WTO Law

2. The relationship between WTO law, EC law and  national law

The relationship between WTO law and EC law can essentially be broken down into two elements, namely: i) interpretation and application of domestic law in accordance with WTO rules and ii) the problem of giving direct effect to WTO rules in cases of conflict between WTO and domestic rules.

In the context of EC law, the principle of consistent interpretation applies in all instances when both the ECJ and national courts are called upon to interpret otherwise non-directly effective international law, e.g., WTO rules. The principle is clearly linked to the binding effect in Article 300(7) TEC and the ECJ’s ruling concerning the interpretation of the GATT in SPI/SAMI, where the ECJ held it was necessary to interpret and apply the contested rules in light of the common customs tariff in the same way throughout the community after repudiating direct effect of GATT. The principle of consistent interpretation was further reinforced by a later case of Commission v Germany, where the ECJ stated that “The primacy of international agreements concluded by the Community over provisions of secondary Community legislation means that such provisions must, so far as possible, be interpreted in a manner that is consistent with those agreements.” Although the principle has been employed in many situations concerning the interpretation of GATT/WTO law, it has shown to be less effective than direct effect in establishing legal certainty on implementing WTO law.

The principle of implementation is the obligation imposing on EC to adopt and implement its own measures to comply with obligations originating from its participation in international organizations. The principle is basically used as an exception to the non-directly-effective international agreements and thus leaving a leeway for the direct effect of WTO law in areas where the Community intends to implement a particular obligation (the Nakajima doctrine) or when Community instruments expressly refers to provisions of the WTO agreements (the Fediol doctrine).

The Fediol principle is derived from the case Federation de l’industrie de l’huilerie de la CEE (Fediol), where Fediol (the claimant) challenged a decision by the Commission that rejected its complain against the New Commercial Policy Instrument, which was in breach of Article III, IX and XXIII of the GATT 47. The ECJ held that individuals could not be denied to reply on the relevant GATT provisions when they are formed part of the rules of international law to which the disputed Community regulation referred. In all, the Fediol principle states that the ECJ may review the legality of a measure in the light of the GATT if that Community measure makes a clear reference to provisions of the GATT.

The Nakajima principle has its root in the case of  Nakajima All Precision Co., Ltd. v Council, a Japanese company (Nakajima) challenged a Council Regulation that imposed an anti-dumping duty on printers from Japan, which Nakajima claimed was in breach of the GATT Anti-Dumping Code. The Council rejected the claim on the ground that the provisions of GATT lacked direct effect. However, the ECJ ruled that since the claimant did not rely on the direct effect of the disputed provisions but instead questioned the legality of a Council Regulation implementing GATT provisions under Article 241 TEC, the Court was empowered to review whether the disputed regulation was in breach of the GATT. In essence, the ECJ can review the community legislation against the GATT/WTO provisions it intends to implement under Nakajima principle. The Fediol and Nakajima principles make up the only exemption to the denial of direct effect WTO law. Although the two exceptions instrumentally aim at different situations, they are usually used as one principle as decided by the ECJ in Portugal v Council in relation to the WTO law.

Notwithstanding, the usefulness of these exceptions is limited since it is not clear in what situation the EC intends to implement a certain obligation undertaken in the framework of the WTO law. Further, the Court seems reluctant to apply the implementation doctrine in some of the Bananas cases. Thus, the principle does give a clear dualistic streak to the relationship between EC and WTO law by creating a possibility of implementing WTO law in the EC legal system through the indirect applicability of the interpretation and implementation principles.

3. The problem of giving direct effect to WTO rules in cases of conflict between WTO and domestic rules

While international law clearly prevails over national and regional law as discussed in previous sections in cases of conflict between WTO and EC law, WTO members are in principle free to decide whether WTO agreements may produce direct effect within their jurisdiction; and WTO panels and the Appellate Body have consistently maintained a neutral position on the issue of whether WTO rules should produce a direct effect in their reports.  

The ECJ also held in International Fruit Company that individuals could not enforce GATT 47 provisions because the agreement lacked direct effect. The Court’s ruling was based on a consideration of the “spirit, general scheme and the terms of the General Agreement” and held that “because the GATT 47 ‘is based on principles of negotiations undertaken on the basis of ‘reciprocal and mutually advantageous arrangements,’ [and] is characterized by the great flexibility of its provisions, in particular those conferring the possibility of derogation, the measures to be taken when confronted with exceptional difficulties, and the settlement of conflicts between the contracting parties,” it did not provide individuals with rights to invoke the relevant WTO rules in domestic court.

After WTO was established, the ECJ needed to reevaluate its prior arguments in light of newer, more rule-oriented organization (i.e., DSB). However, the ECJ upheld its prior cases law denying direct effect on the ground of concerns over the lack of reciprocity . Politically speaking, the reciprocity argument is a powerful reason to reject the direct effect of WTO law and it is generally believed that recognizing direct effect would undermine the flexibility sustaining the whole multilateral trade system.

On the other hand, the change of institutional strengthening of the DSB from GATT to WTO has increased the awareness of international trade law arguments in the EC’s political process. Interestingly enough, two cases suggested that manoeuvring the WTO’s DSB as a threat is more successful, before a trade measure is implemented, than after the measure has been implemented in view of the formidable political costs of reversing a regulatory decision.

Lastly and more recently, in the Biret cases Advocate General Alber of ECJ opined that EC may be held liable under EC law for the non-implementation of WTO dispute settlement decisions within the stipulated reasonable period of time and the damages resulting from for claimants. In other words, the proposal contemplated that DSB decisions are binding for WTO members and thus the invocability of DSB rulings. However, whether the ECJ will adhere to his “Copernican innovation(s)’ is far from conclusiveness.

In summary, apparently the ECJ seems reluctant to adopt the principle of direct effect of WTO law on EC law despite its obligations to observe the Conventions of international trade law and in particular the WTO agreements. In substance, the ECJ’ stance to the applicability of doctrine of direct effect on relationship between WTO and EC law is systematically motivated by a number of factors. Firstly, the ECJ has developed a common conception for the principles of consistent interpretation and implementation to govern the domestic legal effect of international agreements. Secondly, the Court denies the direct effect of GATT/WTO agreements on EC and domestic law based on the doctrine of reciprocity, which is as a consequence of the interplay of law and political manoeuvre. Lastly, the recent breakthrough in Biret judgment in distinguishing the invocability of DSB rulings from direct effect of WTO rules leads to new legal landscape for implementing WTO rules before national courts, although the authority of judgement over the Court is not without any doubt.

           

3. Legal analysis and implications

In order to have a deeper and fuller understanding of whether EC adopts a purely dualist approach to WTO law, it is necessary to put the issue in context of legal analysis.

1. Position of the EC case law

3.1.1.        International Fruit Company

The Jointed Cases of International Fruit Company are the first cases where the Court gave a ruling on the direct effect of the provisions of the GATT 47. The ECJ was asked whether the Commission’s regulations, concerning import restrictions of apples from third countries, were in breach of certain GATT 47 provisions.

The ECJ ruled that “Article XI of the General Agreement is not capable of conferring on citizens of the community rights which they can invoke before the courts” and based on the judgement on the principle of negotiation and reciprocity that was enshrined in preamble of GATT 47. The Court also noted that the dispute settlement regime of GATT was of “great flexibility of its provisions” as well as “the possibility of derogation”, therefore concluded they could not be given direct effect. The Court later reaffirmed its ruling from International Fruit Company in some cases stemming from Italy.

2. Germany v Council

The next leading case on the role of the GATT in the EC law came with the Court’s ruling in Germany v Council, where Germany challenged against the legality of Council Regulation 404/93 under Article 173 TEC. The regulation concerned the common organization of banana market in EC member states and the preferential treatment of bananas exported from the ACP countries; thus restricting Germany from its previously liberal banana import regime. Germany also alleged the regulation violating a number of international and EC rules, including the GATT provisions.

The Court held that individuals could not invoke the GATT provisions in a Court to challenge the lawfulness of a Community act by referring to the legal principles behind the judgments in International Fruit Company and later cases. The Court also stated the natures of GATT giving its rules conditional and an obligation to recognize them as directly applicable in the domestic law could thus not be based on the spirit, general scheme and terms of the GATT. The Court then reiterated the doctrines of Fediol and Nakajima and stated that the Court can only review the lawfulness of EC law either if a Community act expressly refers to specific provisions of GATT, or if the EC intended to implement a particular obligation within the framework of the GATT. Most importantly, the Court was reluctant to employ the principle of implementation.

3. Biret Cases

The origin of the Biret cases started with the hormones dispute between EC and the USA. The USA brought dispute settlement proceedings before the WTO DSB that the restrictions on export of beef and veal to EC violated obligations EC had entered into within the framework of the WTO. The Panel concluded that the EC breached various provisions of the WTO agreement on Sanitary and Phytosanitary Measures and the EC was given a period of 15 months to fully comply with its WTO obligations. However, the EC did not comply with decision and within the prescribed time frame and a victimized French company, Biret, thus sought compensation for damages suffered; and accordingly brought action against the Council before the CFI. The CFI dismissed the claims and stated that the purpose of the WTO agreement was to govern relations between states or regional organization in regard to economic integration, but to protect individuals.

Despite the innovative opinion in distinguishing the invocability of DSB rulings from direct effect of WTO rules by Advocate General Alber, the ECJ dismissed the actions on grounds that the claimant’s compensation had occurred well before the expiry of the compliance period prescribed by DSB recommendation. However, the ECJ did not rule out that a WTO dispute settlement ruling could provide grounds for imposing liability on the EC. Essentially, the ECJ introduced an innovative conceptual distinction between the direct effect of WTO rules and reliance on WTO rulings, thereby exploring a new fundamental premise on which to base more private-party involvement in the implementation of DSB rulings.

2. Analysis of the Court’s position

The case law dealt with in the preceding sections has given rise to a variety of disparate reasoning behind the Court’s judgment and thus it is difficult to deduce the overall guiding principles from the jumbled case law. However, in order to analyse the Court stance one might use the same evaluation criteria as the Court does when determining the possible direct effect of a WTO agreement.

Firstly, ever since the Court was faced by the question of direct effect in International Fruit Company, the focus has been on evaluating the structure and nature of the disputed GATT/WTO provisions and agreements. The Court concluded that the GATT/WTO agreements are characterised by “flexible provisions based on negotiations and political reciprocity” and considered the agreements were not warranted direct effect. The Court further confirmed in Portugal v Council that flexible and imprecise agreements do not confer rights that individuals can invoke in domestic courts. However the Court developed two exceptions to denying direct effect of GATT/WTO law in the EC law, namely (i) Nakajima exception and (ii) Fediol exception. Furthermore, the Court also opined EC law must be interpreted in conformity with the GATT/WTO.

Secondly, by adopting a dualist approach to international trade relationship, a substantial policy tool is left in the hands of the political institutions. Therefore, the position of the EC member states has generally been hostile towards the Court’s possibility to review EC measures against GATT/WTO law, as well as the granting of direct effect to such provisions. This constitutional consideration is also reflected in the Court’s statement in Kupferberg, where it stated that: “Community institutions which have power to negotiate and conclude an agreement with a non-member country are free to agree with that country what effect the provisions of the agreement are to have in the internal legal order of the contracting parties.”.

Thirdly, consequential on the result of Uruguay Round, the WTO has a dispute settlement system characterized by compulsory jurisdiction, strict time frames and automatic decision-making process. Nevertheless, the Court seems denying the direct effect of these decisions since such a regime would interfere with the EC institutions negotiating power with other countries within the WTO.

Lastly, the role of private parties in disputes arising from the conflict between WTO and EC law and their respective rights are far from clear-cut. Neither private parties have direct access to any of the WTO’s DSB to complain about allegedly violation of WTO agreement, nor can private parties rely on rights granted by WTO laws in domestic laws due to lack of direct effect of such laws. On one hand, the costs of non-compliance of WTO law are borne mainly by private parties; hence there is a need for greater protection of individual rights. On the other, such development should occur at the hands of the legislative branch and not by the pen of the judges.

4.        Summary

From my point of view, statement submitted by M. Matsushita et al is over-emphasized. Rather, EC takes a part dualist approach to WTO law in light of the preceding discussions.

Admittedly, it is the widely held view that EC and in particular the Court have systematically and consistently denied the direct effect of GATT/WTO agreements in domestic legal system. The general reasoning behind this denial is the flexible nature and structure of GATT/WTO provisions, which is based on mutual negotiations and political reciprocity. Secondly and equally importantly, the constitutional considerations of exclusive/joint competence and political manoeuvre of EC also plays a decisive role of continuous denial of direct effect of WTO law. Lastly, individuals cannot rely on WTO law to lodge a claim against EC and member states unless the relevant provisions are transformed into EC and domestic law, manifesting EC follow a dualist approach in regards to WTO law.

On the other hand, the Court has developed certain principles to make up the remedy for the lack of direct effect: the principle of consistent implementation and doctrines of Fediol and Nakajima, especially in regards to the protection of individual rights.

Secondly and interestingly, there is increasing preference for the supremacy of DSU decisions of WTO on EC and domestic law. The Biret judgments distinguished the direct effect of WTO rules from the invocability of DSB reports, thus refuting the theory that invocability of DSB rulings is prevented by the lack of direct effect. Better still, this legal innovation seems to lead a breakthrough solution capable of addressing private parties’ interests within the dispute settlement system’s implementation process.

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Bibliography

Cases

European Court of Justice

➢        Case 26/62 Van Gend en Loos [1963] ECR

➢        Case 2/74 Defrenne v SABENA [1974] ECR 631

➢        Cases 267 to 269/81 Amministrazione delle Finanze dello Stato v SPI and SAMI [1983] ECR 801

➢        Case C-61/94 Commission v Germany [1996] ECR I-3989

➢        Case 92/71 Interfood v Hauptzollant Hamburg [1972] ECR 231

➢        Case C79/89 Brown Boveri [1991] ECR I-1853

➢        Case 70/87 Fediol v Commission [1989] ECR 1781

➢        Case C-69/89 Nakajima v Council [1991] ECR 2069

➢        Case C-149/96 Portugal v Council [1999] ECR I-8395

➢        Cases 21-24/72 International Fruit Company [1972] ECR 1219

➢        Case C-93/02 P Biret International v Council [2003] ECR I-104977

➢        Case C-94/02 P Etablissements Biret v Council [2003] ECR I-10565

➢        Case 266/81 SIOT v Ministero delle Finance [1983] ECR 731

➢        Case C-280/93 Germany v Council [1994] ECR I-4873

➢        Case 104/81 Hauptozollant Mainz v Kupferberg [1982] ECR 03641

➢        Case C-377/02 Van Parys v BIRB [2005] ECR I-1465

Court of First Instance

➢        Cases T-163/94 and T-165/94 NTN and Koyo Seiko v Council [1995] ECR II-1381

➢   Case T- 30/99 Bocchi [2001] ECR II-943

➢        Case T- 18/99 Cordis [2001] ECR II-913

➢        Case T- 52/99 T. Port [2001] ECR II-981

➢   Case T-174/00 Biret International SA v Council [2002] ECR II-17

• Case T-210/00 Etablissements Biret & Cie SA v Council [2002] ECR II-47
• Casee T-91/01 Chiquita v Commission [2005] ECR II-315

Books

➢        Mitsuo Matsushita, Thomas J. Schoenbaum and Petros C. Mavroidis, “The World Trade Organization. Law Practice and Policy”, 2006, 2nd edition, (Oxford University Press)

➢        I. Brownlie, “Princple of International Law”, 1998, 5th edition, (Oxford University Press)

➢        S. Peers, “Fundamental Rights or Political Whim? WTO Law and the European Court of Justice, in The EC and the WTO-Legal and Constitutional Issues”, 2003, De Burca, G & Scott, J. (eds.) Hart Publishing, Oxford

➢        Petersmann, “EU – European and International Constitutional Law: Time for Promoting ‘Cosmpolitan Democracy’ in the WTO, in the EC and the WTO-Legal and Constitutional Issues”, 2003, De Burca, G & Scott, J. (eds.) Hart Publishing, Oxford

➢        Emmanuel Guinchard, “Word Trade Organisation”, Distance Learning LLM workbook, 2009, Northumbria University

Articles

Stefan Griller, “Judicial Enforceability of WTO Law in the European Union: Annotation to Case C-149/96, Portugal v Council”, Issue 3, Journal of International Economic Law, 441 (2000)

Piet Eeckhout, “Judicial Enforcement of WTO Law in the European Union – Some Further Reflections”, Volume5/Issue 1, Journal of International Economic Law, 91 (2002)

Sebastiaan Princen, “EC Compliance with WTO Law: The Interplay of Law and Politics”, Volume 15/Issue3, European Journal of International Law, 555 (2004)

Greet A. Zonnekeyn, “EC Liability for the Non-Implementation of WTO Dispute Settlement Decisions – Advocate General Alber Proposes a ‘Copernican Innovation’ in the Case Law of ECJ”, Volume6/Issue 3, Journal of International Economic Law, 761 (2003)

Publications

Peter Sutherland et al, “The Future of WTO – Addressing Institutional Challenges in the New Millennium”, Report by the Consultative Board to the Director-General Supachai Panitchpakdi, 2004, WTO publications

“Understanding the WTO”, 2008, 4th Edition, WTO publications (an updated version of this text also appears on )

Treaties

The Treaty of Maastricht of 1992 (Treaty on European Union)

EC Legislation

Council Regulation 2641/84/EEC, OJ L 252 17.09.1984

Council Regulation 2423/88/EEC, OJ L 209 11.07.1988

Council Directive 96/22/EC, OJ L 125 23.5.1996

Council Regulation 3254/91/EEC

Council Directive 81/602/EEC, OJ L 222 7.8.1981

Council Directive 88/146/EEC, OJ L 70 7.3.1988

WTO Legislation

Legal Instruments Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations Done at Marrakesh on 15 April 1994

WTO Dispute Settlement

Panel Report, United States – Section 301-310 of the Trade Act of 1974, 7.72, WT/DS152/R, Dec. 22, 1999

Panel Report, EC – Measures Concerning Meat and Meat Products (Hormones), WT/DS26/R/US & WT/DS48/R/CAN, August 18 1997

Appellate Body Report, EC – Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R/ & WT/DS48/AB/R/, February 13 1998

Legal Databases and Websites

WTO website:

WTO legislation:

WTO cases:

European Courts cases:

Butterworths Lexis Direct:

Justis:

Lawtel:

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