminal statute perspective. But starting from the Antidumping Act of 1921 and the Tariff Act of 1930, antidumping law in the US departed from antitrust law and built up an administrative approach. According to Finger (23): Dissatisfaction with the 1916 act was political, not legal dissatisfaction; and in politics, this dissatisfaction was relative to what a Canadian-style administrative remedy would provide. Rule of law was what was blocking things, not any particular word in the law. Enlarging the scope for action against imports would require a shift from a legal to an administrative approach – or … a bureaucratic approach. 106 Ibid., 21.

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the eventual emergence of antidumping as the main vehicle for both importcompeting interests towards protection and governments to respond to those pressures.”107 As in the EC, slower growth facilitates the antidumping mechanism as “a doubly convenient means” for responding to the “displacement of domestic production by emerging Asian exporters.”108 Moreover, as an extension of antitrust law targeting companies in early stage, today’s antidumping policy is targeting problems linked to the actions of foreign governments.109 Mastel argued that: “Although antidumping laws also directly act against companies, their real targets are governments that pursue industrial policies aimed at taking market share, production, and employment from US companies using closed markets, cartelized markets or subsidies to build production capacity.”110 Antidumping law thus has developed into an administrative instrument of governments in international trade wars. The growth of administrative discretion, along with the antidumping regime’s transformation from a legal approach to an administrative policy instrument, is reflected both domestically and internationally, such as “facts available” provisions and the acceptance of the “standard of review” practice in the WTO rules. According to the US Antidumping Duties of 1989, antidumping procedures during “preliminary determination,” “critical circumstances findings,” “administrative review of orders and suspension agreements,” and “calculation of foreign market value base on constructed value” are based on “available information.”111 A similar provision is also available in both GATT 1947 and GATT 1994, according to which preliminary and final determinations “may be made on the basis of the facts available.”112 “Best information available” here – or the “facts available” provision later on – is a soft administrative procedure, and governments enjoy far more discretionary power than that of early antitrust law’s criminal approach standard of proof.113 It also gives leeway for antidumping authorities to stay away from legal checks and balances. Finally, this makes it easy for concerned domestic industries to launch antidumping investigations and makes it difficult for respondents to block an investigation.114 Similarly, the “standard of review” practice also leaves domestic antidumping authorities a large degree of discretion to implement the Anti-Dumping

107 108 109 110 111 112 113 114

Ibid., 24. Ibid., 27. Grey Mastel, Antidumping Laws and the U.S. Economy (New York: M.E. Sharpe, 1998), 15. Ibid., 138. 19 C.F.R. 353.15(a), (e); 353.16(b); 353.22(c), (f); and 353.50(c). Art. 6(8), Agreement on Implementation of Article 6 of GATT 1994. Supra note 20, 23. As for the difficulty of fulfilling demands for information, the current antidumping code in the US requires antidumping authorities “to provide assistance to domestic firms filing petitions for relief under the AD/CVD laws, but it has no similar requirement for assistance to foreign firms being investigated.” See Congressional Budget Office (CBO), Congress of the United States, How the GATT Affects U.S. Antidumping and Countervailing-Duty Policy (Washington: CBO, 1994), 71.

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Agreement. Under the current WTO framework, if the establishment and evaluation of the facts by national authorities were proper and unbiased, “even though the [WTO] panel might have reached a different conclusion, the [national authorities’] evaluation shall not be overturned.”115 By securing the discretionary power of domestic authorities, this standard of review exempts antidumping authorities from “closer scrutiny by the WTO Panel,” with “loopholes and ambiguities contained in the Agreement … opening the door for abuse.”116 Therefore, antidumping policy “protect[s] competitors rather than competition” and brings “benefits to some enterprises at the expense of the consumers.”117 Antidumping laws thus “have little to do with unfair trade under any plausible definition of that term.” So, duties are routinely being imposed against foreign products in normal commercial practices.118 The “facts available” provisions and the standard of review guarantee provide fertile soil for NME discretion and abuse. The growth of the administrative discretion has sometimes turned antidumping measures into governments’ paternalistic redistribution instrument, reallocating interests among domestic consumers, “injured” domestic industries, and competing foreign industries. Since “dumping usually transfers part of the cost of protectionism from the closed markets to open markets,” antidumping policy inevitably has some kind of redistribution effect.119 While antidumping should counter foreign trade practices and protect domestic industry, it actually redistributes income from consumers in the importing country to protected industries.120 With the antidumping action, consumers would pay more money for the final products and thus support the domestic producers. The appropriation effect of the US Continued Dumping and Subsidy Offset Act (“CDSOA”) of 2000 provides a good example.121 As CDSOA redistributes antidumping and countervailing duties collected against foreign products among domestic

115 Art. 17(6), Agreement on Implementation of Article 6 of GATT 1994. 116 Inge Nora Neufeld, Anti-Dumping and Countervailing Procedures – Use or Abuse? Implications for Developing Countries (Geneva: United Nations, 2001), 17–18. 117 Ibid., 15. 118 Lindsey and Ikenson, supra note 7, 147. 119 Supra note 109, 16. 120 As Hindley and Messerlin explained, e.g. if B is a net importer of widgets, “antidumping action by the government of B will allow the prices and profits of the B industry to rise … thus redistributing income from widget buyers in B to widget producers in B, and further depressing the widget industry in A.” See Hindley and Messerlin, supra note 7, 12. Emphasis added. 121 The CDSOA came into force on 28 October 2000. Previously, the revenues from antidumping and countervailing duties on a given import went directly into the general Treasury. The 2000 CDSOA modified the Tariff Act of 1930 and requires that money be collected into special accounts to be distributed at the end of the fiscal year to the domestic producers that were either petitioners or interested parties supporting the petition in the case that resulted in the duties being levied on that import. The CDSOA applied to all antidumping and countervailing duty assessments made on or after 1 October 2000.

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producers that initiated or supported domestic petition, the Act was considered to be inconsistent with the WTO rules.122 Although CDSOA was repealed by the US Congress in October 2007, the redistribution effect, however, continues as entries before 2007 are not affected and can be distributed for years after.123 Under the current mechanisms of trade duty and collection finances, “the distribution process will continue for an undetermined period.”124 From 2001 to 2007, more than 2,097 million USD in duty revenues were distributed under CDSOA.125 Even after CDSOA was repealed, 1,015 million USD duty revenues for the five years between 2008 to 2012 and 298 million USD duty revenues for the five years between 2014 and 2018 were distributed under CDSOA.126 This CDSOA practice further indicates the government’s discretionary redistribution of protection cost among local industries, consumers, and foreign competing industries. Moreover, antidumping may cause reconstruction of certain domestic industries or redistribution of international market shares. In US Liquid Crystal Flat Panel Display (“FPD”), antidumping measures taken caused the domestic redistribution of costs between consumers and producers, as well as drove domestic industry abroad which benefited companies in other countries.127 On the other

122 US – Offset Act, WTO Appellate Body Report, WT/DS217/AB/R, WT/DS234/AB/R (16 January 2003). 123 In February, 2006, US Congress passed the Deficit Reduction Omnibus Reconciliation Act that includes a provision (Senate Bill 1932 Sec. 7601 Subtitle F) to repeal the CDSOA. The repeal came into force in October, 2007. 124 US Customs and Border Protection (“CBP”), Continued Dumping and Subsidy Offset Act (“CDSOA”) of 2000: Frequently Asked Questions, at: www.cbp.gov/trade/priorityissues/adcvd/cdsoa/frequently-asked-questions (accessed 26 November 2019). 125 See Calculation based on item “Total Disbursed” of Annual Disbursement Report of each fiscal year, available at CBP official site: www.cbp.gov/trade/priority-issues/adcvd/con tinued-dumping-and-subsidy-offset-act-cdsoa-2000 (accessed 26 November 2019). According to the reports, the detailed amount of duty revenues distributed in each year (in million US dollars) is as follows: 231 in 2001, 330 in 2002, 240 in 2003, 284 in 2004, 226 in 2005, 411 in 2006, and 375 in 2007. 126 Ibid. According to the reports, the detailed amount of duty revenues distributed in the five years between 2008 and 2012 (in million US dollars) is as follows: 368 in 2008, 320 in 2009, 109 in 2010, 92 in 2011, and 126 in 2012; and in the five years between 2014 and 2018 (again in million US dollars) is as follows: 89 in 2014 and 2015, 51 in 2016, 46 in 2017, and 23 in 2018. 127 For the flat panel display (“FPD”) case, see Hindley and Messerlin, supra note 7, 47. In the early 1980s, Japanese liquid crystal FPD producers represented 90 percent of liquid crystal FPD’s world output. At that time, the 15 largest US computer producers closed and sold their FPD plants according to their specialization strategy. However, in 1990, seven US FPD producers filed an antidumping complaint for dumping against thirteen Japanese competitors, including Toshiba, Sanyo, and Hitachi. As the result, a 62.7 percent antidumping duty was imposed on the largest subset of FPDs, the active matrix LCDs, which were produced by only two of those seven petition companies; and 7 percent duties were imposed on other subsets of FPDs and electroluminescent FPDs. Two small US firms were thus able to impose very high costs on the AM-LCD users, which were all the major laptop producers in

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hand, EC Calcium Metal indicated that antidumping measures might have an intended or unintended effect of redistribution of international market shares.128 Thus, through the paternalistic redistribution mechanism antidumping laws focus on protecting “injured” industries rather than promoting consumer interests.129 Finger argued that antidumping is private rather than public policy that was created by removing the checks and balances as well as rule of law constraints on antitrust law, “an instrument that one competitor can use against another.”130 During the process of development, administrative discretion in domestic and international antidumping regimes has thus evolved into a “private” protection mechanism that challenges modern constitutionalism and threatens the rule of law.

4.4.2 Legitimacy deficit: constitutionalism and rule of law under threat The 20th century’s development of the international antidumping regime is in contrast to the general trend of increasing recognition of individual participation in international free trade. In the course of developing the international antidumping regime, a tension lies in the interaction between the unchallenged trade discretionary power of the government and the free economic activities of the individuals. While the administrative functions of the government for antidumping focus on both redistributing costs between consumers and producers, and reallocating international market shares, individual economic operators pursue freedom of trade without constraints.

the US like Apple, IBM, and Compaq. To avoid the higher costs, these US firms upgraded their laptop facilities offshore. 128 Ibid., 49, EC Calcium Metal case. In 1988 a French company Péchiney, which is the only producer of calcium metal in EC, filed a dumping complaint against Russia and China that was giving the advantage to a small French firm, Extramet. Extramet is Péchiney’s downstream market competitor and uses calcium imports to make products for the steel industry. In September 1989 antidumping duties of roughly 22 percent were imposed on imports from Russia and China. Since at that time Péchiney was refusing to sell calcium to Extramet, Extramet had already brought the case to the French Competition Council. The Council concluded in March 1992 (Décision 92-D-26, 31 March 1992), and the Appeals Court of Paris confirmed in February 1993 that Extramet was obliged to import calcium metal from Russia and China. In June 1992 the European Court of Justice repealed the antidumping duties (Case C-358/89, ruling of 11 June 1992). In this case, antidumping protected Péchiney from its competitor Extramet by excluding Russia and China from the EC calcium metal market. However, there were two other world producers, in Canada and the States, whose products were more expensive than that of Russia and China but cheaper than that of Péchiney, and who consequently benefited from the antidumping duties against Russia and China. EC market shares of calcium metal were thus redistributed among Russian, Chinese, and North American companies. 129 Supra note 116, 15. 130 Supra note 20, 34.

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The growth of government discretionary power in paternalistic redistribution of costs and market shares distorts international trade. Such distortion challenges our traditional perception of justice in the sense that antidumping administration is an intertwining process between the “commutative” function of the trading parties and the “distributive” function of the importing government.131 The contemporary framework indicates a Gallican rationale of antidumping policy that protectionist cost can be calculated, individual properties and justice can be redistributed, and social welfare can be achieved through rationalistic design rather than through individual free market activities.132 The growing paternalistic discretion in antidumping challenges modern constitutionalism at the cost of individual rights. Antidumping distributive discretion not only threatens contemporary constitutionalism, but also challenges the rule of law, because “the rule of law precludes the pursuit of distributive, as opposed to commutative justice.”133 It is well established that central to the rule of law is the constraint of arbitrary State power for the protection of individual rights.134 Essentially, the rule of law prescribes “a peculiar relationship between ‘state’ and ‘law’ which is, overall, beneficial to individuals.”135 Therefore, governmental self-restraint rather than paternalistic expansion is imperative for international rule of law. From GATT to WTO, as the former WTO Appellate Body Chairman James Bacchus suggested, “the GATT-based trading system has been establishing the international rule of law in international trade – rule by rule, and case by case.”136 On the contrary, the NME methodology in particular or the development of the antidumping regime in general sees the growth of national government’s paternalistic discretion to the cost of limiting individual rights in international free trade. This raises the question of the legitimacy of the antidumping regime. However, apart from the economic rationale, the important implications for the relationship between governmental power and the rights of individuals in

131 While domestic trade operates through commutative activities among individual producers is the process of “commutative justice,” international trade becomes distributive among national governments instead of along commutative interactions between individual producers is the function of “distributive justice.” Between Commutative justice and Distributive justice, while Commutative Justice means “the Justice of a Contractor” through acts of contract in buying, selling, and other performance, Distributive Justice is “the Justice of an Arbitrator” who performs “his Trust” to “distribute to every man his own. See Thomas Hobbes, Leviathan (London: Penguin Books, 1968), 208. 132 F. A. Hayek, The Constitution of Liberty (Chicago: The University of Chicago Press, 1960), 54–56. 133 Ibid., 232. 134 Danilo Zolo, “The Rule of Law: A Critical Reappraisal,” in Pietro Costa and Danilo Zolo (eds.), The Rule of Law: History, Theory and Criticism (New York: Springer, 2007), 7. 135 Pietro Costa, “The Rule of Law: A Historical Introduction,” in Pietro Costa and Danilo Zolo (eds.), The Rule of Law: History, Theory and Criticism (New York: Springer, 2007), 74. 136 James Bacchus, “Groping Toward Grotius: The WTO and the International Rule of Law,” 44(2) Harvard International Law Journal (2003), 539.

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antidumping law have unfortunately been overlooked. Most studies of antidumping policy focus on examining antidumping policy’s economic rationale.138 Referring to both origins of the development of antidumping laws in the US and Canada, others examine the justification of antidumping laws based on rationale against predatory dumping and potential monopoly or on fairness justification.139 However, to defend the domestic public interests through fighting against predatory monopoly and ensuring fairness, governments have been entrusted with too much discretionary power in international trade.140 The antidumping administration’s paternalistic discretion distorts the relationships between the government and the individuals at both the domestic and international level. It indicates that the key to antidumping legitimacy is the tension between the government and individual traders rather than between competing industries. The development of the antidumping regime deviates from the contractarian imperative of a government’s accountability to individual rights,141 because the current antidumping regime accommodates paternalistic administrative discretion. From a historical point of view, both Maine’s analysis of the state as the “legal fiction of families,” and Locke’s argument that “the government commonly began in the father,” point out that government originates from the structure of the patriarchal family.142 When the social contract groups individuals as nations, it unfortunately breeds the rationale for paternalistic governmental power.143 Nationality, as shown above, is playing a significant role in the NME methodology to keep the individuals from directly participating in the international order. It is by its nature a modern concept of the patriarchal family. Social contract theory unfortunately justifies rather than challenges the growing paternalistic administrative discretion in international trade. In his discussion of the

137 Robert W. McGee, A Trade Policy for Free Societies: The Case against Protectionism (Connecticut: Quorum Books, 1994), 150. He argued: “One aspect of antidumping law and policy that is rarely discussed is the relationship between antidumping laws and the legitimate functions of government.” 138 Alan. V. Deardorff, “Economic Perspectives on Antidumping Law,” in Jackson and Edwin (eds.), Antidumping Law and Practice: A Comparative Study (Ann Arbor, MI: University of Michigan Press, 1990), 23–39. 139 Supra note 7, 3. 140 See discussion supra 4.4.1, 4.4.2. 141 Under the ideal of the social contract theory, government’s paternalistic power should work for the benefit rather than the disadvantage of individual rights. According to Rousseau, e.g. the contractarian social compact is a form of association “which will defend the person and goods of each member with the collective force of all, and under which each individual, while uniting himself with the others, obeys no one but himself, and remains as free as before.” See Jean-Jacques Rousseau, The Social Contract (London: Penguin Books, 1968; translated by Maurice Cranston), 60. 142 Supra note 7, at 77. See John Locke, The Second Treatise of Government (New Jersey: Prentice Hall, 1997), 59. 143 Hobbes shows unconsciously the clear connection between the social contract and the omnipotent sovereign power. See supra note 131, 229.

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relationship of individuals to the state under the framework of sovereignty in the international legal system, Brand suggested that the international legal framework is a “two-tiered social contract,” “under which the individual relates to the state in domestic law, and only the state relates to the international legal order in international law.”144 Similarly, as WTO is considered to be a memberdriven organization, Hudec suggested that there is no basis for “asking the WTO to meet the legitimacy standards of an institution with powers of governance.”145 National government therefore is not accountable to foreign products and producers as domestic legal systems are isolated from the international regime. Allowing this line of logic to go further, then, national paternalistic power may reallocate international market share at will and force other countries to accept the market economy model of productivity through the operation of NME methodology. More than creating an unwarranted nationality apartheid in trade, this indeed breaks the delicate balance of the tripartite dynamics between states, international institutions, and individuals in the evolution of the WTO as an emancipatory international social contract on trade. This is not and should not be true, at least in the international trading framework. As has been well established in the WTO jurisprudence, the WTO Members are free to pursue their own national policies – be that for environmental protection or a market economy model of production organization – only if “in so doing, they fulfill their obligations [such as non-discrimination] and respect the rights of other Members under the WTO Agreement.”146 The prevailing jurisprudence as to the discussion of product’s process and production methods (“PPMs”) suggests that non-product related PPM-measures are in general WTO-inconsistent as WTO is concerned about products instead of process. Whether tuna is caught in an environmentally friendly way or whether beer is brewed in small or large firms will not affect tuna and beer’s nature as products in trade.147 Accordingly, there is no legal basis for WTO to justify different treatments to products from either market or non-market economy. In pursuing their national policies, the domestic governments are obliged to consider foreign

144 Ronald A. Brand, “Sovereignty: The State, the Individual, and the International Legal System in the 21st Century,” 25 Hastings International and Comparative Law Review (2002), 286–287. 145 R. Hudec, Comment on “The Club Model of Multilateral Cooperation and Problems of Democratic Legitimacy,” in R. Porter et al. (eds.), Efficiency, Equity, and Legitimacy: The Multilateral Trading System at the Millennium (Washington, DC: Brookings Institution Press, 2001), 297–298. 146 US – Shrimp, WTO Appellate Body Report, WT/DS58/AB/R (12 October 1998), para. 186. See also, US – Gasoline, WTO Appellate Body Report, WT/DS2/AB/R (29 April 1996), para. 30. 147 US – Tuna (Mexico), unadopted GATT Panel Report, DS21/R – 39S/155 (3 September 1991), para. 5.15. See also, US – Malt Beverages, adopted GATT Panel Report, DS23/R – 39S/206 (19 June 1992), para. 5.19.

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products and producers just on the basis of non-discrimination, which transcend the nationality barrier of products and producers from different countries. The imperative of non-discrimination prescribes the removal of the nationality barriers in international trade. It calls for “an international individual right to free trade” that “is protected by the trend toward increasing international law limits on the freedom of States to distort international free trade through tariffs and non-tariff interventionist policies, such as antidumping and countervailing duty law.”148 As Petersmann argued, for both domestic and transnational trade, “freedom of trade” is “a basic individual right” and not just “a mere economic theory.”149 However, all this can become true and thus the process of development “from Status to Contract” in international trade will be an irreversible process, only if we get rid of the NME methodology in particular and the paternalistic discretion in general in the current antidumping regime.

4.5 Conclusion As seen in the development of the NME methodology, antidumping evolution is a growing process of the paternalistic redistribution of the governmental discretion. Deeply rooted in the ideological divide in the 1950s onwards, the NME methodology determines normal value on a collective basis defined by the nature of the nationality of the imports. Products and producers are all given a status through nationality. Further critical examination of the antidumping regime generally reveals that the growth of the paternalistic discretion, alongside the increasing limitation on individual imports and producers, has turned antidumping into a paternalistic redistributive instrument both domestically and internationally. The development and application of the NME methodology in particular, or the evolution of antidumping regime in general reveals that the development of the international trading framework has been a process from “Status to Contract” and back, in which imports and producers in international free trade now encounter more nationality restraints in antidumping. However, during the development of the multilateral trading framework from GATT to WTO, international trade has been in a process of increasing recognition of individual participation in international free trade, a process of development from “Status to Contract.” Analyzing the antidumping regime based on the recognition of individual participation demands a serious rethinking of the legitimacy of antidumping and calls for real antidumping reform in international trade. This analysis indicates that the NME’s methodology in normal value determination bears no legitimate grounds, but rather accommodates unchallenged national governments’ paternalistic discretion and challenges free market

148 Antonio F. Perez, “International Antitrust at the Crossroads: The End of Antitrust History or the Clash of Competition Polity Civilizations?” 33 Law and Policy in International Business (2002), 552, footnote 68. 149 Supra note 103, 463.

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mechanism, which would threaten the contemporary constitutionalism and the rule of law. Ironically, the paternalistic distributive rationale of antidumping administration is used to accuse imports from NMEs of not being market economy enough through the use of NME methodology. The NME methodology in particular or the paternalistic discretion in antidumping in general have lost their legitimacy. This chapter has also found both practical and theoretical significance through the jurisprudential critiques. As to the practical significance, upon the expiration of the 15 year NME application permitted under China’s Accession Protocol, neither textual analysis nor domestic legal framework examination touches the right point.150 The NME methodology has no legal basis at all; it is inconsistent with the WTO framework ab initio. Therefore, the NME methodology should be illegitimated in the Doha Round antidumping reform if the WTO members are truly hoping for “the development of the rules-based multilateral trading system and to the overall balance of results in the DDA.” Moreover, deep in the roots of the NME methodology, there lies an unchecked and unbalanced paternalistic discretion power solidly built on the state primacy of the system, which challenges the tripartite dynamics of the WTO to the detriment of individual traders. Nationality as the bridging mechanism connecting individuals to the WTO as an international social contract on trade may have been misused to serve national interests, creating “nationality apartheid in trade.” A healthy and balanced dynamic between states, international institutions, and individuals in the global marketplace calls for caution in applying the NME methodology, and the success of antidumping reform lies in limiting rather than deferring to governments’ paternalistic discretion, thus strengthening the rule of law of the WTO as an international social contract on trade. Trapping goods/services from “Contract back to Status” within this ideological divide unfortunately creates a “nationality apartheid in trade” and distorts the nature of international trade as international exchange of goods, services, and IPRs.

Bibliography General Aggarwal, Aradhna. The Anti-Dumping Agreement and Developing Countries: An Introduction (New Delhi: Oxford University Press, 2007). Bacchus, James “Groping toward Grotius: The WTO and the International Rule of Law,” 44.2 Harvard International Law Journal (2003), 533–550. Brand, Ronald A. “Sovereignty: The State, the Individual, and the International Legal System in the Twenty First Century,” 25 Hastings International and Comparative Law Review (2002), 279–295.

150 Supra notes 14 and 15 (brief introduction).

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Brownlie, Ian. Principles of Public International Law (New York: Oxford University Press, 2008, 7th ed.). Brownlie, Ian. Rule of Law in International Affairs (The Netherlands: Martinus Nijhoff Publishers, 1998). Costa, Pietro. “The Rule of Law: A Historical Introduction,” in Pietro Costa and Danilo Zolo (eds.), The Rule of Law: History, Theory and Criticism (New York: Springer, 2007), 73–149. Cuneo, Donald L. and Charles B. Manuel Jr. “Roadblock to Trade: The State-Controlled Economy Issue in Antidumping Law Administration,” 5 Fordham International Law Journal (1981), 277–317. Deardorff, Alan V. “Economic Perspectives on Antidumping Law,” in Jackson and Edwin (eds.), Antidumping Law and Practice: A Comparative Study (Ann Arbor: University of Michigan Press, 1990), 23–39. Fergusson, Ian F. World Trade Organization Negotiations: The Doha Development Agenda, Congressional Research Service Report (Washington DC: Congressional Research Service, December, 2011). Finger, J. Michael. (ed.). Antidumping: How It Works and Who Gets Hurt (Ann Arbor: University of Michigan Press, 1993). Franck, Thomas M. The Empowered Self: Law and Society in the Age of Individualism (New York: Oxford University Press, 1999). Hayek, F. A. The Constitution of Liberty (Chicago: The University of Chicago Press, 1960). Henkin, Louis. International Law: Politics and Values (The Hague: Kluwer Academic Publishers, 1995). Hindley, Brian and Patrick A. Messerlin, Antidumping Industrial Policy: Legalized Protectionism in the WTO and What to Do about It (Washington, DC: The AEI Press, 1996). Hobbes, Thomas. Leviathan (London: Penguin Books, 1968). Hudec, R. “Comment on ‘The Club Model of Multilateral Cooperation and Problems of Democratic Legitimacy’,” in R. Porter et al. eds., Efficiency, Equity, and Legitimacy: The Multilateral Trading System at the Millennium (Washington, DC: Brookings Institution Press, 2001), 297–298. Jackson, John H. and Edwin A. Vermulst (eds.). Antidumping Law and Practice: A Comparative Study (Ann Arbor, MI: University of Michigan Press, 1990). Jennings, Robert and Arthur Watts, Oppenheim’s International Law (London: Longman Group UK Ltd., 1992, 9th ed.). Lindsey, Brink and Daniel J. Ikenson. Antidumping Exposed: The Devilish Details of Unfair Trade Law (Washington, DC: Cato Institute, 2003). Locke, John. The Second Treatise of Government (New Jersey: Prentice Hall, 1997). Lynam, Garrett E. “Using WTO Countervailing Duty Law to Combat Illegally Subsidized Chinese Enterprises Operating in a Nonmarket-Economy: Deciphering the Writing on the Wall,” 42.3 Case Western Reserve Journal of International Law (2010), 739–773. Maine, Henry. Ancient Law (London: J. M. Dent & Sons Ltd., 1917). Malanczuk, Peter. Akehurst’s Modern Introduction to International Law (London: Routledge, 1997, 7th ed.). Mason, Kenneth R. Electric Golf Cars from Poland (US International Trade Commission, June 1980). Mastel, Grey. Antidumping Laws and the U.S. Economy (New York: M.E. Sharpe, 1998). McGee, Robert W. A Trade Policy for Free Societies: The Case against Protectionism (Connecticut: Quorum Books, 1994).

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Neufeld, Inge Nora. Anti-dumping and Countervailing Procedures – Use or Abuse? Implications for Developing Countries (Geneva: United Nations, 2001). Petersmann, Ernst-Ulrich. Constitutional Functions and Constitutional Problems of International Economic Law: International and Domestic Foreign Trade Law and Foreign Trade Policy in the United States, the European Community and Switzerland (Fribourg, Switzerland: University Press, 1991). Pierce, Kenneth J. and Matthew R. Nicely. “Transitioning to China’s Market Economy Anti-dumping Treatment in 2016,” American Bar Association 2009 Spring Meeting Supplementary Materials (16 February 2013). Perez, Antonio F. “International Antitrust at the Crossroads: The End of Antitrust History or the Clash of Competition Polity Civilizations?” 33 Law and Policy in International Business (2002), 527–554. Rao, Weijia. “China’s Market Economy Status under WTO Antidumping Law after 2016,” 5 Tsinghua China Law Review (2013), 151–168. Raslan, Reem and Anwar Ahmed. Antidumping: A Developing Country Perspective (London: Kluwer Law International, 2009). Rousseau, Jean-Jacques. The Social Contract (London: Penguin Books, 1968, translated by Maurice Cranston). Tietje, Christian and Karsten Nowrot, “Myth or Reality? China’s Market Economy Status under WTO Anti-dumping Law after 2016,” Policy Papers on Transnational Economic Law (Transnational Economic Law Research Center, Martin-Luther-University, December 2011, vol. 34). US Congressional Budget Office (CBO), Congress of the United States. How the GATT Affects U.S. Antidumping and Countervailing-Duty Policy (Washington, DC: CBO, 1994). US, Notice of Final Determination of Sales at Less than Fair Value: Certain Frozen and Canned Warmwater Shrimp from the People’s Republic of China, 69 FR 70997 (8 December 2004). US, Notice of Final Determination of Sales at Less than Fair Value: Certain Tissue Paper Products from the People’s Republic of China, 70 FR 7475 (14 February 2005a). US, Notice of Final Determination of Sales at Less than Fair Value and Affirmative Critical Circumstances: Magnesium Metal from the People’s Republic of China, 70 FR 9037 (24 February 2005b). US, The People’s Republic of China (PRC) Status as a Non-Market Economy (NME): Memorandum for David Spooner, Assistant Secretary for Import Administration, A-570–901 (15 May 2006). US House of Representatives Committee on Ways and Means, Overview and Compilation of US Trade Statues 2013 (January 2013). Vermulst, Edwin. The WTO Anti-Dumping Agreement: A Commentary (New York: Oxford University Press, 2005). Verrill, Jr. Charles Owen. “Nonmarket Economy Dumping: New Directions in Fair Value Analysis,” 1989.2 Brigham Young University Law Review (1989), 449–457. WTO, Declaration of the Fourth Ministerial Conference in Doha, Qatar, WT/MIN(01)/ DEC/1 (14 November 2001). WTO Negotiating Group on Rules, Proposal of the People’s Republic of China on the Negotiation on Anti-Dumping, TN/RL/W/66 (6 March 2003). WTO, WTO Committee on Anti-Dumping Practices, Minutes of the Regular Meeting Held on 24–25 October 2002, G/ADP/M/22 (21 March 2003). WTO, Declaration of the Sixth Ministerial Conference in Hong Kong, WT/MIN(05)DEC (18 December 2005).

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Cases EC – Fasteners, WT/DS397/AB/R (15 July 2011). PCIJ Advisory Opinion Concerning the Tunis and Morocco Nationality Decrees, 1923 P.C.I.J. (ser. B) No. 4. US – Anti-Dumping and Countervailing Duties (China), WT/DS379/AB/R (11 March 2011). US – Gasoline, WT/DS2/AB/R (29 April 1996). US – Malt Beverages, adopted GATT Panel Report, DS23/R – 39S/206 (19 June 1992). US – Offset Act, WT/DS217/AB/R, WT/DS234/AB/R (16 January 2003). US – Section 301 Trade Act, WT/DS152/R (22 December 1999). US – Shrimp, WT/DS58/AB/R (12 October 1998). US – Tuna (Mexico), unadopted GATT Panel Report, DS21/R – 39S/155 (3 September 1991).

5

TRIPS IPRs, public health, and international trade1

Beyond NME methodology’s ideological distortion of trade in goods, this chapter draws our attention to the international movement of IPRs as private rights and its implications. This chapter critically examines the dynamics between public health, intellectual property, and international trade in the context of the TRIPS Amendment and its theoretical implications in international law. The chapter suggests that international efforts in the TRIPS 2003 Waiver and 2005 Amendment addressing public health concerns have not been very successful due to the birth defect of TRIPS, i.e. hoping a private-rights-in-nature regime could accommodate public interests in health concerns. TRIPS’ birth defect further reveals itself in post-TRIPS development and contributed to the failure of the TRIPS Waiver and Amendment due to the resulting practice fragmentation and procedural hurdles in domestic compulsory licensing administration. Moreover, the TRIPS Amendment raised a fundamental theoretical issue, i.e. how the WTO as an international organization in public international law can regulate compulsory licensing of intellectual property rights as private rights – in particular the proprietary right to remuneration – while recognizing that TRIPS grants no positive rights. This chapter suggests that the key issue is private rights’ treatment in public international law within a framework where individuals as the ultimate beneficiaries have a rather limited role in the WTO.

5.1 Introduction The unfortunate Ebola outbreak in West Africa in 2014 clearly created a “public health emergency of international concern” in 2015.2 As part of the global effort tackling the situation, the European Medicines Agency (EMA) classified

1 An earlier version of this chapter has been published. Wenwei Guan, “IPRs, Public Health, and International Trade: An International Law Perspective on TRIPS Amendment,” 29.2 Leiden Journal of International Law (2016), 411–440. Revision of the article included in this book with permission from the publisher, Cambridge University Press, ©2016. 2 UN General Assembly, “Letter dated 12 January 2015 from the Secretary-General addressed to the President of the General Assembly” (A/69/720), 19.

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Ebola as an orphan disease in late 2014, which incentivizes the development of an Ebola cure through preferential market exclusivity for medicines with orphan designation.3 As the West African countries suffering in the epidemic are lessdeveloped countries with insufficient or no pharmaceutical manufacturing capacities, their access to the Ebola cure, once developed, will need to rely on TRIPS’ Paragraph 6 System in the framework of the WTO.4 However, the 2005 TRIPS Amendment that attempted to legalize the Paragraph 6 System reached its tenth year of pending status in 2015, and did not take effect until 23 January 2017.5 The Ebola epidemic outbreak certainly raised a question as to whether, in the case of any similar epidemic outbreak, the current TRIPS mechanism will be sufficient to handle global health emergencies of public concern. Within the current global context, it is meaningful to reexamine the issue of public health concerns in the international trading framework, and in particular the success or failure of the TRIPS Amendment for public health. The TRIPS is certainly a breakthrough of the Uruguay Round negotiation establishing the WTO.6 However, as TRIPS’ negotiations “were highly contentious,” and intellectual property protection perspectives are segmented between developed and less-developed countries, the TRIPS Agreement “is one of the more controversial international intellectual property agreements that have entered into force.”7 One of the key issues of debate and controversy is the tension between the TRIPS and public health concerns which has generated a great

3 See EMA News, “Speeding up development of Ebola treatments and vaccines (20/10/ 2014)”, available at: www.ema.europa.eu/ema/index.jsp?curl=pages/news_and_events/ news/2014/10/news_detail_002190.jsp&mid=WC0b01ac058004d5c1 (accessed 26 November 2019). Human Ebola virus species and compositions and methods thereof have been patented by the US Government in 2009 (US20120251502, PCT/US2009/062079). All Ebola therapies and vaccines, however, are still in various stages of development, and none of them have been approved for human use so far. 4 WTO’s Paragraph 6 System refers to the “waiver” allowing generic medicines to be made through compulsory licenses exclusively for exporting to countries that have no capacity in producing the medicines themselves. The system is developed under the Paragraph 6 of the 2001 Doha Declaration on the TRIPS Agreement and Public Health by removing the exportation limit under compulsory licenses in Article 31(f) of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). 5 The Amendment refers to WTO’s amendment to TRIPS proposed in December 2005. See General Council, “Amendment of the TRIPS Agreement,” WT/L/641, Decision of 6 December 2005 (hereafter the TRIPS Amendment). The TRIPS Amendment is an attempt to legalize the 2003 TRIPS Waiver, “Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health,” which offers temporary suspension of certain TRIPS compulsory licensing obligations as a solution to public health crises. The Amendment took effect on 23 January 2017 upon acceptance by two thirds of the WTO’s members. For details of the TRIPS Waiver and Amendment, see discussion infra 5.2.2. 6 Rochelle Cooper Dreyfuss and Andreas F. Lowenfeld, “Two Achievements of the Uruguay Round: Putting TRIPS and Dispute Settlement Together,” 37 Virginia Journal of International Law (1197), 275–277. 7 Peter K. Yu, “The Objectives and Principles of the TRIPS Agreement,” 46 Houston Law Review (2009), 979–980. See also, Graeme B. Dinwoodie and Rochelle C. Dreyfuss, “Designing

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amount of literature, in particular around the turn of the millennium.8 On the one hand, upon the conclusion of the TRIPS Agreement, international pharmaceutical companies’ active lobbying has seen great success in obtaining a high level of patent protections in relation to pharmaceutical products in the trading framework.9 On the other hand, many countries “are distressed by the costs arguably imposed by TRIPS intellectual property norms on drugs which are crucial to many government health plans and insurance provisions.”10 Therefore, “poor countries affected by the AIDS pandemic and international health organizations actively have sought to preserve state regulatory powers within the confines of the TRIPS agreement.”11 The 1999 WHA Resolution, for example, urges Member States to “ensure that public health interests are paramount in pharmaceutical and health policies,” and to “explore and review their options under relevant international agreements, including trade agreements, to safeguard access to essential drugs.”12 Some critiques against TRIPS’ impact on public health go even further. As “[c]learly the rules sought by the pharmaceutical companies are unnecessarily harmful to the poor countries,” Bhagwati suggested that “TRIPs should not be in the WTO at all.”13 These controversies

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A Global Intellectual Property System Responsive to Change: the WTO, WIPO, and Beyond,” 46 Houston Law Review (2009), 1187–1188. See, e.g. Robert Weissman, “Long Strange Trips: The Pharmaceutical Industry Drive to Harmonize Global Intellectual Property Rules, and the Remaining WTO Legal Alternatives Available to Third World Countries,” 17 University of Pennsylvania Journal of International Economic Law (1996), 1069; Sara M. Ford, “Compulsory Licensing Provisions Under the TRIPS Agreement: Balancing Pills and Patents,” 15 American University International Law Review (2000), 941; Frederick M. Abbott, “The TRIPS-Legality of Measures Taken to Address Public Health Crises: A Synopsis,” 7 Widener Law Symposium Journal (2001), 71; Judy Rein, “International Governance Through Trade Agreements: Patent Protection for Essential Medicines,” 21 Northwestern Journal of International Law & Business (2001), 379; Carmen Otero Garcia-Castrillón, “An Approach to the WTO Ministerial Declaration on the TRIPS Agreement and Public Health,” 5 Journal of International Economic Law (2002), 212; Duncan Matthews, “WTO Decision on Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health: A Solution to the Access to Essential Medicines Problem?” 7 Journal of International Economic Law (2004), 73; Gregory Shaffer, “Recognizing Public Goods in WTO Dispute Settlement: Who Participates? Who Decides? The Case of TRIPS and Pharmaceutical Patent Protection,” 7 Journal of International Economic Law (2004), 459; Frederick M. Abbott, “The WTO Medicines Decision: World Pharmaceutical Trade and the Protection of Public Health,” 99 The American Journal of International Law (2005), 317. See Weissman, “Long Strange Trips,” 1075–1085. See also Rein, “International Governance Through Trade Agreements,” 381. John H. Jackson, Sovereignty, the WTO, and Changing Fundamentals of International Law (Cambridge: Cambridge University Press, 2006), 247. Rein, “International Governance Through Trade Agreements,” 381. The 52nd World Health Assembly (WHA), Revised Drug Strategy, WHA52.19 (24 May 1999), 1.(2) and 1.(3). Jagdish N. Bhagwati, In Defense of Globalization: With a New Afterword by the Author (Oxford: Oxford University Press, 2007), 185.

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around the tension between public health and pharmaceutical patent protection lead us to the issue of TRIPS’ response to public health concerns and its implications. This chapter offers a critical examination of the legitimacy issue of TRIPS’ compulsory licensing mechanism, the 2003 TRIPS Waiver and 2005 TRIPS Amendment in particular, and its relevant implications for public health. Section two introduces TRIPS’ framework on the public health issue and the development of the compulsory licensing regime in relation to public health concerns. Section three provides a critical analysis of the nature of compulsory licensing and the paradox of TRIPS’ intellectual property philosophy in relation to the tension between public health and pharmaceutical patent protection in the context of TRIPS-development dynamics. The chapter suggests that the unfortunate incorporation of intellectual property rights into international trade without first reconciling development and intellectual property rights protection creates TRIPS’ birth defect. Further jurisprudential examination in section four reveals that this “birth defect” not only causes the failure of the compulsory licensing amendment, but also causes the Waiver and Amendment to lose their legitimate basis in international law. The chapter suggests that the TRIPS Amendment raises an important question: how can TRIPS, as a public international law regime, handle the proprietary right to remuneration in compulsory licensing while recognizing that IPRs are private rights and TRIPS grants no positive rights? To answer this question, the chapter further looks at private rights’ treatment in international law within the context of the tripartite dynamics between states, international insitutitions and individual rights in the global marketplace. Building on this critical examination, the chapter concludes in section five with a call for alternative thinking about the TRIPS’ compulsory licensing mechanism for promoting public health in the international trading framework.

5.2 WTO to promote public health through international trade 5.2.1 WTO/TRIPS for public health Although public health might not appear to be one of its key concerns, the WTO has kept it in focus. Setting “to raise standards of living” as one of its objectives, the WTO regime must be concerned with public health as a core aspect of this goal.14 “[W]ith its competence well established over trade in products and services,” as Jackson suggested, WTO indeed “has considerable relevance to health issues.”15 Through dealing with “product safety and health related to foodstuffs and animal health” in the Sanitary and Phytosanitary (SPS) Agreement and by “creat[ing] norms relating to product standards in other types of goods” in the text on Technical Barriers to Trade (TBT), WTO’s role in

14 The First Recital of the Preamble, the Agreement Establishing the World Trade Organization. 15 Jackson, Sovereignty, the WTO, and Changing Fundamentals of International Law, 247.

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health is evident.16 According to GATT 1994, WTO members are free to adopt or enforce measures “necessary to protect human, animal or plant life or health” in a manner consistent with WTO requirements.17 Therefore, promoting public health is indeed one of the WTO’s imperatives. Among others WTO agreements, the TRIPS Agreement is institutionally structured to play a prominent role in relation to public health under the WTO framework. TRIPS’ Preamble states that members desire “to establish a mutually supportive relationship” between the WTO and the World Intellectual Property Organization (WIPO) and other relevant international organizations.18 This was considered to include “urging greater cooperation with UNCTAD, the World Health Organization (WHO) and other institutions that pursue broad developmental interests.”19 The TRIPS’ “greater cooperation” with the WHO of course provides a significant international framework for addressing public health issues. Indeed, the TRIPS Agreement makes indirect or direct references to public health in the provisions illustrating exhaustion, compulsory licensing, and TRIPS principles. As to exhaustion of rights, the TRIPS Agreement states that nothing in the TRIPS Agreement “shall be used to address the issue of the exhaustion of intellectual property rights.”20 The purpose of this provision, according to the 2001 Doha Declaration, “is to leave each Member free to establish its own regime for such exhaustion without challenge, subject to the MFN and national treatment provisions of Articles 3 and 4.”21 Parallel imports under this doctrine “may prevent market segmentation and price discrimination by titleholders on a regional or international scale,” which is “of particular importance in the health sector.”22 TRIPS’ liberal perspective towards exhaustion therefore gives flexibility to national governments to establish relevant mechanisms to address public health concerns. Moreover, the TRIPS Agreement implicitly touches the issue of public health in its regulation of the compulsory licensing practice. According to the Agreement, members are free to authorize any third parties or to permit government the “use of the subject matter of a patent without the authorization of the right

16 17 18 19

Ibid. Art. XX(b), General Agreement on Tariffs and Trade 1994 (GATT 1994). The Last Recital of the Preamble, the TRIPS Agreement. UNCTAD-ICTSD, Resource Book on TRIPS and Development 13–14 (New York: Cambridge University Press, 2005). 20 Art. 6, the TRIPS Agreement. 21 Paragraph 5(d), the Doha Declaration on the TRIPS Agreement and Public Health, WT/ MIN(01)/DEC/2, adopted at the Fourth WTO Ministerial Conference in Doha, Qatar on 14 November 2001, the 2001 Doha Declaration. 22 Carlos María Correa, Integrating Public Health Concepts into Patent Legislation in Developing Countries (Geneva: South Centre, 2000), 72–73. See also Sisule F. Musungu et al., Utilizing TRIPS Flexibilities for Public Health Protection through South-South Regional Frameworks (Geneva: South Centre, 2004), 13–14.

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23

holder” if certain conditions are met. The conditions include limiting it to domestic use and adequate remuneration paid.24 Commonly known as the compulsory licensing clause, this provision clarifies the conditions for the grant of compulsory licenses and allows members to address public health concerns through restraining the exercise of those private rights residing in the grants of patents.25 In addition to the indirect reference, the TRIPS Agreement makes direct reference to public health when it identifies its principles. Intellectual property protection and enforcement, as the TRIPS Agreement indicates, “should contribute to … the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare.”26 Under this objective, the TRIPS Agreement states: Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socioeconomic and technological development, provided that such measures are consistent with the provisions of this Agreement.27 In this provision, the TRIPS Agreement clearly sets protection of “public health and nutrition” as one of the fundamental principles of the regime. Similar to the way the General Exception provision Article XX functions in relation to the rest of the GATT 1994, Article 8.1 is about external exceptions and limitations “that concern the use of rights, not the rights themselves” throughout the TRIPS Agreement.28 As the Panel in EC – Trademarks and Geographical Indications suggested, TRIPS’ negative instead of positive rights granting feature “inherently grants Members freedom to pursue legitimate public policy objectives” and many of such measures to attain those public policy objectives “do not require an exception under the TRIPS Agreement.”29 Accordingly, to “protect public health” would be one of the justifications of general exceptions to intellectual property rights as long as it were in a manner consistent with the TRIPS Agreement. For the issue of patentable subject matter for example, the TRIPS Agreement thus allows members to exclude

23 24 25 26 27 28

Art. 31, the TRIPS Agreement. Ibid. UNCTAD-ICTSD, Resource Book on TRIPS and Development, 461–462. Art. 7, the TRIPS Agreement. Art. 8.1, the TRIPS Agreement. Emphasis added. Nuno Pires de Carvalho, The TRIPS Regime of Patent Rights (The Hague: Wolters Kluwer, 2010, 3rd ed.), 223. Carvalho suggested (225) that Article XX(a) of the GATT 1994 is a provision “of relevance to the understanding and application of Article 8.1 [of the TRIPS Agreement].” 29 EC – Trademarks and Geographical Indications (Australia), WTO Panel Report, WT/ DS290/R (15 March 2005), para. 7.210.

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certain inventions from patentability for the purpose of offering protection to “human, animal or plant life or health.”30 Therefore, the objectives and principles as expressed in Articles 7 and 8.1 of the TRIPS Agreement clearly accommodate the interests of public health and should not be interpreted lightly.31 In fact, it has also been similarly reiterated in the Doha Declaration, that “each provision of the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles.”32 WTO panels’ practice, too, confirmed this. In its discussion of the limiting conditions of adopting the patent right exceptions prescribed in Article 30 of the TRIPS Agreement, the Panel in Canada – Pharmaceutical Patents stated that, when examining the limiting conditions, “[b]oth the goals and the limitations stated in Articles 7 and 8.1 must obviously be borne in mind.”33 However, the WTO in general or the TRIPS in particular may care about public health, yet might not provide enough assurance to promoting public health. There thus exists a tension between the international trading framework and domestic mechanism addressing public health concerns. As seen in the SPS Agreement revealed by Jackson, for example, there is a tension in the WTO framework between reconciling “international goals of liberalizing trade and thus requiring scientific evidence of potential harm (to avoid barriers that are really due to protectionist motives)” with each member’s “sovereign right to determine the level of risk which should be tolerated in its society.”34 Similarly as pointed out by the Appellate Body in Brazil – Retreaded Tyres, the general exception for health protection under GATT 1994 “illustrates the tensions that may exist between, on the one hand, international trade and, on the other hand, public health and environmental concerns.” 35 The tension between international trade and public health is particularly relevant to the debates surrounding the compulsory licensing issue in the TRIPS framework.

5.2.2 The TRIPS amendment’s public health “flexibility” Although there were some disagreements between developed and developing members in regards to bringing intellectual property rights into the trading regime in the Uruguay Round Negotiation, TRIPS’ conclusion indicated the

30 Art. 27.2, the TRIPS Agreement. 31 The WTO Ministerial Conference suggested that the TRIPS Council’s work “shall be guided by the objectives and principles set out in Articles 7 and 8 of the TRIPS Agreement and shall take fully into account the development dimension.” See para. 19, Ministerial Declaration, adopted at the Fourth Session of the Ministerial Conference at Doha on 14 November 2001, WT/MIN(01)/DEC/1. 32 Paragraph 5(a), the 2001 Doha Declaration. 33 Canada – Pharmaceutical Patents, WTO Panel Report, WT/DS114/R (17 March 2000), para. 7.26. 34 Jackson, Sovereignty, the WTO, and Changing Fundamentals of International Law, 247. 35 Brazil – Retreaded Tyres, WTO Appellate Body Report, WT/DS332/AB/R (3 December 2007), para. 210.

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success of the “US-led effort” in overcoming developing members’ concerns over public health.36 However, during TRIPS’ post-Uruguay implementation, developing countries’ concerns in the Uruguay Round were soon being realized, and “[t]he TRIPS Agreement would in fact be invoked to prevent them from addressing their public health needs.”37 Developing countries’ concerns evolved over the years and Zimbabwe’s request on behalf of the African Group at a TRIPS Council meeting in 2001 triggered discussion on access to medicines which eventually led to the 2001 Doha Declaration.38 The 2001 Doha Declaration is “a significant milestone” addressing developing country concerns regarding access to medicines and TRIPS.39 According to the Declaration, the TRIPS Agreement “does not and should not prevent members from taking measures to protect public health,” rather “can and should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all.”40 Most importantly, the Declaration states: We recognize that WTO members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement. We instruct the Council for TRIPS to find an expeditious solution to this problem and to report to the General Council before the end of 2002.41 TRIPS’ perspective towards compulsory licensing as reflected in the Doha Declaration remains quite “conservative.” According to the Doha Declaration, each WTO member “has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted.”42 This seems to indicate that the compulsory licensing domain falls completely within the domestic government’s authority. Similarly, as to what constitutes national emergency or extreme urgency, the Doha Declaration states that each member has the complete right of determination.43 So far there remains a delicate international-domestic balance: while members’ right of resorting to compulsory licensing is justified under international framework, how intellectual property rights are treated for public health considerations and under what circumstances remain issues of domestic law. This international-domestic balance as to

36 Frederick M. Abbott, “The Doha Declaration on the TRIPS Agreement and Public Health: Lighting A Dark Corner at the WTO,” 5 Journal of International Economic Law (2002), 469–470. 37 Ibid., 471–472. 38 Ibid., 480–481. 39 Ibid., 470. 40 Paragraph 4, the 2001 Doha Declaration. 41 Ibid., para. 6. 42 Paragraph 5(b), the Doha Declaration. 43 Ibid., para. 5(c).

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compulsory licensing is consistent with the Paris Convention that permits compulsory licensing yet neither limits the grant of compulsory licenses nor establishes any right to remuneration on behalf of patent right holders, rather leaving them solely to domestic authorities.44 The delicate balance soon came to an end when the international trading regime details treatments of intellectual property rights under TRIPS’ 2003 Waiver and then the 2005 Amendment. In August 2003, the WTO general Council came to a decision on the implementation of this instruction of the Ministerial Conference, the TRIPS Waiver.45 Under the TRIPS Waiver, if any member grants a compulsory license to produce pharmaceutical products for the purpose of exporting to any less-developed country member or any other member “has insufficient or no manufacturing capacities in the pharmaceutical sector for the product(s) in question,” the TRIPS obligation of limiting compulsory licensing products to domestic use will be waived.46 Under this TRIPS Waiver system, the “adequate remuneration” that the exporting member paid will need to “tak[e] into account the economic value to the importing Member of the use that has been authorized in the exporting Member.”47 At the same time, the TRIPS obligation of the importing member to pay the right holders adequate remuneration will be waived.48 By shifting remuneration claim from both importing and exporting members to exporting member only, the TRIPS Waiver therefore steps into domestic realm of private right treatment. While the Declaration bears significant “interpretative value” yet does not change the TRIPS Agreement, the Waiver “necessitated a far more ‘drastic’ legal solution that would allow members to do something that was not allowed under the TRIPS Agreement.”49 The delicate international-domestic balance in the Doha Declaration is thus broken. The TRIPS Waiver establishes a detailed and complex mechanism to “facilitate” the public health flexibility. First of all, the Waiver has a limited scope of application as it in general applies only to patented pharmaceutical products “needed to address the public health problems as recognized in paragraph 1 of the [Doha] Declaration.”50 This text is actually a compromise after going

44 Art. 5A, Paris Convention for the Protection of Industrial Property (Paris Convention), as amended on 28 September 1979. For more details on the compulsory licensing mechanism in the Paris Convention, see discussion infra 5.3.3. 45 General Council, “Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health,” WT/L/540 and Corr.1, 1 September 2003 (hereafter the TRIPS Waiver). 46 Para. 2, the TRIPS Waiver. For the TRIPS obligation, see Art. 31(f), the TRIPS Agreement. 47 Para. 3, the TRIPS Waiver. 48 Ibid. For the TRIPS obligation, see Art. 31(h), the TRIPS Agreement. 49 Paul Vandoren and Jean Charles Van Eeckhaute, “The WTO Decision on Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health: Making it Work,” 6 The Journal of World Intellectual Property (2003), 779–780. 50 Paragraph 1(a), the TRIPS Waiver.

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through fierce debates between developing and developed countries – the US in particular – as to the scope of diseases issue, i.e. whether the Waiver should only be applicable to a list of diseases or not.51 Although it has now been generally recognized that the disease scope of the Waiver is flexible,52 Canada as the first developed country to use this Waiver for export prescribed a list of limited pharmaceutical products eligible for export under license in its legislation to implement the Waiver.53 Secondly, the Waiver limits the scope of benefited countries as it confines eligible importing countries to least developed countries and any other country that “has established that it has insufficient or no manufacturing capacities in the pharmaceutical sector for the product(s) in question.”54 It is worth mentioning here that the limited country scope of importing members was to “compensate” for the failure to limit the scope of diseases and “interest in limiting the prospective importing countries was consistent with a general interest in limiting the use of the [waiver] system.”55 Thirdly, the waiver established a detailed procedure to regulate any Member’s use of the system as an importer. A Member must satisfy certain procedural requirements, including submitting a one-time notification to the TRIPS Council of its interest, and the “insufficient or no manufacturing capacity” determination made.56 Moreover, the assessment on manufacturing capacity must be based on “a product-byproduct” basis rather than on a sectoral basis.57 Fourthly, the use of the waiver system is subject to good faith and transparency checks. According to the statement of the Chairman of the Council for TRIPS, the waiver system “should be used in good faith to protect public health and, without

51 Abbott, “The WTO Medicines Decision,” 327–332. According to Abbott, countries like the US, Japan, and Switzerland supported the limited view of the scope of diseases for the purpose of “limit[ing] the number of patented technologies subject to compulsory licensing for export.” Ibid., 329. 52 Vandoren and Eeckhaute, “The WTO Decision on Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health,” 785. 53 Bill C-9, An Act to amend the Patent Act and the Food and Drugs Act (The Jean Chrétien Pledge to Africa), passed at the third Session of the 37th Parliament of Canada, assented to 14 May 2004. Under section 21.02 of the Act, pharmaceutical products under the TRIPS Waiver system are limited to those 56 patented pharmaceutical products listed in Schedule 1 of the Act. For the debates on the legislation in Canada, see Abbott, “The WTO Medicines Decision,” 332–333. 54 Paragraphs 1(b) and 2(a)(ii), the TRIPS Waiver. Of course, this limitation makes sense theoretically as those countries with sufficient manufacturing capacity do not need the waiver. However, singling out those countries with insufficient or no manufacturing capacity together with the procedural and good faith limitations (discussed next in the same paragraph) clearly reflects the TRIPS Waiver’s intention of limiting the use of the waiver system as much as possible. 55 Abbott, “The WTO Medicines Decision,” 331, 335. 56 Paragraph 2(a), the TRIPS Waiver. 57 Vandoren and Eeckhaute, “The WTO Decision on Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health,” 785–786.

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prejudice to paragraph 6 of the [Doha] Decision, not be an instrument to pursue industrial or commercial policy objectives.”58 Undoubtedly, the TRIPS Waiver attempted to offer a solution to public health crisis. As Abbott suggested, the TRIPS Waiver “represents a success for developing countries in the pursuit of their public health agenda at the WTO.”59 Later on in December 2005, WTO General Council agreed to make health flexibility permanent by incorporating the TRIPS Waiver into the TRIPS regime through an amendment.60 According to this Decision, the Protocol Amending the TRIPS Agreement will insert Article 31bis after Article 31 and insert an explanatory Annex to the TRIPS Agreement after Article 73.61 The Protocol prohibits reservations and originally was open for acceptance by members until 1 December 2007.62 The deadline for member acceptance was extended four times and the latest General Council decision of 26 November 2013 extended the acceptance deadline to 31 December 2015.63 The Amendment eventually came into effect on 23 January 2017 upon acceptance by two thirds of the WTO’s members.64 The Waiver will continue to apply to WTO members other than those 128 – including 28 EU member countries – members that have accepted the Amendment.65 The public health flexibilities reflected in the TRIPS Waiver and Amendment were warmly welcomed at the very beginning. More recent assessments, however, “have been more equivocal.”66 The TRIPS Waiver “has not been as

58 WTO General Council, Minutes of Meeting held in the Centre William Rappard on 25, 26, and 30 August 2003 (WT/GC/M/82, 13 November 2003), para. 29. The Chairman’s statement also makes a clear reference to transparency (ibid., para. 29) that: To promote transparency and avoid controversy, notifications under paragraph 2(a)(ii) of the Decision would include information on how the Member in question had established, in accordance with the Annex, that it has insufficient or no manufacturing capacities in the pharmaceutical sector. 59 Abbott, “The WTO Medicines Decision,” 343. See also, Vandoren and Eeckhaute, “The WTO Decision on Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health,” 780. 60 General Council, “Amendment of the TRIPS Agreement.” 61 Paragraph 1, Protocol Amending the TRIPS Agreement. 62 Ibid., paras. 2, 3. 63 General Council, “Amendment of the TRIPS Agreement – Fourth Extension of the Period for the Acceptance by Members of the Protocol Amending the TRIPS Agreement” (WT/L/ 899, Decision of 26 November 2013). 64 WTO, Amendment of the TRIPS Agreement. By 26 November 2019, there are 128 – including 28 EU member countries – out of 164 WTO members that have accepted the Amendment, and members who are yet to accept the Amendment have until 31 December 2019 to do so. For those not yet accept the Amendment, the waiver will continue to apply. Available at WTO official site: www.wto.org/english/tratop_e/trips_e/amendment_e.htm (accessed 26 November 2019). 65 Ibid. Information up to date as of the end of 2019. 66 Laurence R. Helfer and Graeme W. Austin, Human Rights and Intellectual Property: Mapping the Global Interface (Cambridge: Cambridge University Press, 2011), 124.

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successful as the WTO had hoped.” There is actually only one successful case under the TRIPS waiver system by Rwanda in importing TriAvir, a combination AIDS drug from Canada around 2007.68 This clearly raises concerns as to whether the TRIPS Waiver system is adequate to tackle public health crisis like the Ebola epidemic outbreak. The ineffectiveness or even failure of the TRIPS Waiver and Amendment leads us to the issue of the dynamics between compulsory licensing and public health, in particular the nature of TRIPS’ compulsory licensing system. Moreover, breaking the international-domestic balance by allowing the WTO regime to handle “private” intellectual property rights as to compulsory licensing that originally regulated solely by domestic regime, the TRIPS Amendment faces theoretical challenges in international law.69

5.3 Public health caught in TRIPS’ birth defect 5.3.1 The private rights dilemma and TRIPS’ philosophical paradox As the analysis above indicates, TRIPS’ treatment of intellectual property rights in compulsory licensing shifts over time. From Doha Declaration to TRIPS Amendment, the classic international-domestic balance was transcended as TRIPS’ international compulsory licensing mechanism steps into issues of procedure, condition, and remuneration of pharmaceutical patents that were solely regulated within the domestic realm before. We are thus led to the question as to the nature of intellectual property rights under the TRIPS framework. The TRIPS Agreement indeed spells out its intellectual property philosophy clearly. As to the nature of intellectual property rights, the Preamble of the TRIPS Agreement states that WTO members recognize that “intellectual property rights are private rights.”70 TRIPS’ reference to “private rights” was incorporated into the Agreement at the insistence of the Hong Kong delegation during the TRIPS Agreement negotiations.71 Indeed, in as early as the 1989 submission to the Group of Negotiation on Goods (GATT), the Hong Kong delegation suggested that “emphasis should be placed on civil remedies (as

67 Rojina Thapa, “Waiver Solution in Public Health and Pharmaceutical Domain under TRIPS Agreement,” 16 Journal of Intellectual Property Rights (2011), 470, 472. 68 By July 2014, only Rwanda notified the Council for TRIPS as the importer and Canada notified the Council for TRIPS as the exporter under the Paragraph 6 system. See Rwanda, “Notification under Paragraph 2(a) of the Decision of 30 August 2003 on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health” (IP/N/9/RWA/1, 19 July 2007); Canada, “Notification under Paragraph 2(c) of the Decision of 30 August 2003 on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health” (IP/N/10/CAN/1, 8 October 2007). 69 See discussion infra 5.4 70 Fourth Recital of the Preamble, the TRIPS Agreement. 71 Frederick M. Abbott, “Technology and State Enterprise in the WTO,” in Thomas Cottier and Petros C. Mavroidis (eds.) World Trade Forum: State Trading in the 21st Century (Ann Arbor, MI: University of Michigan Press, 1998), 144, footnote 11.

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distinct from criminal and administrative remedies) on the grounds that intellectual property rights are primarily private rights.”72 As to the question of the types of procedures to be provided, Hong Kong suggested: While participants should be free to decide to protect IPRs by means of civil, criminal, or administrative procedures or a combination of these, in accordance with their national legal systems, Hong Kong considers that emphasis should rest primarily on civil procedures, as they appear the most appropriate to protect private rights.73 Undoubtedly, the Hong Kong delegation’s purpose of referencing to private rights was to clarify that the enforcement of intellectual property rights is the responsibility of private right holders rather than of governments. Moreover, this enforcement responsibility shifting effect is well reflected in the TRIPS Agreement. The “common feature” of the Sections in Part III of TRIPS Agreement in resting the responsibility of initiating various protection procedures on private right holders, for example, indicates well “the nature of intellectual property rights as private rights.”74 Recognizing intellectual property rights as private rights not only shifts the responsibility of enforcement to private right holders from the governments, but also at the same time creates a barring effect against unwanted government actions. This is because the private right nature means that limits are set on third parties and even public authorities, preventing them from engaging in illegitimate infringement, which also reveals the negative right nature of intellectual property rights. In its examination of the nature of exclusive right conferred under Article 16.1 in EC – Trademarks and Geographical Indications, the Panel suggested that it is an exclusive right that “belongs to the owner of the registered trademark alone, who may exercise it to prevent certain uses by ‘all third parties’ not having the owner’s consent.”75 The Panel further confirmed that Article 16.1 “only provides for a negative right to prevent all third parties from using signs in certain circumstances.”76 Therefore, the Panel suggested that “the

72 Enforcement of Intellectual Property Rights, Hong Kong Submission to Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, including Trade in Counterfeit Goods (MTN.GNG/NG11/W/54, 7 December 1989), para. 6 (2). Emphasis added. 73 Ibid., para. 9 (2). Emphasis added. 74 China – Intellectual Property Rights, WTO Panel Report, WT/DS362/R (26 January 2009), para. 7.247. According to the Panel: The Panel also observes that a common feature of Sections 2, 3 and 4 of Part III of the TRIPS Agreement is that the initiation of procedures under these Sections is generally the responsibility of private right holders … This is consistent with the nature of intellectual property rights as private rights, as recognized in the fourth recital of the preamble of the TRIPS Agreement. Acquisition procedures for substantive rights and civil enforcement procedures generally have to be initiated by the right holder and not ex officio. 75 EC – Trademarks and Geographical Indications (Australia), WTO Panel Report, para. 7.602. 76 Ibid., footnote 558 to para. 7.611. Emphasis added.

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TRIPS Agreement does not generally provide for the grant of positive rights to exploit or use certain subject matter, but rather provides for the grant of negative rights to prevent certain acts.”77 The private right barring effect, however, has been eroded as TRIPS’ 2003 Waiver and 2005 Amendment stepped into detailed compulsory licensing treatments of private-rights-natured pharmaceuticals that originally fall into domestic law domain.78 This erosion further creates a legitimacy issue of the TRIPS’ Waiver and Amendment in international law.79 The erosion of private rights’ barring effect further reveals the paradox of TRIPS’ intellectual property philosophy. In addition to its recognition of intellectual property rights at private and negative rights, the TRIPS Agreement also emphasizes intellectual property rights’ public implications. Indeed, TRIPS’ philosophy is to achieve a balance between rights and obligations in intellectual property rights protection. The TRIPS Agreement states its objective clearly: The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.80 For this purpose of balancing rights and obligations, the TRIPS Agreement allows members to adopt measures “necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development,” and measures to prevent right holders’ intellectual property rights abuse or anti-competition practices, as long as these measures are TRIPS consistent.81 It is for this purpose of balancing rights with obligations that the TRIPS Agreement provides various exceptions and limitations to the exclusive rights conferred by a copyright, trademark, industrial design, or patent respectively.82 However, intellectual property rights’ private right nature and public interest implications might not necessarily reconcile well. Research has shown that the TRIPS is always caught in a paradoxical tension between the protection of private rights and the accommodation of public interests.83 In fact, the private right nature might put intellectual property right protection in conflict with third party interests or even public interests. When this kind of situation arises,

77 78 79 80 81 82

Ibid., para. 7.210. Emphasis added. See discussion supra 5.2.2. See discussion infra 5.4.2 in particular. Art. 7, TRIPS Agreement. Emphasis added. Arts. 8(1) and 8(2), TRIPS Agreement. For TRIPS’ exceptions to intellectual property rights and the nature of compulsory licensing, see discussion infra 5.3.2. 83 Wenwei Guan, “The Poverty of Intellectual Property Philosophy,” 38 Hong Kong Law Journal (2008), 359, 393–396.

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where to draw the line of balance between the private right holders’ interests and interests of others becomes a significant issue. In China – Intellectual Property Rights, when China invoked the sovereign exception under Article 17 of the Berne Convention to justify its denial of copyright protection to illegal and unconstitutional publications, the Panel rejected China’s claim. The Panel suggested: The Panel notes that copyright and government censorship address different rights and interests. Copyright protects private rights, as reflected in the fourth recital of the preamble to the TRIPS Agreement, whilst government censorship addresses public interests.84 As the only case touching on the tension between private rights and public interests in the context of the TRIPS Agreement, this case carries significant weight in WTO’s jurisprudence as to TRIPS’ objectives and principles, the balance of rights and obligations in particular. By emphasizing the private rights recital of the TRIPS preamble over the Berne Convention’s sovereign exception (incorporated into TRIPS through Article 9), the WTO Panel shows preference to private rights considerations in the tension between private rights and public interests. Tipping the balance towards private rights may overshadow TRIPS’ objectives and principles in Articles 7 and 8 that are supposed to guide the reading of each provision of the TRIPS Agreement.85 This tipping the balance in favor of private rights is as problematic as the 2005 Amendment’s breaking private right’s barring effect, as both fail to maintain the balance of rights and obligations. It might be more desirable if the Panel could exercise its judicial selfrestraint on the issue, as how to limit private rights for public interest within a given country is a constitutional issue that falls into domestic law. Further examination next on the nature and context of compulsory licensing indicates that TRIPS’ philosophy paradox reveals itself in the confusion of taking account of the legitimate interests of third parties in exceptions to various intellectual property rights. While exceptions to trademarks, patents, and industrial designs should take into account the legitimate interests of third parties, exceptions to copyrights are not required to do so in the TRIPS Agreement. TRIPS’ IP philosophy paradox, as will be revealed in the sections next, developed at TRIPS’ founding moment, is indeed its birth defect.

5.3.2 The nature and context of TRIPS compulsory licensing While intellectual property rights are recognized as private rights, compulsory licensing is incorporated into the TRIPS regime as one of the exceptions and limitations to intellectual property rights. According to Article 30 of the TRIPS

84 China – Intellectual Property Rights, WTO Panel Report, para. 7.135. 85 Paragraph 5(a), the 2001 Doha Declaration.

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Agreement, members may balance patents’ exclusive rights with certain exceptions. However, TRIPS requires that these exceptions “do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.”86 Within this context, compulsory licensing is permitted – though not directly mentioned – under Article 31 of the TRIPS Agreement. The TRIPS Agreement itself does not spell out “compulsory licensing” exactly. Rather, it states, if a member “allows for other use of the subject matter of a patent without the authorization of the right holder,” requirements like limiting to domestic use and paying adequate remuneration to the right holder should be observed.87 According to the Panel in Canada – Pharmaceutical Patents, Articles 30 and 31 “are linked together” and “both provisions permit exceptions to patent rights subject to certain mandatory conditions.”88 Compulsory licensing being one of the exceptions and limitations to patent rights provides us with a fundamental framework to examine the nature and boundary of the compulsory licensing regime in TRIPS. The jurisprudence of the exceptions and limitations to various intellectual property rights under TRIPS, and the origin of the patent exceptions in TRIPS in particular, sheds light on the issue. Similar to exceptions to patent rights provided in Article 30, TRIPS regime also provides exceptions to copyrights in Article 13, exceptions to trademark rights in Article 17, and exceptions to industrial designs in Article 26(2) of the TRIPS Agreement. According to the Panel in Canada – Pharmaceutical Patents, the general provision of Article 30 of the TRIPS Agreement “was obviously based on the text of Article 9(2) of the Berne Convention” that deals with copyright exceptions in reproduction of copyright work without permission.89 The text of the Berne Convention, on which the Article 30 was modeled, reads as follows: It shall be a matter for legislation in the countries of the Union to permit the reproduction of [literary and artistic] works in certain special cases, provided that such reproduction does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author.90

86 Art. 30, the TRIPS Agreement. 87 Art. 31, the TRIPS Agreement. 88 Canada – Pharmaceutical Patents, WTO Panel Report, para. 7.91. However, it should be made clear that Article 30 and Article 31 are distinct from one another. Although the three conditions set forth by Article 30 define the kind and scope of the permissible exceptions, Article 30 itself does not list the specific acts that might be exempted. Article 31 then deals with “other use” – i.e. use other than that allowed under Article 30 – that requires no authorization from the right holders. This formulation indicates the drafters’ intension of distinguishing the “limited exceptions” that are authorized under Article 30 from compulsory licensing authorized under Article 31. 89 Ibid., para. 7.71. 90 Art. 9(2), Berne Convention.

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Most importantly, as the Panel in Canada – Pharmaceutical Patents rightly pointed out, other exceptions to copyright, trademark, and industrial design in the TRIPS Agreement share the same origin of Article 9(2) of the Berne Convention.91 Moreover, the Panel also noticed that the Berne text was incorporated into Article 30 of the TRIPS Agreement with certain changes.92 In addition to the final condition of the “legitimate interests” of right holder in Berne text, the TRIPS’ text added that account must also be taken of “the legitimate interests of third parties.”93 As in exceptions to patent rights, exceptions to trademark rights and industrial designs both added a requirement of account being taken of “the legitimate interests of third parties” in addition to legitimate interests of right holders.94 In the context of TRIPS, legitimate interests are “used to help define the scope of an intellectual property right or rights by helping to ascertain the nature of the rights and carve out the exceptions to what is expressly stated to be a right or rights.”95 As for the exceptions to trademark rights for example, the TRIPS Agreement states: Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties.96 However, as for the exceptions to copyright, the TRIPS Agreement closely adopts the text of the Article 9(2) of the Berne Convention and makes no reference to any account of the legitimate interests of third parties.97 The absence of the reference to the account of legitimate interests of third parties makes it distinctive from the trademark, industrial design, and patent exceptions in TRIPS regime. Absent any

91 The Panel in Canada – Pharmaceutical Patents (Original footnote 420 to para. 7.71) stated: The text of Berne Article 9(2) also served as the model for three other exceptions clauses in the TRIPS Agreement – Articles 13, 17 and 26.2, providing respectively for similar exceptions from obligations on copyright, trademarks and industrial designs. Article 13 is a nearly identical copy of Berne Article 9(2). Like Article 30, both Articles 17 and 26.2 made small changes to the text of Berne Article 9(2). Canada – Pharmaceutical Patents, WTO Panel Report, para. 7.71. Art. 30, the TRIPS Agreement. Arts. 17 and 26(2), the TRIPS Agreement. Mark Davison and Patrick Emerton, “Rights, Privileges, Legitimate Interests, and Justifiability: Article 20 of TRIPS and Plain Packaging of Tobacco,” 29(3) American University International Law Review (2014), 505, 528. According to the authors (530), “[t]he legitimate interests of the third parties are a basis for considering whether there exists a right to exclude others from using copyrighted or patented subject-matter, designs, and trademarks.” 96 Art. 17, the TRIPS Agreement. 97 Art. 13 of the TRIPS Agreement reads as follows:

92 93 94 95

Members shall confine limitations or exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.

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documentation of the TRIPS negotiations or any WTO jurisprudence to explain the distinction, it is almost impossible to understand what significant implications WTO negotiators intended to attach to this distinction. However, this distinction cannot be a mistake and must mean something, as has been emphasized by the Appellate Body in US – Gasoline stating that any “interpretation must give meaning and effect to all the terms of a treaty.”98 A reasonable interpretation of this distinction would at least mean that there are different limitations and exception to copyright and patent rights, and that the legitimate interests of third parties are present as a limitation to right holders’ exclusive rights in patent rights but not copyrights. According to the Panel in Canada – Pharmaceutical Patents, “legitimate interests” are different from “legal interests” as third parties “are by definition parties who have no legal rights at all” in being able to accomplish the tasks excluded by patent rights.99 The term “legitimate interests,” therefore, must be defined in the way that it is often used in legal discourse – as a normative claim calling for protection of interests that are “justifiable” in the sense that they are supported by relevant public policies or other social norms.100 The Panel thus suggested that the reference to “legitimate interests of third parties” indicates that the term “legitimate interests” should be “construed as a concept broader than legal interests.”101 As for “third parties,” unfortunately, there is not much jurisprudence in this context. The available interpretation can only be found in relation to trademark exceptions. In EC – Trademarks and Geographical Indications, the Panel considered that “third parties” include consumers: The parties to this dispute agree that “third parties” for the purposes of Article 17 include consumers. The function of a trademark is to distinguish goods and services of undertakings in the course of trade. That function is served not only for the owner, but also for consumers. Accordingly, the relevant third parties include consumers. Consumers have a legitimate interest in being able to distinguish the goods and services of one undertaking from those of another, and to avoid confusion.102 In the same context, “third parties” in the context of Article 17 of the TRIPS Agreement include persons using a geographical indication (GI) in accordance with a GI registration.103

98 99 100 101 102 103

US – Gasoline, WTO Appellate Body Report, WT/DS2/AB/R (29 April 1996), 23. Canada – Pharmaceutical Patents, WTO Panel Report, para. 7.68. Ibid., para. 7.69. Canada – Pharmaceutical Patents, WTO Panel Report, para. 7.71. EC – Trademarks and Geographical Indications (Australia), WTO Panel Report, para. 7.675. Ibid., para. 7.679, the Panel stated: The European Communities submits that ‘third parties’ for the purposes of Article 17 include persons using a GI in accordance with a GI registration. The Panel agrees.

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The above search for the origin of TRIPS’ patent exceptions carries several significant implications. First, there is an important discrepancy as to TRIPS’ intellectual property exception regime. The legitimate interests of third parties should be taken into account in exceptions to trademarks, patents, and industrial designs but not in exceptions to copyrights. Second, the legitimate interests – normative claims which are not of legal interest yet broader than legal interests justifiable by “relevant public policies or other social norms” – of third parties can serve as a limitation to check and balance with the legal interests of right holders. Moreover, third parties could be consumers or users of relevant intellectual property rights. Third, although compulsory licensing as exception justifies legitimate interests of third parties to limit private rights, TRIPS Agreement says nothing about how to limit these private rights. Essentially, limitation of private rights is a constitutional issue falling into the domain of domestic law. As the legitimate interests of third parties serving as the foundation of exceptions to intellectual property rights are claims justifiable by “relevant public policies or other social norms”, the legitimate interests of third parties and public concerns should at least be consistent if not identical with each other. As the Panel pointed out in Canada – Pharmaceutical Patents, the scope and conditions of the patent exceptions “must be examined with particular care,” and “[b]oth the goals and the limitations stated in Articles 7 and 8.1 must obviously be borne in mind.”104 In the same way public concerns check and balance with private intellectual property rights as prescribed in Articles 7 and 8.1, the legitimate interests of third parties serve as exceptions to various intellectual property rights. It is therefore not surprising to see that confusion as to the jurisprudence of the legitimate third party interests in compulsory licensing clearly reveals TRIPS’ private right philosophy paradox. Indeed, as the section next will indicates, they are sharing the same root of TRIPS’ birth defect.

5.3.3 The birth defect of the TRIPS agreement The root of TRIPS’ philosophy paradox and compulsory licensing’s jurisprudential confusion as to third party interests can be traced back to the founding moment of the TRIPS regime. Before the introduction of intellectual property rights into the international trading framework through the TRIPS Agreement, intellectual property was still the domain of specialists and intellectual property right producers.105 TRIPS’ incorporation of intellectual property into the

Article 17 permits an exception to the rights conferred by a trademark which include, according to Article 16.1, a right to prevent ‘all third parties’ from using certain signs. The basis of the complainant’s claim is that those third parties include GI users. It is logical that, if GI users are included in the third parties subject to the trademark owner’s right, they are also included in the third parties taken into account in assessing the availability of an exception to that right. 104 Canada – Pharmaceutical Patents, WTO Panel Report, para. 7.26. 105 Rubens Ricupero and Ricardo Melendez Ortiz, “Preface,” in UNCTAD and ICTSD (eds.) Resource Book on TRIPS and Development (Cambridge: Cambridge University Press, 2005), vii.

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international trading framework “elicited great concern over its pervasive role in people’s lives and in society in general.”106 This incorporation reveals serious international contentions and divides regarding protection between the developed and developing countries. The intellectual property rights divide between the North and the South is evident in TRIPS negotiation, in particular during the process of the formulation of the Preamble and the Objectives and Principles provisions of the TRIPS Agreement. TRIPS negotiation started at the GATT Ministerial Conference at Punta del Este, Uruguay in September 1986, a critical moment “when the negotiations between developed and less-developed countries over the revision of the Paris Convention were deadlocked at WIPO.”107 Before the Uruguay Round, in the 1970s in particular, developing countries focused very much on establishing new rules on a New International Economic Order (NIEO) that depended on greater access to technology protected by intellectual property rights in developed countries. Developed countries, however, have been very much concerned with the WIPO system’s failure to provide effective protections to the interests of their technology-based and expressive industries.108As one of the principle “new area” negotiations in the Uruguay Round, the incorporation of intellectual property rights into international trade was quite controversial and opinions were divided between developing and developed countries.109 The negotiation process of the TRIPS clearly indicates the contentions around intellectual property rights protection between the developed and developing countries. While the draft legal text from developed countries including the EC, the US, Japan, Switzerland, and Australia – the “A” text – emphasizes the domestic enforcement and the applicability of GATT dispute settlement mechanism to TRIPS disputes, a dozen developing countries proposed another legal text – the “B” text – with a focus on maintaining flexibility to implement economic and social development objectives.110 At the very beginning of the negotiation, developed countries and a few developing countries were only expecting a Tokyo Round type “code” to be incorporated into the GATT framework. The US proposal submitted to the Group of Negotiation on Goods (GATT) in 1988, for example, suggested as one of the objectives to “[e]ncourage non-signatory governments to adopt and enforce the agreed standards for protection of intellectual property and join the [GATT] agreement.”111 In relation

106 107 108 109

Ibid. Yu, “The Objectives and Principles of the TRIPS Agreement,” 982. UNCTAD-ICTSD, Resource Book on TRIPS and Development, 3. Ibid., 3–4. The other “new area” negotiation in the Uruguay Round concerned trade in services which resulted in the General Agreement on Trade in Services (GATS). See also, Yu, “The Objectives and Principles of the TRIPS Agreement,” 983–984. 110 Daniel J. Gervais, “Intellectual Property, Trade and Development: The State of Play,” 74 Fordham Law Review (2005), 505, 507–508. 111 Suggestion by the United States for Achieving the Negotiating Objective (Revision), United States Proposal for Negotiations on Trade-Related Aspects of Intellectual Property Rights,

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to revision and amendment of the GATT, the US proposed an open mechanism that is able to accommodate future consensus on improved protection for new forms of technology and creativity.112 India, however, submitted a detailed paper indicating a developing country perspective in sharp contrast with US proposal.113 India suggested that only the restrictive and anti-competitive practices of the intellectual property right owners “can be considered to be trade-related because they alone distort or impede international trade.”114 India therefore suggested that, according to the mandates from the Trade Negotiation Committee, the negotiation on traderelated aspects of intellectual property rights should be governed by the concerns and public policy objectives underlying the national systems for the protection of intellectual property, including developmental and technological objectives. This is particularly important for developing countries because the intellectual property system has wide ranging implications for their economic and social development. Any principle or standard relating to intellectual property rights should be carefully tested against the touchstone of the socio-economic, developmental, technological and public interest needs of developing countries.115 Therefore, India concluded that “[i]t would … not be appropriate to establish within the framework of the General Agreement on Tariffs and Trade any new rules and disciplines pertaining to standards and principles concerning the availability, scope and use of intellectual property rights.”116 However, due to the threats of sanctions and implicit dismantling of the GATT, as well as concessions offered by developed countries in other areas like agriculture and textiles, “the resistance of developing countries was overcome.”117 The final result of the Uruguay Round mirrored the “A” text and “embodied norms that had been accepted by industrialized countries,” and developing countries’ concerns “were reflected in large part in two provisions – Articles 7 and 8 [of the TRIPS Agreement].”118

112 113

114 115 116 117 118

Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, including Trade in Counterfeit Goods, MTN.GNG/NG11/W/14/Rev.1 (17 October 1988), 3. Ibid., 18. Indian submission, “Standards and Principles concerning the Availability, Scope and Use of Trade-Related Intellectual Property Rights” (MTN.GNG/NG11/W/37, 10 July 1989), Communication from India to Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, including Trade in Counterfeit Goods. Ibid., 2. Ibid. Ibid., 19–20. UNCTAD-ICTSD, Resource Book on TRIPS and Development, 4. Gervais, “Intellectual Property, Trade and Development,” 508.

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The negotiating process of the compulsory licensing provision Article 31 in TRIPS perfectly reflects this dynamics. Prior to TRIPS, compulsory licensing was indeed a common practice internationally.119 The Paris Convention, for example, explicitly states that each country “shall have the right to take legislative measures providing for the grant of compulsory licenses.”120 The negotiation revising the Paris Convention broke down in 1982, “in significant part because of competing demands concerning compulsory licensing” between developing countries’ NIEO demands for technology sharing and developed countries’ demands for stronger protection of proprietary interests of patents.121 India’s submission in 1989, for example, proposed a compulsory licensing regime that covers licensing for non-working, and licenses of rights relating to food, medicine, and agricultural chemicals.122 It is worth mentioning that the Paris Convention expressly allows compulsory licensing of patents, which fails to work locally.123 However, the final result of the compulsory licensing negotiation reflected developed countries’ interests and the compulsory licensing on grounds of non-working was taken out.124 Similar dynamics can also be found in the process of negotiating the enforcement principles of the TRIPS Agreement. During the Uruguay Round, the establishment of detailed rules enforcing intellectual property rights was led by the EC and the US.125 The EC and the US texts “reflected the view of the business community,” and the US and the EC “largely imposed their own conception of the subject.” 126 The Indian delegation expressed concerns as to the enforcement obligations’ institutional implications, in particularly to developing countries.127 Based on the Indian proposal, developing countries’ concerns were

119 120 121 122 123 124

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UNCTAD-ICTSD, Resource Book on TRIPS and Development, 462. Art. 5.A(2), Paris Convention. UNCTAD-ICTSD, Resource Book on TRIPS and Development, 463. Indian submission, “Standards and Principles concerning the Availability, Scope and Use of Trade-Related Intellectual Property Rights” (MTN.GNG/NG11/W/37, 10 July 1989). Arts. 5.A(2) and (4), the Paris Convention. The issue of licensing on grounds of non-working was addressed indirectly by Arts. 27.1 and 70.6 of the Agreement. See UNCTAD-ICTSD, Resource Book on TRIPS and Development, 467. For EC’s submission, see “Guidelines Proposed by the European Community for the Negotiations on Trade-Related Aspects of Intellectual Property Rights” (MTN.GNG/NG11/W/16, 20 November 1987), Communication from the EC to Negotiating Group on Trade-Related Aspects of Intellectual Property Rights including Trade in Counterfeit Goods; for US submission, see “Draft Agreement on the Trade-Related Aspects of Intellectual Property Rights: Communication from the United States” (MTN.GNG/NG11/W70, 11 May 1990), Communication from the US to Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, including Trade in Counterfeit Goods. UNCTAD-ICTSD, Resource Book on TRIPS and Development, 578–579. For Indian delegation’s submission, see “Enforcement of Trade-Related Intellectual Property Rights: Communication from India” (MTN.GNG/NG11/W/40, 5 September 1989), Communication from India to Negotiating Group on Trade-Related Aspects of Intellectual Property Rights including Trade in Counterfeit Goods.

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only reflected in Article 41.5, which allow members “to avoid any obligation to establish a special judicial system to enforce IPRs or to assign specific resources, but did not influence otherwise very much the outcome of the negotiations.”128 The successful incorporation of intellectual property rights into the WTO through the conclusion of the TRIPS Agreement to some extent recognizes the power asymmetry and legalizes the fragmentation between the developed and developing countries. This unfortunate intellectual property rights divide between the North and the South in this regard is the birth defect of the TRIPS regime within the WTO framework.129 Moreover, the negative implications of TRIPS’ birth defect travel beyond the intellectual property rights framework and affect the entire WTO framework. Developing countries adopted new commitments regarding intellectual property rights protection in the Uruguay Round in the expectation of getting better market access in agriculture, textiles, and other sectors.130 When these benefits failed to materialize, developing countries’ dissatisfaction has become one of the key factors causing the deadlock of the Doha Round negotiation.131 The birth defect of the TRIPS and the deadlock of the Doha Round negotiation have indeed been key to the failure of the 2003 TRIPS Waiver and 2005 TRIPS Amendment. As not much account of public interests and development has been taken in the TRIPS regime due to its birth defect, it is not surprising to see TRIPS’ confusion as to taking account or not of the legitimate interests of third parties in exceptions to various intellectual property rights.132 TRIPS Amendment’s breaking the international-domestic balance worsens compulsory licensing mechanism’s ability addressing public health concerns. Expecting TRIPS to address public health concerns in the 2003 Waiver and 2005 Amendment is therefore squaring a circle in vain. This further leads us to the question of the legitimacy of the TRIPS Waiver and Amendment. As rightly pointed out by the Appellate Body in US – Gasoline that WTO agreements are “not to be read in clinical isolation from public international law,”133 the following examination will focus on the Waiver and Amendment’s implications as to the tripartite dynamics between the WTO, member states, and private rights from public

128 UNCTAD-ICTSD, Resource Book on TRIPS and Development, 579, 585. 129 For more discussion on TRIPS’ “birth defect,” see Wenwei Guan, Intellectual Property Theory and Practice: A Critical Examination of China’s TRIPS Compliance and Beyond (Heidelberg: Springer, 2014), 5–7. 130 United Nations Industrial Development Organization (UNIDO), Public Goods for Economic Development (UNIDO 2008), 80. 131 See, for example, the coalition of developing countries known as the Like Minded Group (LMG)’s attempt to challenge the launch of the Doha Round negotiation. Amrita Narlikar, World Trade Organization: A Very Short Introduction (Oxford: Oxford University Press, 2005), 54–55. See also, Dinwoodie and Dreyfuss, “Designing A Global Intellectual Property System Responsive to Change,” 1188–1189. 132 As to TRIPS’ consideration of the legitimate interests of third parties in intellectual property exceptions, see discussion supra 5.3.2. 133 US – Gasoline, WTO Appellate Body Report, 17.

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international law perspective. It is submitted that TRIPS’ Waiver or Amendment encounters legitimacy deficit in international law due to its unnecessary “disrespect” to members’ sovereign authority in managing public health and its intrusion into affairs of private parties that should originally be domestically regulated.

5.4 Public health, IPRs, and trade: the private right dilemma in international law 5.4.1 Implications for members’ trade autonomy in international law Much research attributes the failure of the 2003 Waiver and the 2005 Amendment to strong pharmaceutical lobbying against the domestic legislative change accommodating public health flexibility and to the complexity of the cumbersome procedure.134 Our above analysis on TRIPS’ birth defect, however, indicates that the failure might be because of the paradox of sovereign management of private rights in international trade.135 Indeed, in the same way the Uruguay negotiation’s incorporation of intellectual property rights into GATT creates TRIPS’ birth defect, the establishment of TRIPS’ authority of compulsory licensing over private-rights-natured pharmaceutical patents inevitably leads to the Waiver’s failure. The Amendment raises an important question: how can TRIPS, as a public international law regime, handle the proprietary right to remuneration in compulsory licensing while recognizing that IPRs are private rights and TRIPS grants no positive rights? The key, as has been shown in the SPS Agreement for example, is the tension between the international free trade regime and members’ sovereign rights to manage public health issues.136 This tension indeed reflects the basic theme of international trade law – a tension between “the necessity for legal rules conducive to stability and predictability, and the human need for solutions to short-term and ad hoc problems,” or simply the “dilemma of rule versus discretion.”137 To answer this question, the chapter in the next two sub-sections further looks at the dynamics between government and private rights in international trade and private rights’ treatment in international law. The balanced dynamics between the rigidity of the international regime versus the flexibility demanded from member states’ sovereign autonomy situates at the center of the tension between rule versus discretion. Therefore, checks and balances on the rigidity of international rules and commitments with flexibility

134 See discussion supra 5.2.2. 135 See discussion supra 5.3.1 and 5.3.2, in particular 5.3.1. 136 Jackson, Sovereignty, the WTO, and Changing Fundamentals of International Law, 247. See text associated with footnote 34 above. 137 John H. Jackson, The World Trading System: Law and Policy of International Economic Relations (Cambridge, MA: MIT Press, 2nd ed., 1997), 10, 29.

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accommodating members’ domestic political needs is of fundamental importance to the legitimacy of international trade law.138 WTO rules thus “must strike a balance between commitments and flexibility.”139 The TRIPS Agreement indeed provides certain flexibility. As we mentioned above, compulsory licensing was introduced as exceptions and limitations to patent rights.140 Moreover, the TRIPS’ “general exceptions” mechanism as defined in Article 8.1 provides members flexibility in intellectual property enforcement for purposes of protecting public health and facilitating social development.141 By leaving members the freedom to determine the grounds for compulsory licenses and to define situations of national emergency and extreme urgency, the Doha Declaration indeed recognizes this flexibility.142 The recognition of the flexibility was well reflected throughout TRIPS’ negotiation process. During TRIPS negotiation, the strong resistance from developing countries to the strict limits proposed by developed countries was the key reason leading to “any enumeration of permissible grounds” for compulsory licensing in early negotiation text to be removed in order to give members more flexibility.143 However, the 2003 Waiver, as later on adopted in the 2005 Amendment, creates segmentation of compulsory licensing practice by defining “eligible importing Member” and “exporting Member”.144 Detailed rules and procedures complicated the practicality of compulsory licensing; and waivers of the domestic use limitation and the remuneration requirement reallocated compulsory licensing administration among members.145 Members, in particular importing members, are under obligations to “take reasonable measures within their means” ensuring that the use of imported products is consistent with the Waiver.146 In his comments on the US and EU viewpoints in TRIPS Waiver negotiation, Abbott suggested that there is “a general interest in limiting the use of the

138 See, Peter Sutherland et al., The Future of the WTO: Addressing Institutional Challenges in the New Millennium (Geneva: WTO, 2004), para. 39. According to the Report (para. 39), both GATT and the WTO have been “intended to provide a structured and functionally effective way to harness the value of open trade to principle and fairness”; and their rules “provide checks and balances including mechanisms that reflect political realism as well as free trade doctrine.” 139 WTO Secretariat, World Trade Report 2009: Trade Policy Commitments and Contingency Measures xiii (Geneva: WTO, 2009). The Report (at xiii) states: Trade agreements define rules for the conduct of trade policy. These rules must strike a balance between commitments and flexibility. Too much flexibility may undermine the value of commitments, but too little flexibility may render the rules unsustainable. 140 For compulsory licensing as exceptions to patent rights, see discussion supra 5.3.2. 141 For TRIPS’ principles in Article 8.1 as the “general exceptions” mechanism, see discussion supra 5.2.1. 142 See discussion supra 5.2.2. 143 UNCTAD-ICTSD, Resource Book on TRIPS and Development, 465. 144 Para. 1, 2003 TRIPS Waiver. 145 Paras. 2 and 3, 2003 TRIPS Waiver. 146 Paras. 4 and 5, 2003 TRIPS Waiver.

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[TRIPS Waiver] system.” The 2003 Waiver and the 2005 Amendment, intending to provide more policy choice, turned out to significantly undermine the compulsory licensing flexibility in TRIPS and the Doha Declaration. By undermining compulsory licensing flexibility, the 2003 Waiver and 2005 Amendment indeed go against the nature and scope of TRIPS’ obligations under international law. According to the TRIPS Agreement, members on the one hand “shall give effect to” TRIPS’ provisions, yet on the other hand are “free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.”148 Similarly, when it comes to members’ obligations regarding enforcement, the TRIPS Agreement states that members are under no obligation to change their institutions, capacity, or resources distribution to law enforcement in their judicial systems.149 Under international law, while states are required to fulfill their international obligations, generally they are also “free as to the manner in which, domestically, they put themselves in the position to meet their international obligations.”150 The TRIPS Agreement by its nature should pay deference to national authorities’ sovereign freedom in managing critical situations of public health. Not only they are inconsistent with the nature and scope of TRIPS’ obligations, but also the Waiver and Amendment encounter legitimacy deficit in international law. As revealed above, the disturbing difference of the Waiver and Amendment from previous TRIPS Agreement lies in detailing domestic limitation of private-rights-natured pharmaceuticals, which essentially creates a “direct effect” of international law over domestic issues. The nature and scope of the TRIPS obligations as defined in Article 1 of the Agreement have been well elaborated in the rich deliberation regarding the issue of the WTO Agreement’s “direct effect.” During the Uruguay round negotiation, the question of whether the WTO Agreement should be given direct effect attracted a great deal of attention among leading trade scholars.151 Despite that, however, “the question of direct effect was not a subject that drew the express attention of the TRIPS

147 Abbott, “The WTO Medicines Decision,” 335. According to Abbott (ibid., 318.), the US considered the TRIPS Waiver as “a problematic compromise,” and “has since sought to limit its scope of application” through bilateral or limited multilateral frameworks. 148 Art. 1.1, the TRIPS Agreement. 149 Art. 41.5 of the TRIPS Agreement states: It is understood that this Part [Part III – Enforcement of Intellectual Property Rights] does not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general, nor does it affect the capacity of Members to enforce their law in general. Nothing in this Part creates any obligation with respect to the distribution of resources as between enforcement of intellectual property rights and the enforcement of law in general. 150 Robert Jennings and Arthur Watts, Oppenheim’s International Law (London: Longman Group UK Ltd., 1992, 9th ed.), 82 § 1. 151 Meinhard Hilf and Ernst-Ulrich Petersmann, National Constitutions and International Economic Law (London: Kluwer Law International, 1993).

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negotiators, at least as reflected in the minutes of the negotiating sessions.”152 Members’ practice varies on this issue. While Argentina accepts the direct effect, the US rejects the practice.153 Under US law, for example, no person “shall have any cause of action or defense” under WTO covered agreements, nor can they challenge “any action or inaction” by any government authorities on the ground that such action or inaction is WTO inconsistent.154 The European Union (EU), too, states that the WTO Agreement, including its Annexes, by nature “is not susceptible to being directly invoked in Community or Member State courts.”155 It is therefore suggested that “[t]he most reasonable interpretation” of TRIPS’ perspective on this issue “would appear to be that each Member is free to determine whether it will apply the Agreement directly, and that this will depend on its legal system and practice.”156 It in fact has been a well-established jurisprudence in international law that choices between giving international law direct effect and implementing them through transformation into national law “are matters for each state to determine for itself according to its own constitutional practices.”157 The nature of WTO’s direct effect jurisprudence prescribes the international regime’s deference to national sovereign autonomy in international compliance. From the jurisprudence of TRIPS’s “general exceptions” mechanism, to the scope and nature of the TRIPS obligation, to WTO’s direct effect jurisprudence, all appear to be calling for TRIPS’ respect to national authorities in public health management as a way of balancing the rigidity of the trading regime. Intending to provide more policy choice tackling public health crisis, TRIPS’ 2003 Waiver and 2005 Amendment conversely create segmentation of the compulsory licensing mechanism and significantly undermine the flexibility of the regime. The rigidity of the current compulsory licensing regime reflected in the 2003 Waiver and 2005 Amendment created more barriers to members’ exercise of freedom in granting compulsory licenses, and led to the failure of the Waiver’s application and the Amendment’s ratification. This has much to do with the birth defect of the TRIPS regime and certainly casts doubt on the legitimacy of 2003 TRIPS Waiver and 2005 TRIPS Amendment. Further analysis below will indicate that the intrusive compulsory licensing regime as reflected in the Waiver and Amendment also intervenes in the private rights sphere that has been shielded from international intrusion in traditional international law. This intrusion into private-rights-natured pharmaceutical

152 UNCTAD-ICTSD, Resource Book on TRIPS and Development, 23. 153 Ibid., 31–35. 154 Section 102(c)(1)(A) and (B), Uruguay Round Agreements Act, Pub. L. 103–465, 108 Stat. 4818 (1994). 155 See, 94/800/EC: Council Decision (of 22 December 1994) concerning the conclusion on behalf of the European Community, as regards matters within its competence, of the agreements reached in the Uruguay Round multilateral negotiations (1986–1994). 156 UNCTAD-ICTSD, Resource Book on TRIPS and Development, 26. 157 Jennings and Watts, Oppenheim’s International Law, 82–83.

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patents further undermines the legitimacy of TRIPS’ current compulsory licensing regime.

5.4.2 Implications for private rights’ treatment in international law The Waiver and Amendment not only erode members’ trade autonomy via limiting the compulsory licensing flexibility, but also intrude into individuals’ rights by limiting a patent proprietor’s right to adequate remuneration. The disrespect to members’ sovereign rights in managing public health undermines the legitimacy of TRIPS’ Waiver and Amendment, as it is inconsistent with the nature and scope of the TRIPS obligation and the general jurisprudence of direct effect in international law. This indeed further creates another undesirable consequence in its intrusion into proprietary rights of individuals that originally should be domestically regulated. As the name “waiver” indicates, the TRIPS Amendment waives certain original compulsory licensing requirements on both exporting and importing countries for the purpose of providing more flexibility to address public health concerns. On the one hand, the Amendment waives Article 31(f)’s requirement that exporting countries limit compulsory licensing to be used predominantly for the supply of the domestic market. On the other hand, the Amendment waives Article 31(h)’s requirement on importing countries to pay adequate remuneration to proprietors. The key of the waivers then is the shift of the proprietors’ right to remuneration from both exporting and importing countries to exporting countries only. The other provisions of the Waiver on limitation of the application scope, benefited countries, procedural requirement, and good faith limitation are to facilitate this shift towards more flexibility. The proprietor’s remuneration arguably remains the same and the Waiver’s impact on international trade is probably minimal. However, TRIPS’ direct regulation of private parties’ proprietor rights is highly unusual, as TRIPS exceptions should concern the use of rights only rather than the rights themselves.158 Moreover, the remuneration right shifting effect indicates that the TRIPS Amendment touches the “positive rights” aspect of intellectual property,159 which runs at odds with the established jurisprudence that the negative right natured TRIPS regime does not give positive rights to use.160 The TRIPS Amendment thus raises a fundamental question: how would international law regulate private rights and could TRIPS directly touch private rights?

158 Carvalho, The TRIPS Regime of Patent Rights, 223. 159 While positive rights entitle a person “to have another do some act for the benefit of the person entitled,” negative rights “entitl[e] a person to have another refrain from doing an act that might harm the person entitled.” See Bryan A. Garner, Black’s Law Dictionary (St. Paul, MN: Thomson Reuters, 2009, 9th ed.). 160 EC – Trademarks and Geographical Indications (Australia), WTO Panel Report, para. 7.210. For detailed discussion of the negative rights jurisprudence, see discussion supra 5.3.1.

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As the natural consequence of the direct effect jurisprudence, international regimes should refrain from intervening in individual rights within domestic affairs. This is well-established in GATT/WTO’s jurisprudence on the doctrine of direct effect. For example, the Panel in US – Section 301 Trade Act stated: Under the doctrine of direct effect, which has been found to exist most notably in the legal order of the EC but also in certain free trade area agreements, obligations addressed to States are construed as creating legally enforceable rights and obligations for individuals. Neither the GATT nor the WTO has so far been interpreted by GATT/WTO institutions as a legal order producing direct effect. Following this approach, the GATT/WTO did not create a new legal order the subjects of which comprise both contracting parties or Members and their nationals.161 (original footnote omitted) Therefore, the GATT/WTO in general has no direct effect and consequently creates neither rights nor obligations on members’ nationals.162 Contracting parties of GATT or members of the WTO are not in the same legal order as their nationals. It is thus a well-established jurisprudence that the WTO in particular or international law in general neither adds nor diminishes private rights of individuals. In fact, individuals are not subjects of international law, and consequently derive no rights nor bear any obligations under international law.163 Long after the

161 US – Section 301 Trade Act, WTO Panel Report, WT/DS152/R (22 December 1999), para. 7.72. Emphasis original. 162 Of course, the Panel also emphasized that the statement was made as a matter of fact, and that (ibid. footnote 661 to para. 7.72): The fact that WTO institutions have not to date construed any obligations as producing direct effect does not necessarily preclude that in the legal system of any given Member, following internal constitutional principles, some obligations will be found to give rights to individuals. Our statement of fact does not prejudge any decisions by national courts on this issue. 163 Of course, international law protects human rights and individuals are ultimately the beneficiaries of international human rights protection. Recent developments in international criminal law, as Crawford pointed out, have made it “no longer possible to deny that individuals may have rights and duties in international law” (James Crawford, Brownlie’s Principles of Public International Law (Oxford: Oxford University Press, 2012, 8th ed.), 17). However, this does not directly make individuals “subjects” of international law who can directly bear rights and liability under international law. As Crawford suggested, “to classify the individuals as a ‘subject’ of international law is unhelpful,” as individuals do not have the same capacities as other types of subjects of international law, and international human rights norms “are not yet regarded as applying horizontally between individuals, in parallel to or substitution for the applicable national law,” and neither are there any means for their enforcement in international law. Therefore, Crawford pointed out, human rights and other obligations assumed for the benefit of individuals “arise against the state, which so far has a virtual monopoly of responsibility.” Ibid., 121.

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Westphalia era, the individual has not been the subject of international law,164 and states have been traditionally been the only subjects of international law.165 Individuals such as heads of state or diplomatic envoys of course can enjoy certain rights and obligations according to international law, yet have not therefore become subjects of international law.166 As Jennings and Watts suggested, “the rights in question are enjoyed by the individuals concerned not as rights in international law but as rights derived from national law.”167 Only under national law instead of international law would individuals derive legal rights and assume legal liabilities. Nationality jurisprudence in international law, too, suggests that international regime has no legitimate base of handling individual rights. Under traditional international law, nationality is the only way to link individuals into international law, and thus all the relations of individuals from different countries are summed up in the relations of countries.168 International law thus applies in relation to a natural person via his nationality of certain states through the same way that international law attributes the nationality of a state to a private company or other legal person.169 In international law, therefore, it is argued that there is a “doctrine of the freedom of states in matters of nationality.”170 In the Advisory Opinion of the Permanent Court concerning the Tunis and Morocco Nationality Decrees, the Court insisted that, “in the present state of international law, questions of nationality are, in opinion of this Court, in principle within this reserved domain.”171 Serving both as the bridge and boundary between international law and domestic law, nationality not only connects individuals to international law, but also works as an important shield for individuals from international intervention. Individuals’ connection with international law through nationality is for the purpose of realizing domestic protection of individual rights in the international arena rather than establishing an international regime’s domestic reach over individuals.

164 Ian Brownlie, The Rule of Law in International Affairs: International Law at the Fiftieth Anniversary of the United Nations (The Hague: Martinus Nijhoff Publishers, 1998), 48. 165 Louis Henkin, International Law: Politics and Values, 7–8. 166 Jennings and Watts, Oppenheim’s International Law, 846. 167 Ibid., 847. 168 Brownlie, The Rule of Law in International Affairs: International Law at the Fiftieth Anniversary of the United Nations, 48. He argued, “the principal connection between the individual and the system of international law is still via the status of nationality.” See also Jennings and Watts, Oppenheim’s International Law, 857. Jennings and Watts stated, “nationality is the principal link between individuals and international law.” 169 Jennings and Watts, Oppenheim’s International Law, 859. 170 Ian Brownlie, Principles of Public International Law (Oxford: Oxford University Press, 2008, 7th ed.), 383. 171 PCIJ, Ser. B, no. 4 (1923), 24, as cited in ibid., 383.

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It has thus been well established that nationality is “very important for international law.”172 Nationality not only limits international regime’s intrusion into states’ sovereignty over domestic affairs, but also shields individuals from international intervention. This carries fundamental significance to our analysis, as it clearly explains why the WTO in general or the TRIPS Agreement in particular has no direct effect and creates no obligations to individuals. Home states exclusively have the right as well the obligation to protect the exercise of individual rights. In his discussion of the relationship of individuals to the state under the framework of sovereignty in the international legal system, Brand suggested that the international legal framework is a “two-tiered social contract,” “under which the individual relates to the state in domestic law, and only the state relates to the international legal order in international law.”173 Similarly, as the WTO is considered to be a member-driven organization, Hudec suggested that there is no basis for “asking the WTO to meet the legitimacy standards of an institution with powers of governance.”174 There is no justification to legitimize the international regime’s directly intervening with individuals and private rights. Through detailing compulsory licensing treatments of the private-rightsnatured pharmaceuticals, however, the TRIPS Waiver and Amendment contradicts this jurisprudence in international law. It is in this sense, compulsory licensing or issue of TRIPS’ direct effect will need to and have to be left in the hands of national authorities under the current framework of the tripartite dynamics between states, the WTO, and individuals. Therefore, there is no justification for any international regime’s intrusion into matters within the domestic jurisdiction of national authorities. This indeed has been one of the core doctrines of the contemporary international legal order. Under the current international legal order, countries are both the subjects and law-makers of international law at the same time. In general, there is no more superior authority above the countries.175 Therefore, “state consent is the foundation of international law” and that “that law is binding on a state only by its consent remains an axiom of the political system, an implication of state autonomy.”176 Non-intervention, therefore, has become a cornerstone of

172 Jennings and Watts, Oppenheim’s International Law, 849. 173 Ronald A. Brand, “Sovereignty: The State, the Individual, and the International Legal System in the 21st Century,” 25 Hastings International and Comparative Law Review (2002), 279, 286–287. 174 See Robert E. Hudec, “Comment on ‘The Club Model of Multilateral Cooperation and Problems of Democratic Legitimacy’,” in R. B. Porter et al. (eds.), Efficiency, Equity, and Legitimacy: The Multilateral Trading System at the Millennium (Washington, DC: Brookings Institution Press, 2001), 297–298. 175 In his discussion of consensus decision-making, Petersmann suggested that it is the general principle underlying WTO decision-making that “the WTO does not have the power to impose new trade policy obligations.” See Ernst-Ulrich Petersmann, The GATT/WTO Dispute Settlement System: International Law, International Organizations and Dispute Settlement (London: Kluwer Law International. 1997), 54. 176 Henkin, International Law: Politics and Values, 27.

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international law and has been enshrined in the UN Charter. For nonintervention, the UN Charter states: Nothing contained in the present Charter shall authorize the United Nations to intervene in matters which are essentially within the domestic jurisdiction of any state or shall require the Members to submit such matters to settlement under the present Charter. 177 The above reference to the jurisprudence of individuals’ status in international law bears fundamental significance to our examination of TRIPS’ Waiver and Amendment’s legitimacy. No matter how much the WTO cares about promoting public health, TRIPS should confer no rights and create no obligations on individual right holders as to their patent rights. This confirms the fundamental nature of intellectual property rights as private and negative rights as recognized in TRIPS.178 The Paris Convention permits compulsory licensing yet neither limits the grant of compulsory licenses nor establishes any right to remuneration on behalf of patent right holders.179 The total freedom of compulsory licensing remains in the hands of domestic authorities. The TRIPS Agreement, however, establishes the right to adequate remuneration on behalf of the right holders and detailed procedural requirements for granting compulsory licenses.180 The establishment of a right to remuneration on behalf of the right holders of course runs against the established jurisprudence that the TRIPS Agreement generally confers negative rights instead of positive rights.181 To make things worse, the TRIPS Waiver and Amendment, in particular the waiver of the adequate remuneration that reallocated the compensation remedy available to patent right holders,182 crossed the line and stepped into “maters of domestic jurisdiction” of national authority. TRIPS Waiver and Amendment penetrated the nationality shield safeguarding the right holders from international intervention, which breaks the delicate tripartite balance between states, the WTO, and indivudals and thus undermines the trading regime’s legitimacy in international law. Moreover, the compulsory licensing amendment’s disrespect to members’ sovereign management of public health and intrusion into members’ nationals’

177 Art. 2.7, the Charter of United Nations (UN Charter). 178 For intellectual property rights as private and negative rights, in particular the barring effect thereof, see discussion supra 5.3.1 179 Art. 5A, the Paris Convention. 180 For the right to adequate remuneration, see Art. 31(h) of the TRIPS Agreement. 181 EC – Trademarks and Geographical Indications (Australia), WTO Panel Report, para. 7.210. For detailed discussion of the negative right jurisprudence, see discussion supra 5.3.1. Of course, it would not be unusual if the TRIPS Agreement concerned the use of right rather than the right itself. The TRIPS Waiver, however, directly touches and reallocates the right to remuneration. 182 Para. 3, the TRIPS Waiver.

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proprietary rights of patents are mutually intertwined and share the same problematic heritage of TRIPS’ birth defect. The amendment’s penetration into matters of domestic jurisdictions limits members’ freedom in compulsory licensing administration and disturbs individuals’ proprietary rights without much legitimate basis. The legitimacy of the compulsory licensing amendment is therefore in serious doubt, as it contradicts the nature of TRIPS obligations, the jurisprudence of the WTO Agreement’s direct effect, and the jurisprudence of individuals’ status in international law.

5.5 Conclusion: the dynamics between public health, IPRs, and trade It is unfortunate that the TRIPS Waiver and the TRIPS Amendment are largely ineffective. Views over the contribution of the TRIPS to public health are very diverse. Often, the failure is attributed to strong pharmaceutical lobbying in exporting countries against amending their patent legislation accordingly, and to the complexity of the procedure turning the system to a burdensome one that “is largely symbolic and is unlikely to lead to any significant increase in the supply of medicines for the poor.”183 NGOs and others criticize that the TRIPS Waiver and Amendment “impos[e] unnecessary obstacles to the effective use of compulsory licensing by countries with inadequate production capacity.”184 Abbott and Reichman considered that the Amendment is unfortunately “saddled with unnecessary administrative hurdles,” and the TRIPS Waiver and Amendment are indeed “not the optimal solution for stakeholders seeking the most administratively simple or expeditious mechanism for permitting exports under compulsory license.”185 Some even considered the TRIPS rules to be harmful to the poor and suggested that “TRIPs should not be in the WTO at all.”186 Our analysis above, however, suggests that the failure of the TRIPS Waiver and Amendment goes beyond the procedural and institutional issues to the jurisprudential deficit stemming from TRIPS’ birth defect. As intellectual property rights are private rights and the TRIPS regime grants only negative rights instead of positive rights, the issue of the TRIPS Waiver is a question of how WTO as an intergovernmental organization in public international law regulates private rights that supposedly fall only within the purview of domestic authorities. The Paris Convention allows compulsory licensing and leaves total freedom of regulating compulsory licensing in the hands of domestic authorities. The Convention does not limit the grant of compulsory licenses nor establish a right

183 Thapa, “Waiver Solution in Public Health and Pharmaceutical Domain under TRIPS Agreement,” 472–473. 184 Frederick M. Abbott and Jerome H. Reichman, “The Doha Round’s Public Health Legacy: Strategies for the Production and Diffusion of Patented Medicines under the Amended TRIPS Provisions,” 10 Journal of International Economic Law (2007), 921, 932. 185 Ibid., 921, 932. 186 Bhagwati, In Defense of Globalization, 185.

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to remuneration on behalf of patent right holders. The delicate internationaldomestic balance is maintained, and the dynamics between public health, private rights and international trade is consistent with the direct effect doctrine and jurisprudence of individuals’ status in international law. Should any epidemic like Ebola develop, national authorities should have enough flexibility to address public health concerns. The TRIPS Agreement, however, establishes the right to adequate remuneration on behalf of the right holders and develops detailed procedural requirements for granting compulsory licenses.188 The birth defect of the TRIPS Agreement reveals the jurisprudential paradox of TRIPS’ intellectual property philosophy. While TRIPS recognizes intellectual property rights as private and negative rights, it also attempts to provide a check and balance through a general exception mechanism accommodating public health and economic development interests. Account of third parties’ legitimate interests must be taken in relation to exceptions to patents, trademarks, and industrial designs, yet not to exceptions to copyrights. Yet, the TRIPS Agreement at least still recognizes members’ freedom in determining the grounds for compulsory licensing and situations of national emergency or extreme urgency. The TRIPS Waiver and Amendment, however, turns into the last straw breaking the already fragile equilibrium of the compulsory licensing practice. By establishing a complex procedure and limiting the scope of the application and benefiting countries, the Amendment creates segmentation of the compulsory licensing practice and limits its positive contribution to public health. Further jurisprudential analysis shows that the compulsory licensing amendment in TRIPS’ Waiver and Amendment challenges the nature and scope of the TRIPS obligations and penetrates international and domestic affairs without legal basis. Through the TRIPS Amendment, the WTO as a public international law regime goes beyond touching the use of private rights to touching private rights themselves, in particular in shifting and reallocating the proprietary right to remuneration in compulsory licensing. The TRIPS Waiver and Amendment break the delicate tripartite balance between states, the WTO and indivudals within the trading regime, and lacks legitimacy in international law. Therefore, this chapter raises a key issue as to private rights’ treatment in public international law within a framework where individuals as the ultimate beneficiaries have a rather limited role in the WTO. The WTO, moreover, as an international social contract on trade, operates against the dynamics between states, international institutions, and individuals during the constitutional evolution of the global marketplace. The chapter expresses its reservation over the success of the TRIPS Amendment due to its unwarranted intrusion into members’ domestic affairs and individuals’ private proprietary rights, unless private rights’ status is better recognized in public international

187 Art. 5A, the Paris Convention. 188 Art. 31(h), the TRIPS Agreement.

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law. For the moment, we should welcome alternative thinking about the TRIPS Amendment, in particular to leave administration of compulsory licensing fully with domestic authorities as it is in the Paris Convention. It is of course very noble for TRIPS to think of public health. However, the TRIPS Waiver and Amendment have disturbed the balance between private rights, governments, and international trade for public health. The time has not yet arrived to use the international trading framework to interfere in domestic governance of the private-rights-natured pharmaceutical patents. Neither is the international institutional structure and political realty ready for this interference. Administration of compulsory licensing for public health should be left solely within the hands of domestic authorities as it is in the Paris Convention. Domestic policy makers should bear more responsibility and be more active through domestic instead of international framework in promoting public health. Solutions to public health crises for the benefit of the least developed and developing countries can be provided elsewhere, instead of within the TRIPS.

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India, “Enforcement of Trade-Related Intellectual Property Rights: Communication from India to Negotiating Group on Trade-Related Aspects of Intellectual Property Rights Including Trade in Counterfeit Goods,” MTN.GNG/NG11/W/40 (5 September 1989b). Jackson, John H. The World Trading System: Law and Policy of International Economic Relations (Cambridge, MA: MIT Press, 1997, 2nd ed.). Jackson, John H. Sovereignty, the WTO, and Changing Fundamentals of International Law (Cambridge: Cambridge University Press, 2006). Jennings, Robert and Arthur Watts. Oppenheim’s International Law (London: Longman Group UK Ltd., 1992, 9th ed.). Matthews, Duncan. “WTO Decision on Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health: A Solution to the Access to Essential Medicines Problem?,” 7 Journal of International Economic Law (2004), 73–107. Musungu, Sisule F. et al., Utilizing TRIPS Flexibilities for Public Health Protection through South-South Regional Frameworks (Geneva: South Centre, 2004). Narlikar, Amrita. World Trade Organization: A Very Short Introduction (Oxford: Oxford University Press, 2005). Petersmann, Ernst-Ulrich. The GATT/WTO Dispute Settlement System: International Law, International Organizations and Dispute Settlement (London: Kluwer Law International, 1997). Rein, Judy. “International Governance through Trade Agreements: Patent Protection for Essential Medicines,” 21 Northwestern Journal of International Law & Business (2001), 379–408. Ricupero, Rubens and Ricardo Melendez Ortiz. “Preface,” in UNCTAD and ICTSD (ed.), Resource Book on TRIPS and Development (New York: Cambridge University Press, 2005), vii. Rwanda, “Notification under Paragraph 2(a) of the Decision of 30 August 2003 on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health,” IP/N/9/RWA/1 (19 July 2007). Shaffer, Gregory. “Recognizing Public Goods in WTO Dispute Settlement: Who Participates? Who Decides? the Case of TRIPS and Pharmaceutical Patent Protection,” 7 Journal of International Economic Law (2004), 459–482. Thapa, Rojina. “Waiver Solution in Public Health and Pharmaceutical Domain under TRIPS Agreement,” 16 Journal of Intellectual Property Rights (2011), 470–476. UN General Assembly, “Letter Dated 12 January 2015 from the Secretary-General Addressed to the President of the General Assembly” (A/69/720). UNCTAD-ICTSD. Resource Book on TRIPS and Development (Cambridge: Cambridge University Press, 2005). UNIDO. Public Goods for Economic Development (Vienna: UNIDO, 2008). US, “Suggestion by the United States for Achieving the Negotiating Objective (Revision): United States Proposal for Negotiations on Trade-Related Aspects of Intellectual Property Rights,” Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, including Trade in Counterfeit Goods, MTN.GNG/NG11/W/14/Rev.1 (17 October 1988). US, “Draft Agreement on the Trade-Related Aspects of Intellectual Property Rights: Communication from the US to Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, Including Trade in Counterfeit Goods,” MTN.GNG/NG11/W70 (11 May 1990).

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Vandoren, Paul and Jean Charles Van Eeckhaute. “The WTO Decision on Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health: Making It Work,” 6 The Journal of World Intellectual Property (2003), 779–793. Weissman, Robert. “Long Strange Trips: The Pharmaceutical Industry Drive to Harmonize Global Intellectual Property Rules, and the Remaining WTO Legal Alternatives Available to Third World Countries,” 17 University of Pennsylvania Journal of International Economic Law (1996), 1069–1125. WHA, The 52nd World Health Assembly: Revised Drug Strategy, WHA52.19 (24 May 1999). WTO, The Future of the WTO: Addressing Institutional Challenges in the New Millennium, Report by the Consultative Board to the Director-General Supachai Panitchpakdi (Geneva: WTO Publications, 2004). WTO. World Trade Report 2009: Trade Policy Commitments and Contingency Measures (Geneva: WTO Publications, 2009). WTO General Council, “Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health,” WT/L/540 and Corr.1 (September 2003a). WTO General Council, Minutes of Meeting Held in the Centre William Rappard on 25, 26, and 30 August 2003, WT/GC/M/82 (13 November 2003b). WTO General Council, “Amendment of the TRIPS Agreement,” WT/L/641 (6 December 2005). WTO General Council, “Amendment of the TRIPS Agreement – Fourth Extension of the Period for the Acceptance by Members of the Protocol Amending the TRIPS Agreement,” WT/L/899 (26 November 2013). Yu, Peter K. “The Objectives and Principles of the TRIPS Agreement,” 46 Houston Law Review (2009), 797–1046.

Cases Brazil – Retreaded Tyres, WT/DS332/AB/R (3 December 2007). Canada – Pharmaceutical Patents, WT/DS114/R (17 March 2000). China – Intellectual Property Rights, WT/DS362/R (26 January 2009). EC – Trademarks and Geographical Indications, WT/DS290/R (15 March 2005). US – Gasoline, WT/DS2/AB/R (29 April 1996). US – Section 301 Trade Act, WT/DS152/R (22 December 1999).

6

Trade and policy IP-competition dynamics in TRIPS’ FRAND enforcement1

Moving away from previous attentions to distortion of goods and private right IPRs in trade, this chapter critically examines government’s trade policy obligation as to anticompetitive practices in TRIPS. As an integral part of the WTO trading regime and in line with the international trend of antitrust control, TRIPS harmonized IP protection with competition in mind. However, diverse national FRAND enforcement practices that take either a contractual or antitrust approach challenge TRIPS integrity. While SEPs’ personal property recognition lends constitutional support to the contractual approach to FRAND enforcement, private property’s in-built limitation warrants a balance with antitrust approach for needs from others. A critical examination of TRIPS’ conclusion and the analytical structure of TRIPS provisions reveals that TRIPS obligation against anticompetitive practices is imperative. The imbalance of harmonized TRIPS with unharmonized FRAND practices reflects TRIPS’ birth defect and challenges TRIPS integrity. To improve international trade’s balance of rights and obligations and to ensure the innovation and technology dissemination that is conducive to social and economic welfare, the chapter calls for a contract-antitrust balanced approach to FRAND enforcement and the resumption of WTO’s competition negotiation.

6.1 Introduction Standards, as both the driver and outcome of rapid technology development in the marketplace, are powerful market tools that facilitate product efficiency and consumer welfare. On the one hand, interoperability among products gained from standardization “is critical to developing and introducing innovative products that satisfy a range of consumer needs.”2 Moreover, standards “provide many benefits

1 An earlier version of this chapter has been published. Wenwei Guan, “Diversified FRAND Enforcement and TRIPS Integrity,” 17.1 World Trade Review (2018), 91–120. Revision of the article included in this book with permission from the publisher, Cambridge University Press, ©2018. 2 The US Federal Trade Commission (FTC), “The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition” (March 2011), 191. Available at: www.ftc.gov/ reports/evolving-ip-marketplace-aligning-patent-notice-remedies-competition (accessed 26 November 2019).

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for technology consumers, including not just interoperability but also lower product costs and increased price competition.”3 As the US DOJ and USPTO pointed out, “[v]oluntary consensus standards-setting activities benefit consumers and are in the public interest.”4 On the other hand, however, standards can also be misused, such as when holders of standard-essential patents (SEPs) “sought to ban competitions’ products from the market on the basis of their SEPs.”5 Therefore, SEPs holders are required by standards setting organizations (SSOs) to commit to licensing their SEPs on Fair, Reasonable, and Non-discriminatory (FRAND) terms.6 The operation of FRAND terms alleviates potential anticompetitive concerns and ensures that “the technology incorporated in a standard is accessible to the manufacturers of standard-compliant products” and that SEPs holders are financially rewarded.7 Due to SEPs’ essentiality to a standard and importance for industries, the frequency of patent disputes, in particular those related to SEPs, has increased considerably over the last three decades.8 The “Smartphone Wars” outbreak in the FRAND context in 2010 has now drawn in almost every phone manufacturer worldwide.9 Due to the significance of IPRs in regional and international trading frameworks,10 FRAND wars certainly have significant implications for market operation, technology development, and international trade. The interpretation of FRAND terms has both theoretical significance and international implications. Firstly, the diverse FRAND terms interpretation and controversies have attracted much academic discussion,11 and the theoretical

3 Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 876 (Ninth Circuit, 2012); Apple, Inc. v. Motorola Mobility, Inc., No. 11-cv- 178-bbc, 2011 WL 7,324,582, at *1 (W.D.Wis. 2011). 4 US Department of Justice (DOJ) and US Patent & Trademark Office (USPTO), “Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments,” 8 January 2013 (thereafter, Policy Statement). Available online at: www.justice. gov/atr/page/file/1118381/download (accessed 26 November 2019). 5 European Commission, “Competition Policy Brief” (2014), 1. The Brief is available at European Commission’s site at: http://ec.europa.eu/competition/publications/cpb/2014/ 008_en.pdf (accessed 26 November 2019). 6 For a general historical account of the development of FRAND following the vanishing patent pools as approaches dealing with patent thickets, see Daniel S. Sternberg, “A Brief History of RAND,” 20.2 Boston University Journal of Science & Technology Law (2014), 215–225. 7 European Commission, “Competition Policy Brief,” 3. 8 Ibid., 2. 9 Sternberg, “A Brief History of RAND,” 234. 10 Peter Drahos, “China, the TPP and Intellectual Property,” 47.1 International Review of Intellectual Property and Competition Law (2016), 1–4. 11 See, e.g. Jorge L. Contreras, “Fixing FRAND: A Pseudo-Pool Approach to Standards-Based Patent Licensing,” 79.1 Antitrust Law Journal (2013); Jorge L. Contreras, “A Market Reliancd Theory for FRAND Commitments and Other Patent Pledges,” Utah Law Review (issue 2, 2015); Jay P. Kesan and Carol M. Hayes, “FRAND’s Forever: Standards, Patent Transfers, and Licensing Commitments,” 89 Indiana Law Journal (2014); Douglas H. Ginsburg, Koren W. Wong-Ervin, and Joshua D. Wright, “The Troubling Use of Antitrust to Regulate FRAND Licensing,” 10.1 CPI Antitrust Chronicle (2015).

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justifications vary, ranging from patent law to antitrust, contract, and property law.12 While some suggested a contract-based theory offers a better approach in many situations than that of patent and antitrust approaches due to the effective support of the property based approach,13 others argued a novel “market reliance” theory creates “a stronger and more defensible foundation” for FRAND enforcement than that of the “inaccurate and incomplete” contractual understanding14. At the international level, China has been mainly concerned with the “negative impacts” of the combination of IPRs and standards on international trade,15 their hindrance of the application and dissemination of new technologies, and their injury to economic development, in particular for developing countries.16 The European Community, however, suggested that “due regard for IPR” is essential for encouraging the “incentive to develop new products and processes on which to base future standardization,” and standards that contain any IPR “can be used by market operators” on FRAND conditions.17 The academic confusion as to the theoretical foundations of FRAND terms enforcement and the issue’s international implication warrant an in-depth theoretical analysis of the FRAND justification to be based not only on domestic frameworks but also against the background of the international trading regime. This chapter offers a critical analysis of the nature of the FRAND commitments and their critical implications for the international trading framework. While, as an integral part of the international trading regime, the WTO’s TRIPS Agreement harmonized intellectual property protection practices while keeping competition consideration in mind, section two reveals that members’ approaches to FRAND terms enforcement vary between contractual and antitrust approaches. The chapter’s critical analysis in section three reveals that this is problematic, as there is little room in the harmonized TRIPS to accommodate the diversity of FRAND terms enforcement. Both the US’s contractual approach and the increasingly used antitrust approach in Europe and elsewhere certainly have their own theoretical foundations. While recognizing SEPs as personal property lends constitutional support to the contractual approach, property theory’s built-in limitation of private rights endorses a complementary IPcompetition dynamics expecting a balance of competition consideration with IPRs in TRIPS. A further critical analysis of the circumstances of TRIPS’ conclusion and an analytical examination of TRIPS’ antitrust obligations suggests

12 Kesan and Hayes, “FRAND’s Forever: Standards, Patent Transfers, and Licensing Commitments,” 262–285. 13 Ibid., 313. 14 Contreras, “A Market Reliancd Theory for FRAND Commitments and Other Patent Pledges,” 558. 15 PRC Communication to the WTO TBT Committee: Intellectual Property Right (IPR) Issues in Standardization, G/TBT/W/251 (25 May 2005). 16 WTO Trade Policy Review Body, “Trade Policy Review: China, Minutes of Meeting Addendum,” WT/TPR/M/199/Add.1 (28 August 2008), 192–193. 17 Ibid., 192.

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that TRIPS’ antitrust obligation, which mandates members to balance the contractual approach with an antitrust approach to FRAND enforcement, is indeed imperative. The chapter concludes in section four with a call for a contractantitrust balanced approach to FRAND enforcement to develop an IPRsfriendly and competition-minded free trade framework for the benefit of “the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare.”

6.2 Harmonized TRIPS v. diversified FRAND enforcement 6.2.1 TRIPS as a competition-minded regime Although intellectual property rights are generally territorial, TRIPS harmonizes the international protection of intellectual property under the WTO framework. As an integral part of the international trading framework, the TRIPS regime is inherently competition-friendly. Indeed, trade policy and competition policy “can be mutually reinforcing policy tools,” and “trade and competition policy objectives are complementary” to certain extent.18 The WTO framework of course is aware of the trade restraining effects of anticompetitive practices. Indeed, “core GATT provisions,” such as the basic nondiscrimination principles of national treatment, most-favored-nation treatment and transparency, “are supportive of an effective competition policy regime.”19 For example, dumping and subsidization are both similarly regulated under the GATT regime and both considered as practices being “unfair to domestic competitors” that undermine international free trade.20 While the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) can be viewed as the trading framework’s effort regulating governments’ unfair practices,21 the WTO Antidumping Agreement (ADA) can certainly be seen as the trading framework’s antitrust control of company’s unfair practice.22 Under the SCM Agreement, members are prohibited from using any subsidy that causes “serious prejudice to the interests of another Member,” such as displacing or impeding “the imports of a like product of another Member into the market of the subsidizing Member,” or “the exports of a like product of another Member from a third country market.”23

18 Merit E. Janow, “Trade and Competition Policy,” in Patrick F.J. Macrory, Arthur E. Appleton, and Michael G. Plummer (eds.), The World Trade Organization: Legal, Economic and Political Analysis (New York: Springer, 2005), 488. 19 Ibid., 499–500. For more on the WTO as a nondiscriminatary fair trade regime, see discussion supra 1.1. 20 P. J. Lloyd, “Anti-Dumping and Competition Law,” in Patrick F.J. Macrory, Arthur E. Appleton, and Michael G. Plummer (eds.), The World Trade Organization: Legal, Economic and Political Analysis (New York: Springer, 2005), 69–70. 21 Arts. 15.3 and 15.5 of the SCM Agreement. 22 Arts. 3.3 and 3.5, Anti-Dumping Agreement. 23 Arts. 5(c), 6.3(a) & 6.3(b), Anti-Dumping Agreement.

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As to the international antidumping regime, its development from domestic antitrust experiences can be traced back to the pre-GATT era.24 In contrast to the Canadian antidumping approach’s “defusing protectionist pressure,” the American antitrust approach to antidumping as started from the US Antidumping Act of 1916 was to deal with predatory pricing in international trade.25 This US characteristic further defines the antitrust nature of WTO’s antidumping regime, as the US Antidumping Act of 1921 set out the basis of the antidumping regime of the GATT 1947.26 The WTO antidumping regime’s origin from the US domestic antitrust regime explains the nature of antitrust control in the WTO framework. Other WTO agreements too, provide mechanisms addressing anticompetitive practices. As to Monopolies and exclusive services suppliers in the context of trade in services, GATS recognizes that certain business practices of service suppliers “may restrain competition and thereby restrict trade in services,” and members concerned shall accord “full and sympathetic consideration” to other relevant members’ consultation requests.27 When it comes to the dynamics between intellectual property and competition policy, the legitimate monopoly interests of intellectual property to some extent naturally make intellectual property something of an anti-competition concern.28 The international framework’s concerns regarding the IPcompetition tension were developed long before the TRIPS era. Indeed, the first international instrument that recognized the tension between IP and

24 Aradhna Aggarwal, The Anti-Dumping Agreement and Developing Countries: An Introduction (New Delhi: Oxford University Press, 2007), 49–65. From a historical point of view, there are two different origins of the early development of domestic antidumping laws: “a heritage from competition law” in the US and “defusing protectionist pressure” in Canada. See Brian Hindley and Patrick A. Messerlin, Antidumping Industrial Policy: Legalized Protectionism in the WTO and What to Do About It (Washington: AEI Press, 1996), 23–24; J. Michael Finger, Antidumping: How It Works and Who Gets Hurt (Ann Arbor: The University of Michigan Press, 1993), 14–17. 25 The Antidumping Act of 1916 is the Title VIII (“Unfair Competition”) of the Act entitled “An Act to increase the revenue and for other purposes” approved 8 September 1916 (15 USC 72, 39 Stat. 756). The Act had heritage in competition law, mainly from the Sherman Antitrust Act of 1890 and the Wilson Tariff Act of 1894. It is repealed by Section 2006 to the Miscellaneous Trade and Technical Corrections Act of 2004 (H.R. 1047, P. L. 108–429) which was signed into law by President Bush on 3 December 2004. 26 During the negotiations to establish the International Trade Organization, the US proposed an antidumping draft based on its Antidumping Act of 1921, which set out the basis for Article VI of the GATT 1947. See US House of Representatives Committee on Ways and Means, Overview and Compilation of US Trade Statues 2013 (Jan. 2013), at 101. See also Aggarwal, The Anti-Dumping Agreement and Developing Countries: An Introduction, 52–54. 27 Arts. IX(1) and (2), the General Agreement on Trade in Services (GATS). Of course, this concerns only service-related anticompetitive practices. 28 Some economists see competition policy as a necessary limit to IPRs’ monopoly power, as “[m]arket economies only lead to efficient outcomes when there is competition, and intellectual property rights undermine the very basis of competition.” See Joseph E. Stiglitz, The Roaring Nineties: A New History of the World’s Most Prosperous Decade (New York: W. W. Norton & Company, 2003), 208.

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competition was the Paris Convention 1967 which allows compulsory licensing to perform a checking role against the abuse of patent’s exclusive rights.29 The Paris Convention recognizes members’ right “to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.”30 Also, under the Paris Convention, members are obliged to guarantee “effective protection against unfair competition.”31 The Paris Convention defines “unfair competition” as “any act of competition contrary to honest practices in industrial or commercial matters,” and prohibits dishonest practices in business, such as acts creating confusion, false allegations and misleading the public.32 In the context of the growing global concerns as to barriers from IPRs against technology transfer to developing countries, the International Code of Conduct on the Transfer of Technology was negotiated under the auspices of the UN. Although it was suspended in 1985, the transferoriented instead of competition-oriented Draft Code covers both contract law and competition law aspects of technology transfer agreements. According to the Draft Code, restrictive business practices include grantback provisions, challenges to validity, exclusive dealing, various undue restrictions, price fixing, tying arrangements, patent pool or cross-licensing agreement and other arrangements, etc.33 The TRIPS negotiation superseded the UN forum and the resulting TRIPS Agreement incorporated the Paris Convention 1967.34 In general, the WTO provides no mechanism to balance IP protection with competition in the TRIPS Agreement. However, the TRIPS Agreement makes the objective of the regime clear in that intellectual property protection and enforcement “should contribute to … the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare.”35 Under this objective, the TRIPS Agreement clearly sets the promotion of public interest “in sectors of vital importance to their socio-economic and technological development” as one of the fundamental principles of the regime that is as important as, though might not more important than, public health and nutrition protection.36 If the exercise and licensing of SEPs is in an industry that falls within one of the “sectors of vital importance to socio-economic and technological development,” which should mostly be the case, interpretation of the

29 The Paris Convention for the Protection of Industrial Property (concluded in 1883, as amended in 1967, the Paris Convention). The Articles 1 through 12, and Article 19 of the Paris Convention 1967 are incorporated into the TRIPS Agreement by Art. 2(1). 30 Art. 5.A(2), the Paris Convention. 31 Art. 10bis(1), the Paris Convention. 32 Arts. 10bis(2) &(3), the Paris Convention. 33 Chapter 4, Draft International Code of Conduct on the Transfer of Technology (1985). 34 Art. 2.1, the TRIPS Agreement. 35 Art. 7, the TRIPS Agreement. 36 Art. 8.1, the TRIPS Agreement.

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FRAND terms for purpose of public interest promotion – such as the antitrust interpretation approach indicates – should then be WTO encouraged. Moreover, the principles expressed in Article 8.1 above serve the “general exceptions” function in the TRIPS Agreement which enables Members policy flexibility in managing intellectual property rights for public interest promotion.37 Accordingly, to “promote public interest” in vital sectors would be one of the justifications qualifying intellectual property rights as long as it were in a manner consistent with the TRIPS Agreement. For the issue of patentable subject matter for example, the TRIPS Agreement thus allows Members to exclude certain inventions from patentability for the purpose of offering protection to “human, animal or plant life or health.”38 Therefore, the objectives and principles as expressed in Articles 7 and 8.1 of the TRIPS Agreement clearly accommodate the interests of public concern and should not be interpreted lightly.39 In fact, it has also been similarly reiterated in the Doha Declaration, that “each provision of the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles.”40 The WTO panel’s practice, too, confirmed this. In its discussion of the limiting conditions of adopting the patent right exceptions prescribed in Article 30 of the TRIPS Agreement, the Panel in Canada – Pharmaceutical Patents stated that, when examining the limiting conditions, “[b]oth the goals and the limitations stated in Articles 7 and 8.1 must obviously be borne in mind.”41 Following this reasoning, the TRIPS Agreement recognizes that IPRs can be abused and potentially harm competition policy and other considerations of public good. Under the TRIPS Agreement, appropriate measures “may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology” providing that they are also TRIPSconsistent.42 Under the TRIPS framework, therefore, it is clearly envisaged that public health, development needs, or competition policy considerations

37 EC – Trademarks and Geographical Indications, WTO Panel Report, WT/DS290/R (15 March 2005), para. 7.210. 38 Art. 27.2, the TRIPS Agreement. 39 The WTO Ministerial Conference suggested that the TRIPS Council’s work “shall be guided by the objectives and principles set out in Articles 7 and 8 of the TRIPS Agreement and shall take fully into account the development dimension.” See para. 19, Ministerial Declaration, adopted at the Fourth Session of the Ministerial Conference at Doha on 14 November 2001, WT/MIN(01)/DEC/1. 40 Paragraph 5(a), the Doha Declaration on the TRIPS Agreement and Public Health, WT/ MIN(01)/DEC/2, adopted at the Fourth WTO Ministerial Conference in Doha, Qatar on 14 November 2001 (the 2001 Doha Declaration). 41 Canada – Pharmaceutical Patents, WTO Panel Report, WT/DS114/R (17 March 2000), para. 7.26. 42 Art. 8.2, the TRIPS Agreement.

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are legitimate factors to balance or control IPRs abuses. The TRIPS Agreement, therefore, goes beyond symbolic intellectual property philosophy statements, and also establishes members’ obligations to act against anticompetitive contractual licensing practices. The TRIPS Agreement recognizes that “some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology.”43 The TRIPS further lists examples of anticompetitive practices – including exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing – and vests the authority of determining whether a certain practice is anticompetitive or not to a given member’s laws and regulations.44 In addition to the general anti-competition control on contractual licensing practices, the TRIPS Agreement also touches the IP-competition dynamics in the context of a compulsory licensing exception to patent rights. According to TRIPS, on the condition of “do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties,” members may provide limited exceptions to a patent’s exclusive rights.45 Also, if some procedural limitations as to prior attempt of license negotiation, limitation on domestic market supplies, and adequate remuneration are satisfied, members may also take compulsory licensing measures to serve as the exception to patent rights.46 Where there is a need “to remedy a practice determined after judicial or administrative process to be anti-competitive,” members are not obliged to follow compulsory licensing’s conditions of prior negotiation and application limited to domestic market supplies, and may take “the need to correct anti-competitive practices” into account in determining the amount of remuneration of compulsory licensing.47 Most importantly, TRIPS’ allowing compulsory licensing for dependent patents confirms the availability of the anticompetitive relief when standards on interoperability require a new patent to use currently existing patents.48 When the exploitation of a new patent is impossible without infringing existing patent, members may authorize compulsory licensing if a new patent presents an important technical advance, the cross-license of the new patent is available to the owner of the existing patent, and the assignability of the existing patent is limited.49 The WTO as the world’s fair trade regime is inherently competition-friendly. As an integral part of the WTO trading framework and in consistent with the

43 44 45 46 47 48

Art. 40.1, the TRIPS Agreement. Art. 40.2, the TRIPS Agreement. Art. 30, the TRIPS Agreement. Art. 31, the TRIPS Agreement. Art. 31(k), the TRIPS Agreement. Art. 31(l), the TRIPS Agreement. See also, Section 24, German Patent Act (came into effect in 1998). 49 Art. 31(l), the TRIPS Agreement.

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global trend of anti-competition control – from the Paris Convention to UN Code of Conduct – the TRIPS Agreement is indeed a competition-minded framework. TRIPS is truly the first international treaty to generally recognize the need to regulate IPRs related anticompetitive practices, though it does not provide a detailed mechanism for management of IP-competition dynamics. As a harmonized intellectual property protection system yet without a detailed mechanism to manage IP-competition dynamics, members’ practices as to FRAND terms enforcement across different jurisdictions vary substantially, which potentially erodes TRIPS integrity. Before discussing the erosion of TRIPS integrity, the section next will reveal the diversified FRAND approaches among TRIPS Members.

6.2.2 International diversity in FRAND terms enforcement 6.2.2.1 US’s contractual approach to FRAND licensing Internationally, approaches to FRAND terms interpretation are quite diverse. Although there has been a growing trend of increasing use of antitrust sanctions on SEPs holders who rely on injunctive relief against alleged infringement and break their FRAND commitments in the EU, Korea, Canada and Japan,50 this is not the case in the US. No court in the US has ever held that “seeking injunctive relief on a FRAND-encumbered SEP violates the antitrust laws,” and US courts address the issue under contract law principles instead.51 In the US, a FRAND commitment has been treated as a contractual commitment by the courts,52 which reflects the rationale that contractual opportunism alone gives rise to no antitrust issue other than a contractual issue.53 According to the US District Court (W.D. Wisconsin) in Apple v. Motorola Mobility for example, the combination of the policies and bylaws of the SSOs – ETSI and IEEE in the case – and SEPs holder’s – Motorola’s in the case – membership in these SSOs and FRAND assurances “constitute contractual agreements.”54 This conclusion

50 Ginsburg, Wong-Ervin, and Wright, “The Troubling Use of Antitrust to Regulate FRAND Licensing,” 2. 51 Ibid., 6. 52 See, e.g. Research in Motion Ltd. v. Motorola, Inc., 644 F.Supp.2d 788, 797 (N.D. Tex. 2008); Innovatio IP Ventures, LLC Patent Litig., No. 11 C 9308, 2013 WL 5,593,609, at *4 (N.D. Ill. 3 October 2013); Microsoft Corp. v. Motorola, Inc., No. C10–1823JLR, 2013 WL 2,111,217, at *1 (W.D. Wash. 25 April 2013), aff’d 795 F.3d 1024 (9th Cir. 2015); Apple, Inc. v. Motorola Mobility, Inc., 886 F. Supp. 2d 1061, 1083–1084 (W.D. Wis. 2012); Microsoft Corp. v. Motorola, Inc., 854 F. Supp. 2d 993, 999–1001 (W.D. Wash. 2012), reaffirmed, 864 F. Supp. 2d 1023, 1030–1033 (W.D. Wash. 2012), aff’d in relevant part, 696 F.3d 872, 884 (9th Cir. 2012). 53 Ginsburg, Wong-Ervin, and Wright, “The Troubling Use of Antitrust to Regulate FRAND Licensing,” 6. 54 Apple, Inc. v. Motorola Mobility, Inc., 886 F. Supp. 2d 1061, 1083 (W.D. Wis. 2012).

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was reached through a detailed analysis of the offer, acceptance and consideration: The intellectual property rights policies of ETSI and IEEE constituted offers to Motorola for membership in the organization in exchange for Motorola’s ability to participate in developing technical standards. The “offers” set out the essential terms of the contract, namely, that members must abide by intellectual property rights policies. … Motorola accepted the offers and agreed to be bound by these policies when it joined ETSI and IEEE. … Both Motorola and the organizations benefited from this arrangement and thus, the element of consideration is satisfied.55 Moreover, FRAND commitments, as legally binding contracts, apply not only between the parties of these “contracts,” but also to willing “third-party beneficiaries.”56 The third-party beneficiary approach under contract law has been well recognized by US federal courts.57 The US Court of Appeals (Ninth Circuit), for example, stated in Microsoft v. Motorola that FRAND declarations create a contract enforceable by a third-party beneficiary, and the contract governs what actions an SEPs holder may take to enforce its SEPs.58 Of course, the overwhelming recognition of the contractual nature of FRAND commitments does not absolutely exclude an antitrust interpretation to FRAND terms in the US. In a relevant context, the US Supreme Court in eBay

55 Ibid., 1083–1084. 56 See Roger G. Brooks and Damien Geradin, “Interpreting and Enforcing the Voluntary FRAND Commitment,” 9.1 International Journal of IT Standards & Standardization Research (2011), 1–23; Damien Geradin, “The Meaning of ‘Fair and Reasonable’ in the Context of Third-Party Determination of FRAND Terms,” 21.4 Georgy Mason Law Review (2014), 921. 57 See, e.g. ESS Technology, Inc. v. PC–Tel., Inc., 1999 WL 33,520,483, *4 (N.D. Cal. 1999); Microsoft Corp. v. Motorola, Inc. 854 F.Supp.2d 993, 997 (W.D. Wash. 2012); Apple, Inc. v. Motorola Mobility, Inc., 886 F. Supp. 2d 1061, 1087 (W.D. Wis. 2012); Microsoft Corp. v. Motorola, Inc., 864 F.Supp.2d, 1023, 1030–1033 (W.D. Wash. 2012); Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 884 (Ninth Circuit, 2012). It should be noted that the “third party beneficiary” approach might not be recognized in other jurisdictions. In a FRAND case in Mannheim Regional Court, Germany between Motorola and Microsoft in 2012, the German Court rejected the interpretation that Motorola’s FRAND commitment created a contract enforceable by Microsoft, as third-party contractual rights are not recognized in German law. See Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 879 (Ninth Circuit, 2012). Similarly in a Seoul District Court case in South Korea where the SSO policy interpretation is subject to French law, the Court concluded that a FRAND commitment imposes only an obligation in good faith on SEPs holder rather than automatically grants any contractual rights on any third party, as there is no third-party beneficiary contract under French law. See Thomas F. Cotter, “Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties,” Texas Intellectul Property Law Journal 22.3 (2014), 319 (footnote 30). 58 Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 884 (Ninth Circuit, 2012).

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v. MercExchange established that, “traditional principles of equity” applies to the injunctive relief application “in patent disputes no less than in other cases governed by such standards.”59 According to the US FTC, the eBay standard of injunctive relief “allows courts to take these important competition and innovation policy issues into account.”60 Since the eBay case in the US, the percentage of prevailing patent owners that obtained permanent injunctions dropped from close to 100 percent of cases to about 75 percent of cases.61 According to the DOJ and USPTO, a FRAND-encumbered SEPs holder’s use of an injunction or exclusion orders “may harm competition and consumers” and “may be inconsistent with the public interest” in particular if it is based on a FRANDencumbered patent and appears to be inconsistent with the FRAND commitment.62 Nevertheless, an exclusion order may still be an appropriate remedy if the putative licensee acts outside of the FRAND commitment or “is not subject to the jurisdiction of a court that could award damages.”63 Therefore, the antitrust approach to FRAND terms interpretation is, of course, also available in the US.64 However, the eBay standard’s antitrust implications should not be overstated. Among the four eBay equitable factors of irreparable injury, remedy inadequacy, balance of hardships, and public interest, the “public interest” factor is admittedly the closest one that may be tethered to competition interest. The “public interest prong” has been interpreted by the courts in the majority of post-eBay cases as that the “public has an interest in maintaining a strong patent system. This interest is served by enforcing an adequate remedy for patent infringement.”65 Moreover, due to the difficulties of establishing Sherman Act violations and the fact that US law “generally doesn’t condemn excessive pricing in and of itself,” “the role of US antitrust law as a means for enforcing FRAND commitments seems quite limited,” and does not hold much promise.66 In a high-profile investigation by the US ITC, SEPs holder Samsung was entitled

59 eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 394 (2006). 60 Moreover, the FTC stated that “[p]atent hold-up risks harming competition, innovation, and consumers.” See the US FTC, “Interest of Amicus Curiae,” filed to US Court of Appeals for the Federal Circuit (Nos. 2012–1548, 2012–1549), 4 December 2012. Available at: www. ftc.gov/policy/advocacy/amicus-briefs/2012/12/apple-inc-and-next-software-inc-v-motor ola-inc-and-motorola (accessed 26 November 2019). 61 Cotter, “Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties,” 320. 62 US DOJ and USPTO, Policy Statement, 6. 63 Ibid., 7. 64 Cotter, “Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties,” 327–332. 65 TiVo v. Echostar Commc’ns Corp., 446 F. Supp. 2d 664, 670 (E.D. Tex. 2006). For references of 19 other post-eBay cases in the similar position, see FTC, The Evolving IP Marketplace, footnote 97, 270. 66 Cotter, “Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties,” 332.

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to an exclusion order prohibiting certain Apple products from entering into the US due to a SEPs violation.67 The ITC’s June 4 exclusion order, unfortunately, was disproved by the US Trade Representative shortly after due to concerns about patent holdup.68 Although the USTR’s disapproval’s impact remains uncertain in the long run, it certainly has an antitrust-approach-discouraging effect on FRAND terms interpretation in the US.

6.2.2.2 The spreading antitrust approach to FRAND enforcement Quite different from the US’s contractual approach, the European approach shows a clear antitrust perspective on FRAND disputes. According to the European Commission, FRAND commitments are designed to “prevent IPR holders from making the implementation of a standard difficult” by refusing to license, requesting excessive fees, or by charging discriminatory royalty fees.69 In its investigation against Samsung, the European Commission stated that IPRs “should not be misused when they are essential to implement industry standards”; and upon “a commitment to license the patents in return for fair remuneration,” SEPs holders’ “use of injunctions against willing licensees can be anti-competitive.”70 The ECJ too, in the case when standards on interoperability require the use of current basic technology, has confirmed that “the refusal by an undertaking in a dominant position to allow access to a product protected by an intellectual property right, where that product is indispensable for operating on a secondary market, may be regarded as abusive” if the undertaking requested produces new goods or services for consumers.71 Recently in Huawei v. ZTE, the ECJ emphasized that “the exercise of an exclusive right linked to an intellectual property right by the proprietor may, in exceptional circumstances, involve abusive conduct.”72 As FRAND undertaking “creates legitimate expectations on the part of third parties,” according to the ECJ, “the abusive nature

67 US ITC, Notice of Final Determination, In the Matter of Certain Electronic Devices, Inv. No. 337-TA-794 (4 June 2013). 68 See Letter from Michael B.G. Froman, Executive Office of the President of the US Trade Representative, to the Honorable Irving A. Williamson, Chairman, US International Trade Commission (3 August 2013). Available at: https://ustr.gov/sites/default/files/ 08032013%20Letter_1.PDF (accessed 26 November 2019). 69 European Commission, “Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreement” (OJ C 11/01, 14.1.2011), para. 287. 70 European Commission, “Antitrust: Commission sends Statement of Objections to Samsung on potential misuse of mobile phone standard-essential patents,” (Press Release, Brussels, 21 December 2012). Available online at: http://europa.eu/rapid/press-release_IP-121448_en.htm (accessed 26 November 2019). 71 See IMS Health GmbH & Co. v. Commc’n, para. 49, case C-418/01 (2004 E.C.R. I-5069.). See also Radio Telefis Eireann v. Commc’n, C-241/91 P and C-242/91 P (1995 E.C.R. I-808). 72 Huawei v. ZTE, case C-170/13 (16 July 2015), para. 47.

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of such a refusal may, in principle, be raised in defence to actions for a prohibitory injunction or for the recall of products.”73 Some European national courts in general have shown reluctance in granting injunctive relief in relation to FRAND-encumbered SEPs. The Higher Regional Court of Karlsruhe in Germany in a 2012 judgment, for example, overturned a lower court’s ruling granting an injunction for a SEP on the ground that “a request to restrict sales would infringe EU competition law.”74 The UK and the Netherlands also delivered similar rulings involving other firms.75 In fact, some EU member states provide the possibility of linking SEPs to the compulsory licensing mechanism under a patent regime. In Germany, for example, the Federal Court of Justice “has tethered standard-essential patents to the compulsory licensing provisions” of the German Patent Act.76 Under the German Patent Act, a party is entitled to plead to the Patent Court for a compulsory license provided certain conditions are met.77 Compulsory licensing is therefore a legal defense for SEPs users in patent infringement suits “to plead that antitrust regulations force the patentee to grant a compulsory license for the subject matter of the patent in dispute.”78 In the Netherlands, similarly, a patentee is free to enforce a FRAND-encumbered patent except when the compulsory licensing requirements under the Dutch Patent Act are met.79 It has therefore been submitted that it is a “emerging consensus” in the EU that “a [F]RAND obligation is closely tied to a jurisdiction’s compulsory licensing regime.”80

73 Ibid., paras. 53, 54. According to the ECJ, “the irrevocable undertaking” of FRAND “justif[ies] the imposition on that proprietor of an obligation to comply with specific requirements when bringing actions against alleged infringers for a prohibitory injunction or for the recall of products.” Accordingly, while the SEP holder is expected to alert and notify the alleged infringer of the infringement and offer a specific and written offer for a FRAND licence before seeking an injunctive relief, the alleged infringer must diligently respond with acceptance or counter-offer, and appropriate security if counter-offer rejected. Ibid., paras. 59–61, 63, and 65–67. 74 Motorola v. Apple, 2012, Higher Regional Court of Karlsruhe, Federal Republic of Germany, Case No. 6 U 136/11. See Keith Maskus and Stephen A. Merrill, eds., Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology (Washington, DC: The National Academies Press, 2013), 107. 75 IPCom v. Nokia and HTC [2012] EWCA Civ 567; Samsung v. Apple District Court of The Hague, 20 June 2012, case numbers/docket numbers 400,367/HA ZA 11–2212, 400,376/ HA ZA 11–2213 and 400,385/HA ZA 11–2215. 76 Sternberg, “A Brief History of RAND,” 238 (in-text note omitted). 77 Sections 24.1 and 85.1, German Patent Act. 78 Jochen Herr, “Patent Litigation and Industry Standards: The Compulsory License Defense,” 21.1 Intellectual Property & Technology Law Journal (2009), 11 (in-text notes omitted). 79 Sternberg, “A Brief History of RAND,” 238. 80 Ibid. In Australia, too, where the SEPs holder is in contravention of the Competition and Consumer Act, a license can be sought under the compulsory licensing provisions in Australian Patents Act. See Productivity Commission, Australia, “Compulsory Licensing of Patents,” (28 March 2013), 102–103. This is the final report of the Public Inquiry by Productivity Commission that was entrusted by the Australian Government. Available at: www.pc. gov.au/inquiries/completed/patents/report/patents.pdf (accessed 26 November 2019).

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FRAND enforcement has also become a topical issue in China in recent years,81 and both China’s court and enforcement agency show clear preference for an antitrust approach to FRAND disputes. Firstly, two recent Huawei v. IDC cases by the Guangdong High Court showed China court’s antitrust preference to FRAND enforcement.82 Indeed, as early as in 2008, China’s Supreme Court indicated that, if a patent holder has participated in the development of or consented to including its patents in a national, industrial, or local standard, the patent holder will be deemed to have consented to allow standard implementers to use the SEPs, and those uses constitute no patent infringement.83 As to a voluntary national, industrial, or local standard, the Supreme Court further clarified in 2016 that, while an implementer should not raise an infringement defense simply because of the SEPs’ inclusion into the standard, an SEPs holder should not be entitled to injunction relief if the holder willfully breaks FRAND commitments which leads to the failure of the licensing negotiation with the willing licensees.84 Secondly, China’s enforcement authority shows similar preference for an antitrust approach.85 For a patent to be

81 D. Daniel Sokol and Wentong Zheng, “FRAND in China,” 22 Texas Intellectual Property Law Journal (2013); Guangliang Zhang, “Enforcement of F/RAND and Antitrust Intervention: Discussion from the Huawei Decisions in China,” 2.3 China Legal Science (2014); Elizabeth X.R. Wang and Harry Foster, “An Economic Perspective of Standards and FRAND Enforcement in China,” 3.sppl1 Journal of Antitrust Enforcement (2015). 82 These are two related cases between Huawei and InterDigital Communication (IDC) in relation to SEPs royalty and abuse of market dominance both adjudicated by the High People’s Court of Guangdong Province in 2013 on appeals from trial court judgments of the Shenzhen Intermediate People’s Court: Huawei v. IDC in relation to SEPs Royalty Setting (3rd Civil Chamber, no. 2013–305), and Huawei v. IDC in relation to Abuse of Market Dominance (3rd Civil Chamber, no. 2013–306). In the first case, the High Court confirmed the German Mannheim Regional Court’s 2012 decision that FRAND commitments create neither contract nor unilateral offer, and ruled that FRAND terms impose on SEPs holders the obligation to license on a FRAND rate instead of the right to choose to license or not to willing licensees. In the second case, the Court confirmed the applicability of China’s AntiMonopoly Law to SEPs abuse and IDC was found to have abused its market dominance. For details, see Zhang, “Enforcement of F/RAND and Antitrust Intervention: Discussion from the Huawei Decisions in China,” 6–9. 83 PRC Supreme People’s Court, “Letter of Reply on Whether Chaoyang Xingnuo Co. Infringed on a SEP included in a Ministry of Construction Standard when it Implemented the Patent,” (8 July 2008). Of course, according to the Supreme Court (ibid.), the SEPs holder may ask users to pay a royalty fee, yet the amount of the royalty should be substantially lower than the normal amount. 84 PRC Supreme People’s Court, “Interpretations on Several Issues relating to Law Application in Adjudication of Patent Infringement Disputes II,” Arts. 24.1 and 24.2 (Fashi [2016]1, 25 January 2016, came into effect as of 1 April 2016). Moreover, the SEPs holder and implementers can negotiate license conditions, or apply for court’s determination on FRAND terms in the absence of an agreement. Ibid., Art. 24.3. 85 China’s National Development and Reform Commission (NDRC)’s investigation against InterDigital in June 2013 and Qualcomm in November 2013 shows a clear antitrust preference. NDRC dropped its investigation against InterDigital without a fine in May 2014 upon InterDigital’s commitment to change its licensing practices to be FRAND consistent. See

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included in a national standard, the holder will have to agree to license to standard implementers on free or FRAND terms, or a compulsory national standard generally will not include patents.86 Any market dominant firm who, without legitimate reason, breaks FRAND commitments through license denial, tie selling, or imposing unreasonable conditions, will be considered to be anticompetitive and reined in by Anti-Monopoly Law.87 Moreover, as all IPRs antitrust decisions are entitled to remedies through administrative action to a relevant intellectual property court where the enforcement decision made,88 China’s judicial and administrative preferences towards an antitrust approach are synchronized. The contrasting contractual vs antitrust approach to FRAND enforcement among TRIPS members obviously reveals the diversity of national competition policies. As the UNCTAD pointed out, due to the diversity of domestic competition standards, “a global harmonization of the interface between competition policy and IPR seems unlikely in the near term.”89 As TRIPS harmonized international intellectual property protection while keeping competition in mind, how much will TRIPS accommodate members’ diversified FRAND approaches and what are the implications for the international trading regime? These

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Globe Newswire (Source: InterDigital, Inc.), “China’s NDRC Accepts InterDigital’s Commitments and Suspends Its Investigation” (22 May 2014), available at: www.globenewswire. com/news-release/2014/05/22/638493/10082874/en/China-s-NDRC-Accepts-Inter Digital-s-Commitments-and-Suspends-Its-Investigation.html (accessed 26 November 2019). Earlier in 2015, NDRC closed the year-long antitrust investigation into Qualcomm’s alleged anticompetitive conduct. Qualcomm was found to have engaged in anticompetitive conduct in SEPs licensing, and ordered to pay a fine of RMB 6.088 billion. See NDRC, Administrative Sanction Decision [2015]1 (2 March 2015), available at: www.sdpc.gov.cn/zwfwzx/xzcf/ 201503/t20150302_754177.html (accessed 26 November 2019). Standardization Administration of China and the State Intellectual Property Office, “Interim Provisions on the Administration of National Standards involving Patents,” Arts. 9 & 10 (issued on 19 December 2013, came into effect on 1 January 2014). Where a patent is necessary in a compulsory national standard yet the holder refuses to commit on free or FRAND licensing, State’s administrative intervention into SEPs holder and implementer’s negotiation will be warranted. The result of the administrative intervention, though not specified, will probably be yet not limited to, a compulsory licensing order in the absence of any agreement under Arts. 48.2 or 49 of PRC Patent Law. Ibid., Art. 15. PRC State Administration of Industry and Commerce (SAIC), “Rules on Prohibiting Behaviors of Abuse of Intellectual Property Rights to Eliminate or Restrict Competition,” Art. 13 (7 April 2015, [2015]74). China committed during the 7th US-China Strategic and Economic Dialogue in 2015 that all IPRs related to antimonopoly enforcement decisions are entitled to seek administrative reconsideration or bring actions to Beijing, Shanghai or Guangzhou IP Court depending on the locality of the decision. See 2015 US-China Strategic and Economic Dialogue Joint USChina Fact Sheet (Economic Track). Available at: US Department of Treasury, www.treasury. gov/press-center/press-releases/Pages/jl0092.aspx (accessed 26 November 2019). UNCTAD, “Competition Policy and the Exercise of Intellectual Property” (TD/B/ COM.2/CLP/68, 15 May 2008), para. 8.

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questions warrant an in-depth critical examination on the nature of the FRAND commitments and TRIPS’ antitrust obligation.

6.3 SEPs, antitrust, and trade in WTO law 6.3.1 Diverse FRAND approaches and the IP-competition dynamics 6.3.1.1 SEPs as private rights and the contractual approach A better grasp of the FRAND commitments for going through the mist of the theoretical justification of FRAND enforcement warrants a close look at SEPs’ nature. Patents in general or SEPs in particular “have the attributes of personal property.”90 SEPs’ function and protection, therefore, should be similar to private property rights. Under the UK Patents Act, any patent is “personal property” and any patent and rights in or under it may be “transferred, created or granted” in accordance to the Patent Act.91 The TRIPS Agreement too states that WTO Members recognize that “intellectual property rights are private rights.”92 As a WTO Panel suggested, the “common feature” of the Sections in Part III of the TRIPS Agreement in resting the responsibility of initiating various protection procedures on private right holders, for example, well indicates “the nature of intellectual property rights as private rights.”93 Moreover, recognizing intellectual property rights as private rights not only shifts the responsibility of enforcement to private right holders from the governments, but also at the same time creates a barring effect against unwanted government actions. This is because the private right nature means that limits are set on third parties and public authorities, preventing them from engaging in illegitimate infringement, which also reveals the negative right nature of intellectual property rights. As a WTO Panel pointed out, the trademark right conferred under Article 16.1 is an exclusive right that belongs to the right owner “who may exercise it to prevent certain uses by ‘all third parties’ not having the owner’s consent,”94 and the TRIPS provision “only provides for a negative right to prevent all third parties from using signs in certain circumstances.”95 Accordingly, “the TRIPS Agreement does not generally provide for the grant of positive rights to exploit or use certain subject matter, but rather provides for the grant of negative rights to prevent certain acts.”96

90 91 92 93

35 U.S.C. § 261 (2006). UK Patents Act 1977, s. 30(1). Fourth Recital of the Preamble, the TRIPS Agreement. China – Intellectual Property Rights, WTO Panel Report, WT/DS362/R (26 January 2009), para. 7.247. 94 EC – Trademarks and Geographical Indications, WTO Panel Report, para. 7.602. 95 Ibid., footnote 558 to para. 7.611. Emphasis added. 96 Ibid., para. 7.210. Emphasis added.

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Recognizing the personal property attributes of SEPs in particular or patents in general has both practical and theoretical significance. Having “the attributes of personal property,” the US Supreme Court recognized, patents’ “statutory right to exclude alone justifies its general rule in favor of permanent injunctive relief.”97 Due to “the difficulty of protecting a right to exclude though monetary remedies,” it has been a “long tradition of equity practice” from at least the early 19th century, US courts “have granted injunctive relief upon a finding of infringement in the vast majority of patent cases.”98 Theoretically, moreover, this recognition gives SEPs constitutional significance, as private property bears fundamental significance to our social progress.99 The right to private property is indeed the foundation of individual freedoms as “freedom of individual decision is made possible by delimiting distinct individual rights.”100 Private property is thus argued to be the precondition of the development of liberal, democratic social political institutions.101 Moreover, it is the free movement of private property through the system of contract that marks “the beginning of civilization,” as private property “is the heart of the morals of any advanced civilization,” and its prior development “is indispensable for the development of trading.”102 Therefore, the dynamics between property, freedom, and contract situate at the center of the contractual approach to FRAND Terms interpretation. The dynamics between private property, individual freedom and system of contract indicate that contract is indeed a great institution without which the evolution of human civilization is not even possible. First of all, under classic property theories, individual freedom depends on and manifests itself through private property ownership, as Hegel argued, the wholly abstract and undetermined “will” as the “basis of right” needs to be expressed through property as “the first embodiment of freedom.”103 The same holds true to the other classic property theorist Locke who suggested that it is private property ownership that separates individuals from the common which gives birth to the autonomous self.104 Secondly, individual freedom gains momentum in private property only when property comes alive through alienation by contract. When private

97 eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 392 (2006). 98 Ibid., 395. Emphasis original. 99 Bentham, for example, argued that “[p]roperty and law are born together, and die together.” See J. Bentham, Theory of Legislation (London: TrüBner & Co., 1871), 113. 100 F. A. Hayek, The Fatal Conceit: The Errors of Socialism (London: Routledge, 1988), 63. 101 R. Pipes, Property and Freedom (London: Alfred A. Knopf. 1999). 102 Hayek, The Fatal Conceit: The Errors of Socialism, 30–31. According to Hayek (ibid., 34), the adoption of private property “marks the beginning of civilization.” 103 G. W. G. Hegel, The Philosophy of Right, trans. T. M. Knox (Oxford: Oxford University Press, 1967), §§ 4 & 51. The references are to the numbered paragraphs of Hegel’s text. According to Hegel (§41), “[a] person must translate his freedom into an external sphere in order to exist as Idea.” 104 John Locke, The Second Treatise of Government (New Jersey: Prentice-Hall, 1997), §§ 25, 27. The references are to the numbered paragraphs of Locke’s text.

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property ownership separates the self from others and the public through which the individual gains independence and autonomy, the self becomes self-sufficient and alienated from others and the public.105 The modifications of property, therefore, are determined in the course of the free will’s relation to the thing from taking possession, to use, then to alienation, upon which the free will that was put into the external thing is “back from the thing into itself.”106 While taking possession separates property from others, alienation – through either will between generations or contract within a given generation – returns property to others, the public.107 Therefore, as Hegel indicated, private property also has “a bearing on the anticipated relation to others.”108 As the fundamental mechanism of property alienation, contract connects individuals with private property and constructs modern society through the market mechanism, thus bearing fundamental significance for individual freedom.109 Finally and most importantly, as property comes alive only in contract, contract, in particular freedom of contract, is indeed not only necessary, but also imperative for promoting individual freedom. According to Hegel, contract brings the existence of property beyond “mere things” to something external that “contains the moment of a will” to two free individuals who for the very first time both become true owners by alienating their property through contract.110 The establishment of this contractual relationship has fundamental importance to individual freedom, as it not only brings the property of the given individual to life, but also puts an end to the self-alienation of the self by linking him/her back to a social relationship.111 Therefore, freedom of contract goes beyond civil law to be rec-

105 From legal right’s autonomy, to self-sufficiency, to self-alienation, see Anthony Carty, “From the Right to Economic Self-Determination to the Right to Development: A Crisis in Legal Theory,” Third World Legal Studies (1984), 76. 106 Hegel, The Philosophy of Right, § 53. 107 Hegel insisted (ibid., Addition to §59), it is the “prerogative and the principle of the organic” that the property we take possession of must be destroyed or alienated in order to preserve the self. 108 Ibid., §51. 109 While will defines properties alienation across generations, contract in general regulates property alienation within a specific generation. Together with the will, contract was regarded by Maine as one of “the two great institutions without which modern society can scarcely be supposed capable of holding together,” which together have “exercised the greatest influence in transforming human society.” Henry S. Maine, Ancient Law: Its Connection with the Early History of Society and Its Relation to Modern Ideas (New York: Henry Holt and Company, 1906), 188, 97. 110 Hegel, The Philosophy of Right, §§ 72, 73. 111 According to Hegel (ibid., §74), a contractual relationship “implies that each [independent property owner], in accordance with the common will of both, ceases to be an owner and yet is and remains one.” In a contract, the mediation between the will to give up a property of his own and the will to take up another property of someone else “takes place when the two wills are associated in an identity in the sense that one of them comes to its decision only in the presence of the other.”

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ognized as a basic constitutional right.112 Indeed, the early years of legal history has been a process of movement “from Status to Contract.”113 The process of the development of freedom of contract has been the result of efforts minimizing the functions of the state in favor of individuals’ freedom.114 Thus, “[a] greements lawfully entered into take the place of the law for those who have made them.”115 Freedom of contract, therefore, is both the means and the ends to individual freedom.116 The recognition of the personal property attributes and the nature of negative rights provides a solid constitutional endorsement of the SEPs enforcement. Any refusal of SEPs holder’s injunctive relief constitutes a prima facie violation of individuals’ contract freedom and goes against the sanctity of private property, which might potentially undermine the constitutional foundation of modern society. This intimacy between property and contract and its significance to individual freedom provides solid constitutional support to the contractual approach to FRAND terms interpretation. Moreover, the negative right nature of IPRs certainly lends solid jurisprudential support to SEPs holders in preventing other external interferences – including of course antitrust application – in addition to contractual applications of SEPs’ FRAND commitments.

6.3.1.2 IP-competition dynamics and the antitrust approach Although recognizing IPRs as private rights lends solid support to the constitutional significance of IPRs in general or patents/SEPs in particular, it does not mean IPRs are unlimited, but rather that they are subject to checks and balances from public interests and needs from others. As SEPs have “the attributes of personal property,” the SEPs holder is entitled a “statutory right to exclude” that “justifies its general rule in favor of permanent injunctive relief.”117 However, “the Patent Act itself indicates that patents shall have the attributes of personal property ‘[s]ubject to the provisions of this title,’ including, presumably,

112 See, e.g. Art. 2.1, German Basic Law; Art. 5.1, Greek Constitution. 113 Maine, Ancient Law: Its Connection with the Early History of Society and Its Relation to Modern Ideas, 163, 65. According to Maine, during the early years of legal history, social development was a process from “a condition of society in which all the relations of Persons are summed up in the relations of Family … towards … a phase of social order in which all these relations arise from the free agreement of Individuals,” “a movement from Status to Contract.” 114 Roscoe Pound, “Liberty of Contract,” 18.7 Yale Law Journal (1909), 456–457. 115 Art. 1134(1), French Civil Code. 116 According to Mayer, freedom of contract has roots in two lines of precedents in early American constitutional law, i.e. the due process protection of economic liberty and property rights on the one hand and the limitation of state police powers on the other, as the right of liberty of contract to be protected through the Fourteenth Amendment of the US Constitution. See David N. Mayer, “Substantive Due Process Rediscovered: The Rise and Fall of Liberty of Contract,” 60 Mercer Law Review (2009), 572. 117 eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 392 (2006).

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the provision that injunctive relief ‘may’ issue only ‘in accordance with the principles of equity’.”118 The US Supreme Court further emphasized that the approach of equity’s qualification of patents’ exclusive rights “is consistent with … [the US Supreme Court’s] treatment of injunctions under the Copyright Act.”119 Indeed, traditional property theory has an in-built limitation on the sanctity of private property. To recognize IPRs as personal property rights, one thing that should not have been forgotten is that both Lockean and Hegelian property theories implicitly or explicitly imply limitations on private property rights. The Lockean “common law of nature,” for example, indicates a clear limit on property rights and sets the measure of property nature by the extent of people’s labor and the convenience of their life.120 As whatever is beyond the limit set by the “common law of nature” is more than the owner’s share and “belongs to others,”121 the limit of private property rights therefore comes from the needs of others. For Hegel, the modifications of property are determined in the course of the free will’s relation to the thing from “taking possession,” to “use,” then to “alienation,” upon which the free will that was put into external thing is “back from the thing into itself.”122 Upon property alienation, the previous owner gains true freedom as the self does not depend on the property anymore; and the new owner attains self-realization through new ownership. Therefore, private property’s “bearing on the anticipated relation to others”123 sets a limit, though in a different sense, on private property rights. This Hegelian modification of property in relation to others to some extent endorses the Lockean implicit limitation of private property rights from the needs of others. Neither is the freedom of contract, though imperative to private property rights, absolute and unlimited. Freedom of contract, as the manifestation of individual freedom through property ownership, has its own path of historical development, and its development and the movement “from status to contract” might not always be linear and straightforward. According to Pond, “[t]he first extended discussion of the right of free contract as a fundamental natural right is in Spencer’s Justice, written in 1886.”124 As Pond pointed out, the pursuit of freedom of contract was born together with the establishment of the laissezfaire, at the age of industrial revolution when the rise of the capitalism was intertwined with the flourishing of freedom of contract.125 Around the turn of the 20th century, we saw the development of large scale enterprise and the predominant use of standardized contracts in business. With the “decline of the

118 119 120 121 122 123 124 125

Ibid. Internal footnotes omitted. Ibid. Locke, The Second Treatise of Government, § 37. Ibid., § 31. Hegel, The Philosophy of Right, § 53. Ibid., § 51. Pound, “Liberty of Contract,” 455. Ibid., 457.

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free enterprise system” upon the shift from “competitive capitalism towards monopoly,” freedom of contract became “a one-sided privilege” as law protected the unequal distribution of property.126 Therefore, “the fact that the belief in freedom of contract has remained one of the firmest axioms in the whole fabric of the social philosophy of our culture” has greatly facilitated the reverse of the historical evolution of the law “from status to contract.”127 Common Law’s advent of the anticipatory breach doctrine in the 19th century, according to Corbin, which transcended traditional theory that a person could only be bound by his own consensual promise, is a good example.128 As social value changes following the change of social conditions, according to Corbin, contract rights and duties are determined more and more by “the needs of the all” instead of the contractors only, and “the line where personal privilege ceases and legal duty begins is now more greatly determined not by the will of the individual for himself, but by the desires and wills of the many.”129 Therefore, the freedom of contract that underpins the contractual approach to FRAND terms enforcement will be under the pressure of change in recognition of “the needs of the all.” Therefore, although SEPs’ personal property nature and the institutional significance of contract freedom lend solid support to the contractual approach to FRAND terms interpretation, neither is personal property absolute nor is contract freedom unlimited. The sanctity of personal property is qualified by Lockean “common law of nature” in consideration of the needs of others, or limited by “a bearing on the anticipated relation to others” in a Hegelian term. Freedom of contract that underpins the binding force of individual consensual promise has also been qualified and gradually determined more and more by “the needs of the all” other than contracting parties only. Indeed, in addition to its recognition of intellectual property rights at private and negative rights, the TRIPS Agreement also emphasizes IPRs’ public implications. TRIPS’ philosophy is to achieve a balance between rights and obligations in intellectual property rights protection.130 For this purpose of balancing rights and obligations, the TRIPS Agreement allows members to adopt measures “necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development,” and measures to prevent right holders’ IPRs abuse or anti-competition practices, as long as these measures are TRIPS-consistent.131 Also for this purpose of balancing rights with obligations, the TRIPS Agreement provides various exceptions and

126 Friedrich Kessler, “Contracts of Adhesion – Some Thoughts About Freedom of Contract,” 43 Columbia Law Review (1943), 640. 127 Ibid., 641. 128 Arthur L. Corbin, Corbin on Contracts: A Comprehensive Treatise on the Working Rules of Contract Law, vol. IV (St. Paul, MN: West Publishing Co., 1951), § 959, footnote 1. 129 Ibid. 130 Art. 7, TRIPS Agreement. 131 Arts. 8(1) and 8(2), TRIPS Agreement.

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limitations to the exclusive rights conferred by a copyright, trademark, industrial design, or patent respectively.132 Accordingly, IPRs are not unlimited in TRIPS and public interests and social concerns can provide legitimate limitations on the exploitation of IPRs.133 TRIPS philosophy of the balance of rights and obligations certainly justifies the possible limitation on SEPs in the technology users’ interest of social and economic welfare facilitation which arguably might include antitrust consideration for public good. As its common usage, the word “balance” as a noun means “a situation in which different elements are equal or in the correct proportions.”134 Therefore, neither should private IPRs override public interest or social economic welfare, nor should social and economic welfare considerations triumph private IPRs. Rather private IPRs and social and economic welfare should coexist and should even be mutually complementary with one another. Indeed, it is submitted that IPRs and competition policy are the twin engines of development and share goals of promoting innovation and enhancing consumer welfare.135 IP in fact is “inherently pro-competitive”, as it “ensures the protection of differentiated, intangible business assets” and “allows consumers to make choices between competing entrepreneurs.”136 Therefore, it has been well established that “[t]he intellectual property laws and the antitrust laws share the common purpose of promoting innovation and enhancing consumer welfare.”137 According to UNCTAD, the IP-competition dynamics “is crucial for the economic dynamics of developing as well as of industrialized countries seeking to promote innovation, technology transfer, a fair chance for competitive firms on the markets and affordable good quality products for consumers.”138 Under the philosophy of the balance of rights and obligations, how would TRIPS deal with FRAND terms interpretation and what are the implications?

132 Similar to exceptions to patent rights provided in Article 30 (see discussion supra in the main text associated with footnote 69 in section 6.3.1), the TRIPS regime also provides exceptions to copyrights in Article 13, exceptions to trademark rights in Article 17, and exceptions to industrial designs in Article 26(2) of the TRIPS Agreement. 133 China – Intellectual Property Rights, WTO Panel Report, paras. 7.131–132. Under the context of discussion of the tension between government’s sovereign exception and exercise of private IPRs, the Panel spelt out WTO’s conformity to WIPO’s interpretation of the sovereign exception that authors may exercise their copyrights “only if that exercise does not conflict with public order.” 134 Oxford English Dictionary, www.lexico.com/en/definition/balance (accessed 26 November 2019). 135 UNCTAD, “Competition Policy and the Exercise of Intellectual Property,” para. 6. 136 World Intellectual Property Organization (WIPO), “IP and Competition Policy.” Available at WIPO’s official site at: www.wipo.int/ip-competition/en/ (accessed 26 November 2019). 137 The US DOJ & FTC, “Antitrust Guidelines for the Licensing of Intellectual Property” (jointly issued on 6 April 1995), available at: www.justice.gov/sites/default/files/atr/ legacy/2006/04/27/0558.pdf (accessed 26 November 2019). 138 UNCTAD, “Competition Policy and the Exercise of Intellectual Property,” executive summary.

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6.3.2 TRIPS and the IP-competition dynamics in context While recognizing IPRs as private rights lends constitutional support to SEPs’ contractual approach to FRAND terms interpretation, TRIPS objectives and principles that mandate public interest consideration to balance IPRs abuse legitimize the antitrust approach to FRAND terms enforcement. Nevertheless, the goal of balancing rights and obligations might be difficult to achieve or even mission impossible, as WTO judgments have ruled the sovereign exception defense in rejecting copyright protection to unconstitutional publications139 or stockpiling patent provisions allowing consumers’ efficient access to low-cost generic drugs140 to be WTO inconsistent. These cases perfectly reflect the inherent tension between rights and obligations, a balance that should be, yet can hardly be, maintained; the TRIPS’ philosophy paradox. The root of TRIPS’ philosophy paradox and IP-competition complexity can in fact be traced back to the founding moment of the TRIPS regime. Before the introduction of intellectual property rights into the international trading framework through the TRIPS Agreement, intellectual property was still the domain of specialists and intellectual property right producers.141 TRIPS’ incorporation of intellectual property into the international trading framework “elicited great concern over its pervasive role in people’s lives and in society in general.”142 TRIPS negotiation started in September 1986, at a critical moment “when the negotiations between developed and less-developed countries over the revision of the Paris Convention were deadlocked at WIPO.”143 Before the Uruguay Round, in the 1970s in particular, developing countries focused very much on establishing new rules on a New International Economic Order (NIEO) that depended on greater access to technology protected by intellectual property rights in developed countries. Developed countries, however, have been very much concerned with the WIPO system’s failure to provide effective protections to the interests of their technology-based and expressive industries.144As one of the principle “new area” negotiations in the Uruguay

139 See China – Intellectual Property Rights, WTO Panel Report, paras. 7.135–140. 140 Canada – Pharmaceutical Patents, WTO Panel Report, para. 8.1. In this case, the stockpiling provision that permitted producers of generic drugs to make and start stockpiling the drugs six months prior to the expiration of the patent was found to be inconsistent with Canada’s obligations under TRIPS. The judgment was criticized to be indicating the Panel’s “myopic focus on the interests of the rights-holder” without regard to the policy goals or purpose of the patent reception. See M. J. Trebilcock and R. Howse, The Regulation of International Trade (London: Routledge, 2005), 418–421. 141 Rubens Ricupero and Ricardo Melendez Ortiz, “Preface,” in UNCTAD-ICTSD (eds.), Resource Book on TRIPS and Development (New York: Cambridge University Press, 2005), vii. 142 Ibid. 143 Peter K. Yu, “The Objectives and Principles of the TRIPS Agreement,” 46.4 Houston Law Review (2009), 982. 144 UNCTAD-ICTSD, Resource Book on TRIPS and Development (New York: Cambridge University Press, 2005), 3.

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Round, the incorporation of intellectual property rights into international trade was quite controversial and opinions were divided between developing and developed countries.145 The negotiation process of the TRIPS clearly indicates the contentions around intellectual property rights protection between the developed and developing countries. While the draft legal text from developed countries including the EC, the US, Japan, Switzerland, and Australia – the “A” text – emphasized the domestic enforcement and the applicability of GATT dispute settlement mechanism to TRIPS disputes, a dozen developing countries proposed another legal text – the “B” text – with a focus on maintaining flexibility to implement economic and social development objectives.146 At the very beginning of the negotiation, developed countries and a few developing countries were only expecting a Tokyo Round type “code” to be incorporated into the GATT framework. The US proposal submitted to the Group of Negotiation on Goods (GATT) in 1988 for example, suggested as one of the objectives to “[e]ncourage non-signatory governments to adopt and enforce the agreed standards for protection of intellectual property and join the [GATT] agreement.”147 In relation to revision and amendment of the GATT, the US proposed an open mechanism that is able to accommodate future consensus on improved protection for new forms of technology and creativity.148 India, however, submitted a detailed paper indicating a developing country perspective in sharp contrast with US proposal.149 India suggested that only the restrictive and anticompetitive practices of the intellectual property right owners “can be considered to be traderelated because they alone distort or impede international trade.”150 India therefore suggested that, according to the mandates from the Trade Negotiation Committee, the negotiation on trade-related aspects of intellectual property rights “should be governed by the concerns and public policy objectives underlying the national systems for the protection of intellectual property, including

145 Ibid., 3–4. The other “new area” negotiation in the Uruguay Round concerned trade in services which resulted in the General Agreement on Trade in Services (GATS). See also, Yu, “The Objectives and Principles of the TRIPS Agreement,” 983–984. 146 Daniel J. Gervais, “Intellectual Property, Trade and Development: The State of Play,” 74.2 Fordham Law Review (2005), 507–508. 147 Suggestion by the United States for Achieving the Negotiating Objective (Revision), United States Proposal for Negotiations on Trade-Related Aspects of Intellectual Property Rights, Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, including Trade in Counterfeit Goods, MTN.GNG/NG11/W/14/Rev.1 (17 October 1988), 3. 148 Ibid., 18. 149 Indian submission, “Standards and Principles concerning the Availability, Scope and Use of Trade-Related Intellectual Property Rights” (MTN.GNG/NG11/W/37, 10 July 1989), Communication from India to Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, including Trade in Counterfeit Goods. 150 Ibid., 2.

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developmental and technological objectives.”151 Therefore, India concluded that “[i]t would … not be appropriate to establish within the framework of the General Agreement on Tariffs and Trade any new rules and disciplines pertaining to standards and principles concerning the availability, scope and use of intellectual property rights.”152 When it became clear that the significance of TRIPS negotiations would certainly go beyond counterfeiting and piracy matters, the developing countries insisted on including the issue of anticompetitive practices into the TRIPS framework.153 For example, together with clear, objective, and detailed measures, Peru’s communication expressed the common concerns of developing countries and suggested that all countries should be able to adjust an IP protection system to facilitate national development and technology transfer.154 Developed countries with established rules for the control of IPRs related anticompetitive practices, however, had no interest in incorporating the competition framework in the TRIPS context. Eventually, due to the threats of sanctions and implicit dismantling of the GATT, as well as concessions offered by developed countries in other areas like agriculture and textiles, “the resistance of developing countries was overcome.”155 The final result of the Uruguay Round mirrored the “A” text and “embodied norms that had been accepted by industrialized countries,” and developing countries’ concerns “were reflected in large part in two provisions – Articles 7 and 8 [of the TRIPS Agreement].”156 Developing countries’ concerns about the control of IPRs’ abuses and the “pernicious effects” of some contractual practices – that were first reflected in the 1990 Anell Draft157 – eventually became Articles 8.2 and 40 of the TRIPS Agreement.158 The negotiating process of the compulsory licensing provision Article 31 in TRIPS perfectly reflects this dynamics. Prior to TRIPS, compulsory licensing was indeed a common practice internationally.159 The Paris Convention, for

151 Ibid. India argued (ibid.) that this is “particularly important for developing countries” as the IP system has “wide ranging implications for their economic and social development.” 152 Ibid., 19–20. 153 See Daniel Gervais, The TRIPS Agreement: Drafting History and Analysis (London: Sweet & Maxwell, 2003, 2nd ed.), 280; Pedro Roffe, “Control of Anti-Competitive Practices in Contractual Licences under the TRIPS Agreement,” in Carlos M. Correa and Abdulqawi A. (eds.), Yusuf Intellectual Property and International Trade: The TRIPS Agreement (London: Kluwer Law International, 1998), 279–280. 154 Communication from Peru, Guidelines for Negotiation that Strike a Balance between Intellectual Property Rights and Development Objectives, MTN.GNG/NG11/W/45 (27 October 1989). 155 UNCTAD-ICTSD, Resource Book on TRIPS and Development, 4. 156 Gervais, “Intellectual Property, Trade & Development: The State of Play,” 508. 157 Chairman’s report to the Group of Negotiation on Goods, MTN.GNG/NG11/W/76 (23 July 1990). 158 UNCTAD-ICTSD, Resource Book on TRIPS and Development, 543–546. 159 Ibid., 462.

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example, explicitly states that each country “shall have the right to take legislative measures providing for the grant of compulsory licenses.”160 The negotiation revising the Paris Convention broke down in 1982, “in significant part because of competing demands concerning compulsory licensing” between developing countries’ NIEO demands for technology sharing and developed countries’ demands for stronger protection of proprietary interests of patents.161 India’s submission in 1989, for example, proposed a compulsory licensing regime that covers licensing for non-working, and licenses of rights relating to food, medicine, and agricultural chemicals.162 It is worth mentioning that the Paris Convention expressly allows compulsory licensing of patents failed to work locally.163 Nevertheless, the final result of the compulsory licensing negotiation reflected developed countries’ interests and the compulsory licensing on grounds of non-working was taken out.164 The successful incorporation of intellectual property rights – as a regime of private rights without much attention to competition policy and public concerns – into the WTO through the conclusion of the TRIPS Agreement to some extent recognizes the power asymmetry and legalizes the fragmentation between the developed and developing countries. This unfortunate intellectual property rights divide between the North and the South in this regard is the birth defect of the TRIPS regime within the WTO framework.165 Competition as one of the “Singapore issues” was kicked off at the 1996 Singapore Ministerial Conference upon the establishment of the new working group on competition policy.166 The 2001 Doha Ministerial Declaration further recognizes “the case for a multilateral framework to enhance the contribution of competition policy to international trade and development.”167 The issue of the “interaction between trade and competition policy,” unfortunately, was dropped from Doha agenda in the 1 August 2004 decision due to no consensus. The negative implications of TRIPS’ birth defect, however, travel beyond the intellectual property

160 Art. 5.A(2), Paris Convention. 161 UNCTAD-ICTSD, Resource Book on TRIPS and Development, 463. 162 Indian submission, “Standards and Principles concerning the Availability, Scope and Use of Trade-Related Intellectual Property Rights”, MTN.GNG/NG11/W/37 (10 July 1989). 163 Arts. 5.A(2) and (4), the Paris Convention. 164 The issue of licensing on grounds of non-working was addressed indirectly by Arts. 27.1 and 70.6 of the Agreement. See UNCTAD-ICTSD, Resource Book on TRIPS and Development, 467. 165 For more discussion on TRIPS’ “birth defect,” see W. Guan, Intellectual Property Theory and Practice: A Critical Examination of China’s TRIPS Compliance and Beyond (Heidelberg: Springer, 2014), 5–7. 166 The rest of the four “Singapore issues” included the issue of trade and investment, the issue of transparency in government procurement, and the trade facilitation issue. WTO Secretariat, “Understanding the WTO: Cross-cutting and New Issues – Investment, competition, procurement, simpler procedures.” Available at WTO official site: www.wto.org/english/ thewto_e/whatis_e/tif_e/bey3_e.htm (accessed 26 November 2019). 167 Para. 23, Doha WTO Ministerial Declaration, WT/MIN(01)/DEC/1 (20 November 2001).

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rights framework and affect the entire WTO framework. Developing countries adopted new commitments regarding intellectual property rights protection in the Uruguay Round in the expectation of getting better market access in agriculture, textiles, and other sectors.168 When these benefits failed to materialize, developing countries’ dissatisfaction has become one of the key factors causing the deadlock of the Doha Round negotiation.169 The birth defect of the TRIPS and the deadlock of the Doha Round negotiation have indeed been key to the lost balance between rights and obligations and the complexity of the IPcompetition dynamics in the TRIPS. The lengthy discussion of the evolution of TRIPS’ birth defect carries significant weight in our analysis of the nature of members’ antitrust obligation under TRIPS, as the circumstances of the TRIPS conclusion provides an ideal “supplementary mean of interpretation” under 1969 VCLT.170 Firstly, the philosophy of balancing rights and obligations indeed mirrors the tension between developing countries’ NIEO demands of technology sharing and antitrust control of IPRs abuses vs. developed countries’ demand for stronger protection of proprietary interests of patents. The mutual concession between developing and developed countries serving as the foundation of TRIPS conclusion indicates that the balance between rights and obligations is indeed imperative rather than just for convenience. Secondly, antirust control of IPRs pernicious contractual practices under Article 40 of TRIPS is indeed very closely related to the objectives and principles laid down in Articles 7 and 8 of TRIPS to ease members’ concerns about IPRs’ anticompetitive abuses.171 Therefore, members indeed bear the obligation of taking antitrust consideration in their management of IPRs contractual licensing. We are thus led to the next section, on TRIPS’ antitrust control obligation.

6.3.3 TRIPS obligation against anticompetitive practices As mentioned above, the TRIPS IP philosophy of balancing rights and obligations to some extent warrants an integration of the contractual and antitrust approaches to SEPs’ FRAND terms interpretation. While Articles 7 and 8.1

168 United Nations Industrial Development Organization (UNIDO), Public Goods for Economic Development (Vienna: UNIDO 2008), 80. 169 See, for example, the coalition of developing countries known as the Like Minded Group (LMG)’s attempt to challenge the launch of the Doha Round negotiation. Amrita Narlikar, World Trade Organization: A Very Short Introduction (Oxford: Oxford University Press, 2005), 54–55. See also, Graeme B. Dinwoodie and Rochelle C. Dreyfuss, “Designing a Global Intellectual Property System Responsive to Change: The WTO, WIPO, and Beyond,” 46.4 Houston Law Review (2009), 1188–1189. 170 Art. 32, 1969 Vienna Convention on the Law of Treaties (1969 VCLT). See also, Robert Jennings and Authur Watts, Oppenheim’s International Law (UK: Longman Group UK Ltd., 1992, 9th ed., vol. 1.), 1278. 171 UNCTAD-ICTSD, Resource Book on TRIPS and Development, 543–544.

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endorse the IP-competition complementary dynamics and the mandate of balancing rights and obligations, Articles 8.2 and 40 indeed directly put the objectives and principles in the context of IPRs’ anticompetitive abuses. The Article 8.2 of the TRIPS Agreement, going beyond a mere “policy statement” or a permissive and limiting principle, is indeed “an enabling provision” that indicates members’ agreement on the existence of and the need to remedy such anticompetitive practices.172 The Article lists three kinds of IPRs related practices that should be prevented: the IPRs abuse by rights holders, practices which unreasonably restrain trade, and practices which adversely affect the international transfer of technology. Article 40 as the lex specialis in relation to Article 8.2, confers WTO members a minimum obligation to act against IPRs related “licensing practices or conditions” which “restrain competition [and] may have adverse effects on trade and may impede the transfer and dissemination of technology.”173 Different from Article 8.2’s mere recognition of certain IPRs abuses and anticompetitive practices, Article 40 imposes “an obligation on Members to address certain forms of anticompetitive practices in licensing agreements” as these practices restrain competition, and may have adverse effects on trade and technology transfer.174 These IPRs related practices include yet are not limited to “exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing”.175 Moreover, the structure and wording of TRIPS’ Article 40 indicate a very clear antitrust orientation to IPRs abuses. While Article 8.2 as the enabling provision recognizes the need to prevent certain IPRs abuses and anticompetitive practices, the Article 40 serves as the lex specialis about control of anticompetitive practices only in contractual licenses. Within Article 40, while Article 40.1 provides members’ consensual recognition of the potential harmful licensing practices and conditions, Article 40.2 provides the lex specialis in the given context focusing on particularly harmful abuses – including exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing – together with qualification of the “adverse effect on competition in the relevant market.” This structure certainly enshrines a competition approach to the members’ regulation of IPRs contractual licenses. Furthermore, the cooperation and consultation procedure under Articles 40.3 and 40.4 stipulates members’ obligation to cooperate in acting against anticompetitive abuses which provide a procedural guarantee of the control of anticompetitive contractual practices. Firstly, when IPRs anticompetitive contractual practices take place, while any consultation requesting member is entitled “sympathetic consideration” and “adequate opportunity” for consultation as well as cooperation in supplying relevant information possible from the requested

172 173 174 175

UNCTAD-ICTSD, Resource Book on TRIPS and Development, 546. Art. 40.1, the TRIPS Agreement. UNCTAD-ICTSD, Resource Book on TRIPS and Development, 555. Art. 40.2, the TRIPS Agreement.

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member,176 the requested member shall also be entitled to consultations under the same condition177. The obligation of consultation and cooperation, therefore, clearly indicates that the anticompetitive practices from members’ “nationals or domiciliaries” are not only matters falling within domestic affairs, but also issues covered under the WTO regime of antitrust control preventing IPRs abuses. Secondly, the obligations of cooperation and consultation should not be taken lightly in the WTO framework. To “accord sympathetic consideration to and afford adequate opportunity for consultation,” however, as a fundamental obligation clearly stated in the DSU, is something subject to no derogation within the WTO framework.178 As a WTO Panel stated, “Members’ duty to consult is absolute” and its compliance is “vital to the operation of the dispute settlement system.”179 Under the DSU, should the consultations fail, a WTO panel will be established upon request according to the rule of negative consensus.180 As consultation forms an integral part of the dispute settlement system which centrally provides “security and predictability” to the trading system and preserves members’ “rights and obligations” under WTO agreements,181 the cooperation and consultation obligation is therefore fundamental to TRIPS’ call for IPRs abuses control. Of course, this obligation comes with certain flexibility, as flexibility demanded from member states’ sovereign autonomy to balance the rigidity of the international regime is built into the WTO framework.182 WTO rules thus “must strike a balance between commitments and flexibility.”183 The TRIPS Agreement indeed provides certain flexibility. According to the TRIPS Agreement, members on the one hand “shall give effect to” TRIPS’ provisions, yet on the other hand are “free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and

176 Art. 40.3, the TRIPS Agreement. 177 Art. 40.4, the TRIPS Agreement. 178 According to Art. 4.2, Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), “[e]ach Member undertakes to accord sympathetic consideration to and afford adequate opportunity for consultation regarding any representations made by another Member concerning measures affecting the operation of any covered agreement taken within the territory of the former.” 179 Brazil – Measures Affecting Desiccated Coconut, WTO Panel Report, WT/DS22/R (17 October 1996), para. 287. 180 Art. 4.7, DSU Agreement. 181 Art. 3.2, DSU Agreement. 182 See Peter Sutherland et al., The Future of the WTO: Addressing Institutional Challenges in the New Millennium (Geneva: WTO, 2004), para. 39. According to the Report (para. 39), both GATT and the WTO have “intended to provide a structured and functionally effective way to harness the value of open trade to principle and fairness;” and their rules “provide checks and balances including mechanisms that reflect political realism as well as free trade doctrine.” 183 WTO Secretariat, World Trade Report 2009: Trade Policy Commitments and Contingency Measures (Geneva: WTO, 2009), xiii.

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practice.” As to the obligation to consult and cooperate, the original correspondent text of Article 40 mandating an obligation to consult and to cooperate “with a view to ensuring compliance” of nationals or domiciliaries with domestic legislation was removed during TRIPS negotiations to ease industrialized countries’ concerns about the rigidity of the obligation.185 Under international law, while states are required to fulfill their international obligations, generally they are also “free as to the manner in which, domestically, they put themselves in the position to meet their international obligations.”186 The jurisprudence of “direct effect” of international law also calls for the deference to domestic authority.187 However, this flexibility of treaty compliance should not be overstated; rather it should be understood in the right context of the dichotomy between domestic and international affairs in international law. WTO is a “member-driven organization,”188 and thus is accountable to members instead of the nationals of members. The framework of the relationship between individuals and states under an international regime, therefore, is a “two-tiered social contract,” “under which the individual relates to the state in domestic law and only the state relates to the international legal order in international law.”189 What the direct effect jurisprudence really indicates is that WTO members are not of the same legal order as their nationals, and the GATT/WTO consequently creates neither rights nor obligations on members’ nationals.190 Rights of individuals are defined in domestic law and therefore are out of the purview of international law,191 which necessitates the international regime’s

184 Art. 1.1, the TRIPS Agreement. 185 The original text correspondent to Article 40 included an extensive list of practices that might be considered as unlawful per se yet was replaced with a shorter and more open-ended text as current, because of industrialized countries’ objection due to the fear of the “risk of a ruling of per se illegality.” See UNCTAD-ICTSD, Resource Book on TRIPS and Development, 545–546. 186 Jennings and Watts, Oppenheim’s International Law, 82. 187 During the Uruguay Round negotiation, the question of whether the WTO Agreement should be given direct effect attracted a great deal of attention among leading trade scholars. See UNCTAD-ICTSD, Resource Book on TRIPS and Development, 23. See also discussion supra 1.2.3. 188 WTO Secretariat, “The WTO,” www.wto.org/english/thewto_e/thewto_e.htm (accessed 26 November 2019). 189 Ronald A. Brand, “Sovereignty: The State, the Individual, and the International Legal System in the 21st Century,” 25 Hastings International and Comparative Law Review (2002), 286–287. 190 As the WTO Panel pointed out, “[n]either the GATT nor the WTO has so far been interpreted by GATT/WTO institutions as a legal order producing direct effect,” and “the GATT/WTO did not create a new legal order the subjects of which comprise both contracting parties or Members and their nationals.” US – Section 301 Trade Act, WTO Panel Report, WT/DS152/R (22 December 1999), para. 7.72. 191 Of course, the Panel in US – Section 301 Trade Act also emphasized that the statement was made as a matter of fact, and it is an issue of “internal constitutional principles” and Panel’s statement “does not prejudge any decisions by national courts on this issue.” Ibid. footnote 661 to para. 7.72. Emphasis added.

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deference to national authority in domestic affairs.192 Therefore, the doctrine of direct effect suggests only international law’s deference to domestic affairs, yet provides no support at all to any derogation of international obligations. While the rights of individuals are issues related only to domestic constitutional law, their use is not. As a general jurisprudence, indeed, “the creation of a right is distinct from the provision of remedies for violations of that right.”193 While TRIPS would not address particular positive rights of patent, trademark, or copyright, it does address the use of rights in Articles 30, 31 – in relation to compulsory licensing – and Article 40 – in relation to contractual licensing – and acquisition, maintenance and enforcement.194 Article 8 of the TRIPS Agreement, for example, “concern[s] the use of rights, not the rights themselves.”195 Hence, the flexibility of international compliance is constitutionally confined to domestic affairs autonomy to reflect the member-driven nature of WTO’s “two-tiered” institutional structure. The “balance” between flexibility and rigidity denotes the interdependent and complementary relationship between flexibility and rigidity. When the freedom of compliance method or manner is ensured, WTO Members “shall give effect to” TRIPS’ provisions.196 Therefore, flexibility in compliance does not equal noncompliance. As the analysis above shows, the TRIPS Agreement sets out a very clear obligation for members to act against IPRs anticompetitive practices, and the cooperation and consultation procedure therein brings such practices of members’ “nationals or domiciliaries” into the international framework. Moreover, the operation of this antitrust control against IPRs abuses is firmly grounded on TRIPS’ principles,197 which undoubtedly lends solid support to the significance of the antitrust control of IPRs licensing practices. Under the WTO Agreement, each member “shall ensure the conformity of its laws, regulations and administrative procedures” with its WTO obligations.198 GATT 1994 states similarly that, “[e] ach contracting party shall take such reasonable measures as may be available to it to ensure observance of the provisions of this Agreement by the regional and local governments and authorities within its territories.”199 Indeed, Pacta sunt

192 See the “doctrine of non-intervention” as indicated in Art. 2.7, the Charter of United Nations (UN Charter). 193 eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 392 (2006). 194 These issues are covered under Parts II, III, and IV of the TRIPS Agreement respectively. 195 Nuno Pires de Carvalho, The TRIPS Regime of Patent Rights (The Hague: Wolters Kluwer, 2010, 3rd ed.), 223. 196 Art. 1.1, the TRIPS Agreement. 197 According to Gervais, “Art. 8 is thus essentially a policy statement that explains the rationale for measures taken under Arts 30, 31 and 40.” Gervais, The TRIPS Agreement: Drafting History and Analysis, 121. 198 Art. XVI.4, Agreement Establishing the World Trade Organization (the WTO Agreement). 199 Art. 24.12, GATT 1994. See, similarly, Art. 18.4, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994.

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servanda has been a well-established customary international law and flexibility is no good defense for noncompliance.200 Therefore, “[a] party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.”201 It is therefore important to know that the compliance flexibility is the flexibility of compliance “method” or “manner” rather than flexibility of noncompliance.202 In conclusion, a member’s consistent reliance on a contractual instead of antitrust approach to FRAND terms interpretation might act against its TRIPS obligation of preventing IPRs related “licensing practices or conditions” that “restrain competition [and] may have adverse effects on trade and may impede the transfer and dissemination of technology,” and may trigger concerns of a WTO violation. Indeed, it has been argued that FRAND licensing denial “can violate the boundaries set by Articles 7, 8 and 40 TRIPS,” as it directly and materially affects “promotion of technical innovation” if “standard setting can, due to the patent holder’s conduct, not perform its function as a catalyst for standard-based technological progress.”203 A member’s courts, in adopting contractual instead of antitrust approach to FRAND terms enforcement, might constitute a prima facie violation of the Member’s TRIPS obligation.

6.4 Concluding remarks Under TRIPS unity, there exist contrasting perspectives on managing IPcompetition dynamics between the US contractual approach and the increasingly used antitrust approach in the EU and elsewhere as to SEPs’ FRAND enforcement. While SEPs’ personal property recognition lends constitutional support to the contractual approach, the in-built limitation on private property rights from the needs of others warrants competition interests’ balance against the exclusivity of private rights. As the analytical examination above shows, members’ obligation under TRIPS to act against IPRs abuses is indeed imperative. TRIPS warrants an integration of the contractual and antitrust approach of FRAND terms enforcement to reach a balance of rights and obligations and to ensure the control of IPRs abuse to be conducive to social and economic welfare and the promotion of technological innovation and to the transfer and dissemination of technology. A member’s court’s adoption of a contractual instead of antitrust approach to FRAND terms enforcement, even on a discretionary basis, might constitute a prima facie WTO inconsistency.

200 Art. 2.2, UN Charter; Arts. 26 and 27, 1969 VCLT. 201 Art. 27, 1969 VCLT. 202 See Art. 1.1, the TRIPS Agreement; Jennings and Watts, Oppenheim’s International Law, 82. 203 Peter Picht, “From Transfer of Technology to Innovation through Access,” in Hanns Ullrich et al. (eds.), TRIPS Plus 20: From Trade Rules to Market Principles (Heidelberg: Springer, 2016), 518.

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A critical examination of the circumstances of TRIPS’ conclusion and the analytical structure of Article 40 in relation to Articles 7 and 8 of TRIPS reveals that TRIPS obligation of antitrust control is imperative. The recognition of the need to control IPRs anticompetitive abuse without providing a detailed management mechanism indicates that this is the beginning rather than the end of balancing rights and obligations, an unfinished story meant to be completed through a later “Singapore issues” negotiation. Dropping the competition policy issue from the Doha agenda in 2004 meant a lost opportunity to complete the story of a rights-obligations balance through future negotiation. The imbalance of a harmonized TRIPS with an un-harmonized antitrust regime continues. Given the significance of intellectual property in regional and international trading framework, the diversified practices as to FRAND terms enforcement certainly reflect the birth defect of TRIPS and undermine TRIPS integrity. For TRIPS to be an IP regime that truly promotes technological innovation and technology dissemination that is conducive to social and economic welfare, it is high time to bring the competition issue back to WTO negotiation and adhere to a contract-antitrust balanced approach to FRAND terms enforcement. Moreover, the WTO as an international social contract on trade, taking trade without discrimination as its most fundamental principle, indeed has always been competition conscious and fairness minded. The negotiation of a unified international competition policy going beyond individual treatment, which could had been the final piece of the puzzle ensuring a fair marketplace, was unfortunately dropped at the Singapore ministerial conference. The failure of the legislative function paralyzes the triune personality, and together with the continuous reliance on diverse national competition policy frameworks, indicates a broken tripartite dynamic to the detriment of the individual traders in the global marketplace. Resuming the competition policy negotiation is indeed imperative for maintaining a balanced tripartite dynamic between governments, private rights, and the WTO in global trade.

Bibliography General Aggarwal, Aradhna. The Anti-Dumping Agreement and Developing Countries: An Introduction (New Delhi: Oxford University Press, 2007). Bentham, J. Theory of Legislation (London: TrüBner & Co., 1871). Brand, Ronald A. “Sovereignty: The State, the Individual, and the International Legal System in the Twenty First Century,” 25 Hastings International and Comparative Law Review (2002), 279–295. Brooks, Roger G. and Damien Geradin. “Interpreting and Enforcing the Voluntary FRAND Commitment,” 9.1 International Journal of IT Standards & Standardization Research (2011), 1–23.

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Carty, Anthony. “From the Right to Economic Self-Determination to the Right to Development: A Crisis in Legal Theory,” 3.5 Third World Legal Studies (1984), 73–86. China, “Communication to the WTO TBT Committee: Intellectual Property Right (IPR) Issues in Standardization,” G/TBT/W/251 (25 May 2005). Contreras, Jorge L. “Fixing FRAND: A Pseudo-Pool Approach to Standards-based Patent Licensing,” 79.1 Antitrust Law Journal (2013), 47–97. Contreras, Jorge L. “A Market Reliancd Theory for FRAND Commitments and Other Patent Pledges,” 2 Utah Law Review (2015), 479–558. Corbin, Arthur L. Corbin on Contracts: A Comprehensive Treatise on the Working Rules of Contract Law (St. Paul: West Publishing Co., 1951, vol. IV). Cotter, Thomas F. “Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties,” 22.3 Texas Intellectul Property Law Journal (2014), 311–363. De Carvalho, Nuno Pires. The TRIPS Regime of Patent Rights (The Hague: Wolters Kluwer, 2010, 3rd ed.). Dinwoodie, Graeme B. and Rochelle C. Dreyfuss. “Designing A Global Intellectual Property System Responsive to Change: The WTO, WIPO, and Beyond,” 46 Houston Law Review (2009), 1187–1234. Drahos, Peter. “China, the TPP and Intellectual Property,” 47.1 International Review of Intellectual Property and Competition Law (2016), 1–4. European Commission, “Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-operation Agreement,” OJ C 11/01 (14 January 2011). European Commission, “Antitrust: Commission Sends Statement of Objections to Samsung on Potential Misuse of Mobile Phone Standard-essential Patents,” Press Release (Brussels, 21 December 2012). Finger, J. Michael. Antidumping: How It Works and Who Gets Hurt (Ann Arbor: The University of Michigan Press, 1993). Geradin, Damien. “The Meaning of ‘Fair and Reasonable’ in the Context of Third-Party Determination of FRAND Terms,” 21.4 Georgy Mason Law Review (2014), 919–956. Gervais, Daniel J. The TRIPS Agreement: Drafting History and Analysis (London: Sweet & Maxwell, 2003, 2nd ed.). Gervais, Daniel J. “Intellectual Property, Trade & Development: The State of Play,” 74.2 Fordham Law Review (2005), 505–535. Ginsburg, Douglas H., Koren W. Wong-Ervin, and Joshua D. Wright. “The Troubling Use of Antitrust to Regulate FRAND Licensing,” 10.1 CPI Antitrust Chronicle (2015), 2–8. Guan, Wenwei. Intellectual Property Theory and Practice: A Critical Examination of China’s TRIPS Compliance and Beyond (Heidelberg: Springer, 2014). Hayek, F. A. The Fatal Conceit: The Errors of Socialism (London: Routledge, 1988). Hegel, G. W. G. The Philosophy of Right, trans. T. M. Knox (Oxford: Oxford University Press, 1967). Herr, Jochen. “Patent Litigation and Industry Standards: The Compulsory License Defense,” 21.1 Intellectual Property & Technology Law Journal (2009), 1–5. Hindley, Brian and Patrick A. Messerlin. Antidumping Industrial Policy: Legalized Protectionism in the WTO and What to Do about It (Washington, DC: AEI Press, 1996). India, “Standards and Principles Concerning the Availability, Scope and Use of Trade-Related Intellectual Property Rights: Communication from India to Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, Including Trade in Counterfeit Goods,” MTN.GNG/NG11/W/37 (10 July 1989).

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Janow, Merit E. “Trade and Competition Policy,” in Patrick F.J. Macrory, Arthur E. Appleton and Michael G. Plummer (eds.), The World Trade Organization: Legal, Economic and Political Analysis (New York: Springer, 2005), 2076–2099. Jennings, Robert and Arthur Watts. Oppenheim’s International Law (London: Longman Group UK Ltd., 1992, 9th ed.). Kesan, Jay P. and Carol M. Hayes. “FRAND’s Forever: Standards, Patent Transfers, and Licensing Commitments,” 89 Indiana Law Journal (2014), 231–314. Kessler, Friedrich. “Contracts of Adhesion – Some Thoughts about Freedom of Contract,” 43 Columbia Law Review (1943), 629–642. Lloyd, P. J. “Anti-Dumping and Competition Law,” in Patrick F.J. Macrory, Arthur E. Appleton and Michael G. Plummer (eds.), The World Trade Organization: Legal, Economic and Political Analysis (New York: Springer, 2005), 1666–1681. Locke, John. The Second Treatise of Government (New Jersey: Prentice-Hall, 1997). Maine, Henry. Ancient Law (London: J.M. Dent & Sons Ltd., 1917). Maskus, Keith and Stephen A. Merrill (eds.). Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology (Washington, DC: The National Academies Press, 2013). Mayer, David N. “Substantive Due Process Rediscovered: The Rise and Fall of Liberty of Contract,” 60 Mercer Law Review (2009), 563–658. Narlikar, Amrita. World Trade Organization: A Very Short Introduction (Oxford: Oxford University Press, 2005). Pedro., Roffe. “Control of Anti-Compettive Practices in Contractual Licences under the TRIPS Agreement,” in Carlos M. Correa and Abdulqawi A. Yusuf (eds.), Intellectual Property and International Trade: The TRIPS Agreement (London: Kluwer Law International, 1998), 261–296. Peru, “Guidelines for Negotiation that Strike a Balance between Intellectual Property Rights and Development Objectives: Communication from Peru,” MTN.GNG/NG11/ W/45 (27 October 1989). Picht, Peter. “From Transfer of Technology to Innovation through Access,” in Hanns Ullrich et al. (ed.), TRIPS Plus 20: From Trade Rules to Market Principles (Heidelberg: Springer, 2016), 509–527. Pipes, R. Property and Freedom (New York: Alfred A. Knopf, 1999). Pound, Roscoe. “Liberty of Contract,” 18.7 Yale Law Journal (1909), 454–487. Productivity Commission, Australia, “Compulsory Licensing of Patents,” (28 March 2013). Ricupero, Rubens and Ricardo Melendez Ortiz. “Preface,” in UNCTAD-ICTSD (ed.), Resource Book on TRIPS and Development (New York: Cambridge University Press, 2005), vii. Sokol, D. Daniel and Wentong Zheng. “FRAND in China,” 22 Texas Intellectual Property Law Journal (2013), 71–94. State Administration of Industry and Commerce (SAIC), PR China. “Rules on Prohibiting Behaviors of Abuse of Intellectual Property Rights to Eliminate or Restricting Competition,” (no. 2015-74, 7 April 2015). State Intellectual Property Office, PR China. “Interim Provisions on the Administration of National Standards Involving Patents,” (19 December 2013). Sternberg, Daniel S. “A Brief History of RAND,” 20.2 Boston University Journal of Science & Technology Law (2014), 211–246. Stiglitz, Joseph E. The Roaring Nineties: A New History of the World’s Most Prosperous Decade (New York: W. W. Norton & Company, 2003).

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Canada – Pharmaceutical Patents, WT/DS114/R (17 March 2000). China – Intellectual Property Rights, WT/DS362/R (26 January 2009). eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388, 394 (2006). EC – Trademarks and Geographical Indications, WT/DS290/R (15 March 2005). ESS Technology, Inc. V. PC–Tel., Inc., 1999 WL 33520483 (N.D. Cal. 1999). Huawei v. IDC in Relation to SEPs Royalty Setting (no. 2013-305, 3rd Civil Chamber, Shenzhen Intermediate People’s Court, China). Huawei v. IDC in Relation to Abuse of Market Dominance (no. 2013-306, 3rd Civil Chamber, Shenzhen Intermediate People’s Court, China). Huawei v. ZTE, case C-170/13 (16 July 2015). IMS Health GmbH & Co. v. Commc’n, case C-418/01 (2004 E.C.R. I-5069). Innovatio IP Ventures, LLC Patent Litig., 2013 WL 5593609 (N.D. Ill. 3 October 2013). IPCom v. Nokia and HTC [2012] EWCA Civ 567. Microsoft Corp. v. Motorola, Inc. 854 F.Supp.2d 993 (W.D. Wash. 2012). Microsoft Corp. v. Motorola, Inc., 864 F.Supp.2d, 1023 (W.D. Wash. 2012). Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012). Microsoft Corp. v. Motorola, Inc., No. C10–1823JLR, 2013 WL 2111217 (W.D. Wash. Apr. 25, 2013), aff’d 795 F.3d 1024 (9th Cir. 2015). Motorola v. Apple, Case No. 6 U 136/11, Higher Regional Court of Karlsruhe, Federal Republic of Germany, 2012. Radio Telefis Eireann v. Commc’n, C-241/91 P and C-242/91 P (1995 E.C.R. I-808). Research in Motion Ltd. v. Motorola, Inc., 644 F.Supp.2d 788, 797 (N.D. Tex. 2008). Samsung v. Apple, 400367/HA ZA 11-2212, 400376/HA ZA 11-2213 and 400385/HA ZA 11-2215 (District Court of The Hague, 20 June 2012). TiVo v. Echostar Commc’ns Corp., 446 F. Supp. 2d 664, 670 (E.D. Tex. 2006). US – Section 301 Trade Act, WT/DS152/R (22 December 1999).

7

Ends without end The future prospects of WTO evolution

As the result of the post-war evolution, the global trading regime has so far successfully made states accountable to individuals in various capacities in the global marketplace. With a triune personality ultimately aimed at the benefits of individuals, however, the evolution of WTO constitutionalism that leaves no space directly for individuals will remain an inconvenient truth for a long time. A holistic jurisprudence of the WTO as an international social contract on trade allowing a fresh look at the force, the means, and the ends of the constitutional evolution of the global marketplace suggests that WTO’s ends of benefiting individuals has no end. The post-war moment of the inception of the global trading regime was indeed a golden moment of the construction of the international social contract on trade, a watershed chance for international society to coordinate states, individuals, and international institutions through trade. It was a golden moment because it was the very first time for the international society to work out an international social contract of governance through a non-political, “soft” area of interaction, the movement of goods in the global marketplace. This process has fundamental significance to the international society, because, via the spill-over significance of trade on individuals throughout global marketplace, states are held accountable to individuals in ways that never happened before. While each national government continues to be accountable to individuals through the domestic constitutional system, each foreign government also is held accountable to individuals in the capacities of foreign exporters, service providers, or holders of intellectual property rights (IPRs) in trade via the global marketplace indirectly under GATT/WTO regime. The 47 years of the provisional operation of the GATT were indeed a rather long yet still somewhat healthy pregnancy leading to the birth of the WTO, an international social contract on trade. The WTO’s evolution process, however, did not proceed smoothly, as the book has demonstrated through the critical analysis in the preceding chapters, ranging from the consensus decision-making mechanism, WTO’s integral parts of GATT, antidumping, and TRIPS, as well as WTO’s trade – policy tension

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shown in TRIPS IP-competition dynamics. It of course remains true that individuals are not the subject of public international law. The WTO leaves almost no room for private rights, in particular in its decision-making and policy considerations as seen in Chapters 2 and 6, though it has been well recognized that the WTO Agreement does not exist in “clinical isolation” from public international law. Nevertheless, private rights suffer from the WTO’s jurisprudential distortion of the international movement of goods, services, and IPRs within the global trading framework as seen in Chapters 3, 4, and 5. The bumpy evolution process of the WTO regime, due to the complexity of the dynamics between states, international institutions, and individuals in the global marketplace, offers both the opportunities and challenges of the global trading regime’s constitutional development. With a triune personality, the WTO operates on states’ attribution of authority – the force – ultimately for the individuals – the ends – in the global movement of goods, services and intellectual properties, and then gains a soul of its own in the institutional evolution – the means – of the global trading regime. The dynamics between states, international institutions and individuals during the process of the evolution of the international social contract on trade is unprecedented and complex. From the perspective of the states, states serve as the source of the authority of the WTO through consent given during the process of the international social contracting, while at the same time they are the challengers to WTO authority due to their sovereign autonomy in public international law. This state primacy paradox indicates itself particularly obviously in WTO’s legislative and judicial functions. As we revealed above, in Chapter 2 on WTO’s decision-making by consensus principle in particular, the contractarian deficit of the consensus decision-making indicated a clear consensualism paradox in the operation of power politics in WTO’s dispute settlement process due to its inevitable deference to trading power.1 Single undertaking as consensus’s natural extension presents the other consensualism paradox in the legislative function of the GATT/WTO negotiation, in which there is no agreement on anything until there is an agreement on everything. Going beyond the consensus and single undertaking duet of WTO decision-making, the state primacy paradox also reflects itself in the TRIPS birth defect where the negotiation legalized the power asymmetry during the operation of the WTO’s legislative function.2 Looking at the state primacy paradox, however, the deadlock of the Doha Round negotiation and the current dismantling of the DSU Appellate Body appointments, while raising concerns as to the issues of WTO reform, are indeed strong evidence of the operation of the WTO’s legislative function. Power politics has not been working as smoothly as it did before, as seen in the Quad’s contribution to the conclusion of the Uruguay Round leading to the establishment of the WTO. The more difficult the negotiation process, the

1 See discussion supra 2.2 and 2.3 in particular. 2 See discussion supra 5.3.3 in particular.

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more decentralized the trading power is, and the more democratic process is included throughout the WTO negotiation. From the perspective of individuals within the context of the WTO’s triune personality and constitutional dynamics, individuals have never been given any place under public international law in general or within the WTO framework in particular, and the fact that individuals are not subjects of international law remains “an axiom of the political system.” The operation of the WTO, however, whether aimed at improvement of living standards, employment, and income, or optimal use of the resources and environment, is all for the benefit of the individuals. Aiming for the benefit of the individuals remains the categorical imperative of the WTO constitutional evolution. There are no other ultimate bearers of the WTO benefits other than individuals, and the “finality of the WTO is individuals.” On the other hand, individuals’ participation in the WTO framework, in the capacities of either producers, goods importers or exporters, service providers, or IPRs holders, are all indirect and dependent on member states’ compliance to their WTO obligations. Individuals being the ultimate beneficiaries of the WTO constitutionalism yet having no place in facilitating the evolution of international law will remain an uncomfortable truth within the WTO framework for a long time into the future. From the perspective of the WTO within the tripartite dynamics of the evolution of the global trading regime, the WTO as an international organization with a triune personality has a very important role to play. Operating within the framework where states hold primacy, the WTO gained its authority from member states’ power through consent via the international social contract on trade. Within its designated legislative, administrative, and judicial functions, however, the WTO remains independent from the member states and has an independent soul of its own. With its independent legal personality, WTO’s operation within the global trading framework breaks the “nationality trade apartheid” and secures individuals’ equal treatment in the global marketplace within or beyond borders. Interdependence among member states necessitates global collaboration through trade, thus rooting the WTO in the center of the constitutional evolution of the international social contract on trade. As an integral part of public international law and going beyond benefiting the individuals, WTO’s development also makes a positive contribution to the growth of the public international law. Therefore, we see the need to connect the classic WTO theories of diplomacy, institutional, and constitutional understandings of the WTO nature into a unified one to offer a holistic jurisprudential understanding of the force, the means, and the ends of the WTO as an international social contract on trade. This unified WTO jurisprudence has both theoretical and practical significance. Classic theories of WTO jurisprudence have captured the various respective truths of the WTO regime. Hudec’s categorization of the WTO as diplomat’s jurisprudence captures the state primacy as the foundation of the WTO regime and explains the force of the constitutional evolution of the global trading regime. While Jackson’s attention to the rule-oriented development and

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institutional progress of the WTO framework captures the means of the process, Petersmann’s emphasis on individuals as the ultimate beneficiaries and the WTO as a constitutional framework of human rights in trade captures the ends of WTO constitutionalism. A holistic unified jurisprudence of the WTO therefore must not only connect classic theories of WTO jurisprudence, but also explains the force, the means, and the ends of the constitutional evolution of the global trading regime. The theory of a unified WTO jurisprudence, therefore, holds theoretical significance. In addition to theoretical significance, a unified WTO jurisprudence has a few practical significances as well. The holistic WTO jurisprudence viewing global trade evolution through a critical examination of its force, means, and ends of constitutionalism provides a practical solution to WTO controversies, such as the issue of legitimacy and WTO reform. Due to the complexity of the indirect effect on individuals, the lack of individuals’ direct participation in the WTO process might not necessarily raise a WTO legitimacy issue directly. The unified WTO jurisprudence indicates, however, that the concern for individuals’ treatment might require at the same time coordinated attentions to the means and force of the WTO constitutionalism, i.e. the WTO institutional efficacy and assurance of members’ compliance. Also due to individuals’ indirect connection with the WTO, nationality becomes a key mechanism connecting individuals to the WTO through operations in the marketplace. Over-emphasis of the nationality connection might group products and individuals into certain national status like NME discrimination creating “nationality apartheid in trade,” which reverses the social development “from status to contract” and back.3 For the ends of benefiting individuals in the global marketplace, the force and the means of the WTO constitutional evolution must be coordinated towards the categorical imperative of benefiting individuals. Most importantly, the spread of the equal treatment from products to individuals in various capacities within and beyond borders, from products to service, IPRs and trade facilitation, through the evolution of international social contract on trade, bears fundamental significance for individuals. Regardless of ideological divides or even “nationality apartheid in trade,” individuals in various capacities have been generally guaranteed equal treatment in the global marketplace. Fair trade grounded on market economy principles through the global marketplace has an inherent advantage over any other political mechanism for improving individuals’ living standards, employment, and income. As our unified WTO jurisprudence points out, while the force, the means, and the ends of the global trade evolution check and balance with each other, the WTO institution gains a soul of its own within the bounds of its triune personality. The progress of the WTO as an international social contract on trade is indeed a continuous and inescapable evolutionary process involving all and for all, and WTO’s ends of benefiting individuals ultimately has no end in international trade’s constitutional development.

3 See discussion supra 4.3, “Nationality as Status of Products in Trade.”

Index

accession protocol, China 26, 70–74, 76, 80–84, 92, 93, 100, 106, 114, 138 accountable 136, 209, 217 administrative discretion see discretion Advisory Opinion, ICJ 8n31, 56, 97, 127, 171 anticompetitive practices 27, 183, 184, 187, 188, 203, 204, 207, 208, 210 authoritative interpretation see interpretation Berne Convention 5, 156–158 binding force: of treaty 13, 50, 96, 103; of international law 51, 94, 95, 101; of precedents 89 birth defect, TRIPS 27, 28, 145, 156, 160, 164,165, 168, 174, 175, 205, 206, 212, 218 Bretton Woods 1 Brownlie, Ian 40, 89, 99, 127, 171 check and balance (checks and balances) 26, 45, 46, 59, 76, 130, 133, 160, 165, 175, 198, 220 club-of-clubs approach 60, 61 common intention 26, 50–52, 55, 60, 70, 73, 80, 84, 85, 88, 92–96, 98–107 commutative: commutative exchange 27, 115; commutative justice 134 compulsory licensing 27, 145–150, 153, 155–157, 160, 163–169, 172–176, 185, 187, 192, 204, 205, 210 consensus decision-making 26, 32, 35, 24, 39, 40, 42, 43, 50–52, 55, 57–59, 61, 217–218 consent: consent, evolutionary nature 26, 32, 55–58, 61; state consent 23, 49, 51,

58, 95, 102, 172; contractarian consent see contractarian contingency measures 26, 68–70, 76–80, 83, 98, 100, 105–107 contractarian: contractarian consent 55, 60, 70, 83, 101; contractarian deficit (deficits) 32, 49, 52, 218; contractarian obsession 26, 70, 106, 107 critical mass approach 60, 61 developing countries 3, 48, 49, 52, 61, 106, 149, 152, 161–164, 166, 176, 182, 185, 202–206 Dillon Round 2 Director-General, WTO 3, 13, 33; GATT 3 direct effect 14, 128, 167–170, 172, 174, 175, 209, 210 discretion: administrative discretion 115, 130, 131, 133, 135, 138; distributive discrection 134; paternalistic discretion 27, 115, 134, 135, 137, 138 dispute settlement system 3, 31, 36, 208 Dispute Settlement Understanding 3, 6, 35 distributive predation 27, 112, 115 Doha agenda 205, 212 Doha Declaration 146, 148, 149, 150, 153, 166, 167 Doha Round 42, 48, 49, 113, 114, 118, 121, 138, 164, 206, 218 domestic affairs 26, 170, 172, 175, 208, 210 domestic law 10, 13, 14, 49, 51, 94, 95, 136, 149, 155, 156, 160, 171, 172, 209 enabling provision 207 Ernst-Ulrich Petersmann (E.-U. Petersmann) see Petersmann

222

Index

fair trade 4, 187, 220 fiction (fictions) 14, 23, 50, 94, 128, 135 finality: de facto finality 32, 45, 101, 107; de jure finality 45, 101 first mover 26, 53, 59, 61, 67, 104, 105 foreign products 115, 117, 121, 131, 136 FRAND enforcement 27, 182, 183, 191, 193–195, 211 free ride 38; free riding 39, 46, 48 free trade 1, 4, 27, 68, 76, 105, 115, 123, 129, 133, 134, 137, 165, 183

international social contract on trade 23, 25, 26, 28, 61, 62, 67, 76, 79, 106, 107, 136, 138, 175, 212, 217–220 interpretation: authoritative interpretation 45, 46, 100, 101, 104; evolutionary interpretation 57, 97; judicial interpretation 45, 46, 92, 100, 101, 104, 107; treaty interpretation, customary rules 7, 72, 73, 76, 81, 82, 84, 85, 87, 88, 92, 100, 105, 107 issue linkage 48

GATT Secretariat 58, 77, 79 general exception (general exceptions) 26, 68–72, 74, 76–80, 82, 84, 85, 98, 100, 105–107, 147, 148, 166, 168, 175, 186

Jackson, John H. 6, 9, 18, 19–23, 33–35, 42–44, 50, 57, 91, 102, 105, 106, 144, 145, 148, 165, 219 Jean-Jacques Rousseau (J. J. Rousseau) see Rousseau John H. Jackson see Jackson judicial activism 43–46, 67, 80, 91, 92, 101, 104, 107 judicial activist 26, 70, 80, 92, 100 judicial interpretation see interpretation judicial restraint 43, 44, 91 justice: distributive justice 134n131; communtative justice see commutative

Henkin, Louis 10, 13, 14, 23, 24, 50, 51, 95, 127, 171, 172 Hudec, Robert E. 17, 18, 21, 22, 55, 98, 106, 136, 172 ICJ Reports 8, 56, 97 imperative 20, 21, 27, 134, 135, 137, 138, 183, 197, 199, 206, 211, 212, 219, 220 individual right 134, 135, 145, 170–172, 196 institutional: institutional constitutionalism 19, 21; institutional deficit 45, 100; institutional design 36, 45, 59, 100; institutional evolution 21, 218; institutional framework 38,100, 101; institutional order 19, 37; institutional structure 21, 31, 46, 101, 176, 210 integral part (Integral parts) 7, 9, 27, 38, 70, 72, 80–84, 94, 96, 100, 106, 107, 182, 183, 187, 208, 217, 219 Interdependence 19, 24, 25, 37, 219 intergovernmental organization 21, 26, 174 International Court of Justice (ICJ) 8, 56, 88, 89, 92, 96, 97, 99 international intervention 171–173 International Law Commission (ILC) 86,89, 99 international organization: WTO as an international organization 13, 14, 17, 22, 26, 27, 219; GATT as informal international orgnization 33; international orgnizations in international law 8, 34, 146

Kennedy Round 2, 116,121 least developed countries (LCDs) 48, 49, 151, 176 legitimacy: legitimacy deficit 32, 61, 99, 101, 104, 106, 133, 165, 167; WTO legitimacy 26, 32, 32, 40, 48, 49, 52, 55, 58, 59–61, 70, 104, 106, 107, 220 legitimate interests of third parties 156–160, 164, 187 lex specialis 207 like product (like products) 5, 117, 118, 122, 128, 183 majority vote 33 member-driven 37, 107, 136, 172, 209, 210 membership: UN membership 10; WTO membership 38, 39, 46, 59–61, 80; SSOs membership 188 MFN (most-favored-nation treatment) 1, 4, 15, 68, 146 national treatment 4, 5, 15, 68, 78, 91, 146, 183

Index nationality: nationality as fiction 14; nationality in (public) international law 127–129, 135, 137, 171–173, 219, 220; nationality, status of products 27, 122, 129; nationality apartheid 115, 121, 136, 138, 219, 220 negative consensus 35, 43, 208 negative right (rights) 27, 75, 154, 155, 169, 173–175, 195, 198, 200 New International Economic Order see NIEO NIEO 161, 163, 202, 205, 206 NME: NMEs (nonmarket economies) 120,124–126, 137, 138; NME methodology 114, 115, 121–125, 127, 129, 134–138 normal value 27, 114–118, 120–122, 124, 125, 127, 128, 137 the North 161, 164, 205; see also the South ordinary meaning 87, 99 organized hypocrisy 42 origin-seeking 26,67, 70, 103–105, 107 pacta sunt servanda 10, 11, 210 paralysis 32, 35, 36, 40, 42, 43, 52, 59 Paris Convention 150, 161, 163, 173–176, 185, 188, 202, 204, 205 paternalistic: paternalistic discretion see discretion; paternalistic power 136; paternalistic redistribution 115, 129, 131, 133, 134, 137 patriarchal family: government origin 103; nature of nationality 103 Petersmann, E. U. 19–22, 30, 36–39, 51, 129, 137, 167, 172 philosophy paradox, TRIPS 156, 160, 202 positive right (positive rights) 27, 75, 145, 147, 155, 165, 169, 173, 174, 195, 210 power: power asymmetry (power asymmetries) 32, 41, 48, 52, 59, 164, 205, 218; power oriented 18; power politics 23, 218 provisional agreement, GATT 2, 33 public health concerns 27, 143, 145–148, 164, 169, 175 public interest (public interests) 27,135, 155, 156, 181, 185, 186, 190,198, 200–202

223

rights and obligations 33, 39, 43, 46, 61, 91, 101, 155, 156, 171, 200–202, 206–208, 211 Robert E. Hudec see Hudec Rousseau, J. J. 24, 50, 52, 53, 95 Rousseauian see Rousseau rule oriented 9, 18, 68, 219 single undertaking principle 37, 38, 41, 47 social and economic welfare 147, 183, 185, 201, 211, 212 social contract throery 24, 49, 50, 53, 55, 94–96, 103, 104, 135 the South 161, 164, 205; see also the North sovereign: sovereign equality 33, 34, 36, 40, 42, 49, 59; soveriegn exception 156, 202; soveriegn paradox 24; sovereign states 24, 25, 127 sovereignty 2, 7, 9, 14, 23–25, 33, 50, 51, 69, 74, 95, 136, 172 special and differential treatment 48, 61 state consent see consent state of civil society 53, 54, 104 state of nature 53, 54, 104 state primacy 9, 18, 21, 22, 37, 80, 91, 107, 138, 219 state primacy paradox 218 state trading 71, 74 State-controlled economy (SCE) 118, 119, 121, 122; see also NME subject of (public) international law 9, 128, 171, 218 Sutherland Report 25, 76 third party: third-party beneficiary 189; third party interests 155, 160 Tokyo Round 2, 4, 38, 48, 116, 121, 128, 161, 203 trading rights 26, 70, 71, 74–76, 80, 83, 106 tripartite dynamics 1, 26, 37, 67, 80, 107, 136, 138, 145, 164, 172, 219 TRIPS: TRIPS Amendment 27, 143, 145, 153, 164, 168, 169, 174–176; TRIPS Waiver 27, 145, 150–153, 155, 164–169, 172–176; birth defect of TRIPS see birth defect; philosophy paradox of TRIPS see philosophy paradox

224

Index

triune personality, WTO 9, 17, 21, 22, 26, 212, 218–220

80–82, 84–89, 92, 99, 100, 103, 106, 107, 206

UN Charter 10, 16, 51, 86, 95, 128, 173 Uruguay Round 2, 3, 31, 35, 37, 39, 42, 47, 49, 58, 77, 143, 148, 149, 161–164, 167, 168, 202, 204, 206, 209, 218

withdrawal 13, 46 WTO Constitutionalism 17, 21–23, 219, 220 WTO decision making 26, 31, 32, 39, 40, 42, 50, 52, 60, 218 WTO legitimacy see legitimacy WTO Secretariat 4

VCLT (Vienna Convention on the Law of Treaties) 6, 10, 11, 26, 72, 73, 76,