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New Paradigm for Understanding Mandatory and Discretionary
Legislation I. Introduction Ever since the inception of the World Trade Organization ("WTO") there have been many cases brought to the dispute resolution mechanism to challenge a certain nation's legislation violating said nation's WTO obligations. Throughout that time, the dispute panels and Appellate Body have explored legal theories, methodologies and procedures to determine domestic legislation's consistency with the WTO Agreements both substantively as well as procedurally. The importance of carefully examining national legislation is obvious. The legislation is the supreme authority of a sovereign country, which has the broadest applicability in a nation, and it is highly relied upon by such country's trading partners in the world. The reliance and concerns are particularly deepened for the WTO members, since the WTO Agreements, being a multilateral agreement, is enforced through member countries' implementation. Therefore, the determination of whether a nation's legislations nullify or impair other members' WTO rights is a critical issue for the WTO members, as well as for the legal body of WTO. One major jurisprudence the dispute settlement body (the "DSB") has used to decide the WTO-consistency of certain national legislation is to distinguish mandatory legislation from discretionary legislation. For the purpose of interpreting the consistency of national legislation, mandatory legislation is a legislation that mandates the executive branch to take action inconsistent with the WTO, and discretionary legislation is a legislation that merely gives the executive authority the possibility to act inconsistently with the WTO. This mandatory-discretionary legislation distinction will be explained in more detail in the following parts of the article. Although the mandatory-discretionary legislation theory was introduced into the GATT system more than a decade ago, for many years, neither the GATT panel nor the WTO DSB had given a thorough jurisprudential explanation of such theory and a systematic approach of how to apply it in a decision making process. On February 2, 1999, the EC requested the establishment of a panel to challenge the consistency of Sections 301-310 with WTO obligations and the Panel circulated its final report (the United States - Section 301 Panel Report) on December 22, 1999. Since neither party appealed, the panel decision was automatically adopted by the Appellate Body. Although the Panel decision only addressed a very limited issue (disappointing many legal scholars and politicians of Members), instead of giving a comprehensive and final determination on the "aggressive unilateralism" in Section 301 - 310, this decision is of great significance in understanding the legal process of WTO jurisprudence. For the first time, the Panel decision thoroughly reviewed and reshaped the area of mandatory and discretionary legislation. It also adopted a systematic methodology and procedure to determine the consistency of a nation's legislations. Some scholars think the Panel decision stands on shaky legal ground and will lead to ultimate recognition and tolerance of the unilateralism expressed in the section 301-310. I think the Panel decision was made on a creative and sound legal basis and shed light for Members' legislatures on how to make WTO -consistent law. Furthermore, the approach the Panel used is favorable to the possibility of striking down the unilateralism elements in Sections 301-310 that are inconsistent with the WTO in the future. This article is organized as follows. Part II provides the established rules with regard to mandatory and discretionary legislation before the United States-Section 301 Panel Report. Part III analyzes how the Panel Report dealt with the issue of mandatory and discretionary legislation and what methodology and procedure it established to examine the consistency of domestic legislations. This part will also address some of the criticism against the Panel report. Part IV presents a supplement to the methodology established in the Panel Report on United States- Section 301, based on some other WTO decisions. Part V is the conclusion. II. Rules on Mandatory and Discretionary Legislation in the Past 1. Mandatory and Discretionary Dichotomy Prior to the entry into force of the WTO Agreement, it was firmly established that Article 23:1(a) of the GATT 1947 allowed a Contracting Party to challenge legislation, independently from the application of that legislation in specific instances. Panels consistently considered that, under Article 23, they had the jurisdiction to deal with claims against legislation. In examining challenged legislation, panels developed the concept that mandatory and discretionary legislation should be distinguished from each other. This distinction focuses on how a law passed by a legislature would be carried out by an executive branch in practice. Mandatory legislation imposes on the executive authority requirements that cannot be modified by executive action. In other words, the executive authority has no options other than enforcing the measures provided in the legislation. Discretionary legislation delegates some discretion to the executive authorities, giving them the power to interpret or enforce the law either in a WTO-consistent way or a WTO-inconsistent way. In the past panel and Appellate Body reports, the distinction between mandatory legislation and discretionary legislation is critical in determining the WTO-consistency of a nation's legislation. Panels consistently hold that only legislation that mandates the executive authority to act in violation of GATT/WTO obligations can be found to be inconsistent with the general agreement. Legislation merely giving those executive authorities the power to act inconsistently with the GATT/WTO obligation is not, in itself, inconsistent with the general agreement. Therefore, domestic law, which is susceptible to multiple interpretations but has one possibility to be enforced in a WTO-consistent way, would not violate GATT/WTO obligations. The core issue to distinguish the mandatory legislation from discretionary legislation is whether there is room in the application of the law for the government authority to act in a WTO-consistent way. This is the fundamental test has been applied in all cases considering the distinction. In applying the discretionary-mandatory distinction in the U.S. Taxes on Petroleum and Certain Imported Substances, the panel found that legislation explicitly directing action inconsistent with GATT 1947 principles did not mandate inconsistent action so long as it provided the possibility for authorities to avoid such action. The Superfund Act required importers to supply sufficient information regarding the chemical inputs of taxable substances to enable the tax authorities to determine the amount of tax to be imposed; otherwise a penalty rate was to be prescribed in regulations by the Secretary of the Treasury by a different methodology. The panel concluded that it is regrettable that the Superfund Act explicitly directs the United States tax authorities to impose a tax inconsistent with the national treatment principle but, since the Superfund Act also gives them the possibility to avoid the need to impose that tax by issuing regulations, the existence of the penalty rate provisions as such does not constitute a violation of the Untied States obligations under the General Agreement. In Thailand-Restrictions on Importation of and Internal taxes on Cigarettes, the U.S. argued that Thai legislation providing for a higher tax ceiling (80 percent as opposed to 60 percent) on imported cigarettes was inconsistent with the national treatment obligation. The panel rejected this because the tax ceilings referred to the maximum rate that could be imposed. The authorities could apply the legislation in a GATT consistent way. Hence, the maximum rates that could be levied under the legislation need not be non-discriminatory. Where the legislation is ambiguous and capable of a range of interpretations, violation is avoided if one of the possible interpretations allows the executive to act consistently with the GATT. The distinction between mandatory and discretionary legislation the panels have consistently adopted gives great deference to the domestic legislation and implementation, as well as presuming the good faith of the domestic government to avoid conflicts with international agreement. However, to some extent the dichotomy motivates countries to set up ambiguous law for their executive branch to interpret and enforce, therefore causing variance with the international obligation. Another problem of this approach is that the panels adopt the single cut way to deal with mandatory and discretionary law. But in reality, there are different kinds of discretionary laws. Some discretionary laws might impose a great threat to the compliance with international agreement and should be examined seriously by panels. The possibility of interpreting a legislation in a WTO-consistent way should not be the only standard to recognize the WTO-consistency of a discretionary law. 2. Ripeness Professor Hedec states that it was "consistent practice in GATT not to adjudicate the legality of proposed changes in national law before they are enacted," but that after a national law's enactment, "the issue has been whether GATT should ever adjudicate before some definite action is taken affecting the complainant." In the years before the United States-Section 301 Panel report, GATT/WTO panels also follow the line of the mandatory-discretionary measures to address the issue of ripeness. For example, in Argentina-Footwear case, the United Sates requested a WTO panel to rule on Argentina's import duties on footwear, textiles, apparel, and other items and argued that these duties were inconsistent with Argentina's tariff bindings and therefore violated Article II of GATT 1994. Argentina defended on the ground that the United States had not shown that any Argentine-imposed import duty actually exceeded its tariff bindings, and that the mere potential that a duty could exceed the bound rate did not constitute a violation. In response, the United States argued that Argentina's import duty scheme "necessarily" had the potential to result in duties above its tariff binding, without any discretion being exercised by Argentine customs authorities, so that the Argentine measure effectively mandated a WTO violation under the particular facts. The panel agreed that the Argentine duty scheme was a "mandatory" measure and stated that "GATT/WTO case law is clear in that a mandatory measure can be brought before a panel, even if such an adopted measure is not yet in effect, and independently of the absence of any trade effect for the complaining party. However, under the WTO, a measure will not be ripe for review if under the legislation the Member retains discretion to promulgate or interpret the law or regulation in a manner consistent with its obligations, i.e., if the violation is not mandatory. In other words, legislation conferring discretion on the executive to take WTO-inconsistent action can only be challenged if the legislation has been implemented in an inconsistent manner. The concept of ripeness was balanced in GATT/WTO jurisprudence by the established doctrine that the GATT/WTO disciplines protected "expectations" and the competitive relationships, on which business could rely, and did not merely protect existing trade. While the rule relating to mandatory legislation is clearly consistent with the expectation principle, it is questionable whether the rule relating to discretionary legislation is also consistent. A corollary to the principle is that the mere exposure of law to a risk of WTO-inconsistency might be itself impermissible, whether or not the discretion has been exercised. The rules relating to the discretionary legislation will allow such legislation to stand absent a WTO-inconsistent exercise of the discretion; creating uncertainty over future competitive conditions and hence is inconsistent with the objective of the WTO. Therefore, using mandatory and discretionary legislation to determine the ripeness is not consistent with WTO's spirit of protecting "expectations". Certainty requires the discretionary legislation also be subject to challenge, whether or not the discretion has been exercised. The above provides an overview of some major rules established with regard to the mandatory and discretionary legislation before the Panel report on United States-Section 301 was issued. The next part will address how the panel report reshaped this area of law, fixed the legal defects in the past rules presented in the analysis above and set up a systematic approach to analyze the WTO-consistency of national legislations. III. The New Horizon of 301 Panel Report 1. Background of the Case Some background knowledge of the case will help to understand the methodology the Panel used to examine the consistency of a domestic legislation. In the report, the Panel did not make an overall assessment of Sections 301-310's conformity with the WTO Agreement. The Panel's mandate was limited to the EC's specific claims. This article will focus on the Panel's decision on the major claim - Section 304, since this is most representative of the panel's methodology. Section
304(a)(2)(A) provides in relevant part: In
the EC's view, the strict time limit under section 304 (a)(2)(A),
requires the USTR to make a unilateral determination as to
whether another WTO Member has violated U.S. rights under
the WTO within the eighteen-month deadline. According to the
EC, the determination under section 304 is required even if
the DSB has not yet adopted a report with findings on the
matter, contrary to Article 23.2 (a). Article 23.2(a) of the
Dispute Settlement Understanding (the "DSU") provides: In response, the United States argued that Section 304 does not always compel the USTR to make a specific determination that U.S. rights have been denied without regard to the availability of the findings of the panel and Appellate Body. Furthermore, the United States argued that under section 304, a determination that U.S. rights have been denied before the adoption of DSB finding is precluded. According to the United States, Section 304 only requires the USTR to determine whether-not to determine that-U.S. right have been denied. The U.S. followed the traditional understanding of mandatory and discretionary legislation and submitted forcefully that only mandating a WTO inconsistency or precluding WTO-consistency can violate WTO provision. Section 304 confers discretion on the USTR and provides him or her the possibility to make the determination in a WTO-consistent manner. Therefore, the legislation could not be in violation of Article 23.2(a) of the DSU. 2 The Panel's response The Panel decided that this absolute distinction between mandatory and discretionary legislation would no longer be the determining factor to decide the WTO-consistency of a domestic legislation. The Panel stated that it would not accept the legal logic that there has to be one fast and hard rule covering all domestic legislation. The Panel held that the appropriate method to determine the WTO-consistency of a national law is to examine with care the nature of the WTO obligation at issue and to evaluate the Measure in question in the light of such examination. The remainder of this part will illustrate the legal foundation and the application of this methodology step by step. a. Examination of General Applicability There are two kinds of violations a Member can bring before the WTO DSB. The first type is that a specific action in an individual case violates the WTO Agreements. The second type is that measures of general applicability adopted in a Member country are inconsistent with WTO Agreements, independent from its application in specific case. As Article XVI: 4 of the WTO Agreement makes clear that "Each Member shall ensure the conformity of its laws, regulations, and administrative procedures with its obligation", it expands the type of measures made subject to the WTO Agreement. Therefore, measures of general applicability that can be challenged include legislation, regulation and administrative procedures. Under the Panel's view, not only the legislation passed by the legislature can be challenged under the WTO, any other administrative regulation and procedure, which have general applicability, are also subject to the WTO obligations. The
Panel recognized that the examination of municipal law is
essential to determining whether a member county has complied
with its WTO obligations. It suggested that if a Member adopts
any legislation, it has to be mindful that it needs to be
WTO-consistent. In the Panel's view, when a WTO Member has not enacted specific legislation providing for procedures to enforce WTO rights, as there is no measure of general applicability to challenge, normally only the specific violation can occur. I cannot agree with this. In the situation when a WTO member neither enacts specific legislation nor mandates an administrative agency to enforce WTO rights, it is still possible to find its general measure inconsistent with the WTO. The absence of a sound legal mechanism to implement WTO obligations can constitute a form of passive violation. In the India-Patent (U.S.) case, the Appellate Body held that India's inaction failed to carry out its WTO obligation and therefore nullified other Member's expected benefits. b. Objective Assessment of the Facts The Panel examines national laws for the sole purpose of determining whether the Member's legislation is consistent with its WTO obligations. The Panel is called upon to establish the meaning of the challenged law as factual elements and to check whether these factual elements constitute conduct by the challenged country contrary to its obligation. In
accordance with Article 11 of the DSU, it is the panel's duty
to "make an objective assessment of the facts of the
case and the applicability of and conformity with the relevant
agreements, and make such other findings as will assist the
DSB in making the recommendations or in giving the rulings
provided for in the covered agreement." c. Measure in Question In this case, the challenged measure of general applicability is U.S. national legislations. Sections 301-310 are part of the U.S. Trade Act passed by the Congress. Under the traditional mandatory-discretionary legislation approach, the panel only looked at the statutory language to evaluate the conformity of the legislation. In this case, the Panel recognized that in a complex modern society, it is very common that the Legislature itself does not seek to control, through statute, all covered conduct, but instead it delegates to pre-existing or specially created agencies or other public authorities the power to regulate the covered conduct according to certain criteria and within discretion limits set out by the Legislature. Being aware of this multi-layered character of the national law, in evaluating the conformity of Sections 301-310 to the relevant WTO provisions, the Panel examined the statutory language as well as other institutional and administrative elements. The Panel stated that the various elements of the national law are often inseparable and should not be read independently from each other when evaluating the overall conformity of the law to WTO obligations. Every element of law constitutes an internal part of the measures in question and the Panel's evaluation will be based on all elements taken together. The Panel regarded the challenged national law comprising all of these elements as "the Measure in question". The Panel realized that it is the end result that counts, not the manner in which it achieved. This set up the foundation to abolish the mandatory-discretionary legislation dichotomy as the determining factor in examining the WTO-consistency of legislation. The panel shifted its focus from how the statute looks like to how it is carried out in reality. d. Hierarchy of the Elements of Measure in Question and Burden of Proof. Although every element of the Measure in question contributes to helping the Panel to determine the WTO-consistency of a national legislation, the statute element and the administrative element play different roles and are examined at different phases in the Panel's decision-making. It has been well established that it is the challenging party who bears the burden to show the questioned legislation creates a prima facie violation of WTO obligations. The prima facie inconsistency will be determined by the examination of the statutory language itself. At the stage of establishing prima facie violation, the statutory language will be the only element the Panel focuses on. Therefore, in evaluating legislation, the Panel always first looks at the statutory language itself. Once the challenging party successfully establishes the prima facie violation, the burden shifts to the defending party to rebut that prima facie case by presenting an administrative or institutional element. The finding of a prima facie violation is not the end of the examination. Due to the nature of the Measure in question, the regulatory element will step in at this stage. Though the statutory language may be prima facie inconsistent, such inconsistency may be lawfully removed upon examination of other administrative or institutional elements of the same law. The opposite maybe equally true: even though the statutory language granting specific powers to a government agency may be prima facie consistent with WTO rules, the challenging party can go on to carry the burden to prove that the internal criteria or administrative procedures are inconsistent with WTO obligations, which would render the overall law in violation. In essence, after crossing the threshold of the prima facie case, the Panel will examine the impact of other elements on the overall conformity of the Measure in question with the relevant WTO provisions. e. The Abolishment of the Mandatory-Discretionary Legislation Dichotomy While the above focuses on the procedural methodology the Panel followed in the report, this part presents the core issue of this article: the substantive methodology the panel established to determine WTO-consistency of national legislation. The statutory language of Section 304 mandates the USTR in certain cases to make a unilateral determination on whether US rights have been denied even before the adoption by the DSB of its findings on the matter. However, the statutory language of Section 304 neither mandates the USTR to make a determination of inconsistency nor precludes him or her from making such a determination. This is typical discretionary legislation under the traditional understanding of such kind of legislation. The legislature allows the USTR to carry out the law in a WTO-consistent way. The traditional approach will only focus on the manner of how the domestic law is drafted. So long as it is discretionary legislation under the low-threshold definition, it will be WTO-consistent. The panels in the past determined the consistency issue based on how to categorize the nature of the domestic law. In this case, the Panel abolished this formalistic approach. They believed that resolving the dispute as to which type of legislation, in the abstract, is capable of violating WTO obligations is not germane to the resolution of the type of claims. The Panel established the method in examining the domestic law as such: "In our view the appropriate method in cases such as this is to examine with care the nature of the WTO obligations at issue and to evaluate the Measure in question in the light of such examination." Under this approach, the conformity of domestic legislation first and foremost depends on the precise obligation contained in relevant WTO provisions. The Panel rejected that legislation with discretion could never violate the WTO. If the WTO provisions impose a mandatory obligation on the member to do something or not to do something, the fact that the member explicitly reserves such right in its statutory language is a violation of WTO Agreements. If the interpretation of the relevant WTO provision found such mandatory obligation, then the discretionary legislation, which explicitly allows the government authority to act in a WTO-inconsistent way, will presumptively violate such Member's obligation under the multilateral treaty. The Panel's approach ties the determination of domestic law tightly to what the obligation the WTO Agreements imposed on the member. This obligation-oriented approach is consistent with the nature of the WTO Agreements. The obligations drawn from the provisions constitute mutual promises among WTO members giving each other a guarantee enshrined in international legal obligations. Under this approach, the precise understanding of the WTO provisions becomes critical in subsequently determining the WTO-consistency of legislation. The Panel applied this approach to the case of whether Section 304 violates Article 23.2(a). Careful examination of Article 23 led the Panel to conclude that it is for the WTO through the DSU process to determine that a DSU inconsistency has occurred; it is for the WTO or both of the disputing parties to determine the reasonable period of time for the Member concerned to implement DSB recommendation and rulings; and it is for the WTO to determine the level of suspension of concession, as well as to grant authorization for the actual implementation of these suspensions. These rules and procedures include most specifically in Article 23.2(a) a prohibition on making a unilateral determination of inconsistency prior to exhaustion of DSU proceedings. It is the mandatory obligation of Members to have recourse to and abide by the rules and procedures of the DSU and to abstain from unilateral determinations of inconsistency. Members rely on each other's promise under Article 23 that no unilateral determination in respect or WTO rights and obligations will be made. Based on this reading, the Panel concluded that the statutory language of Section 304, which gives the USTR discretion on its face, precludes the US from abiding by its obligations under the WTO. The statute explicitly allows the government authority to do what the Member promised not to do under Article 23.2 (a). The USTR's discretion removed the guarantee that Article 23 is intended to give not only to Members but indirectly also to individuals and the market place. The statutory language of Section 304, which explicitly reserves the right to something it must not do under Article 23.2 (a), constitutes a prima facie violation. There are two other issues I would like to mention in this part. The Panel has consistently interpreted treaties in considering text, context and object-and-purpose of the treaty. The Panel in this case emphasized that one of the central purposes of the WTO is to provide security and predictability to the multilateral trading system. The Panel recognized that the DSU is one of the most important instruments to protect the security and predictability of such multilateral trading system. This is a very favorable understanding to strike down the section 301's aggressive unilateralism in the future. Another issue is that, from the reading of the report, one can infer that there might be at least two types of obligation the WTO provisions might expect from the Members. One might be mandatory obligation, which requires the member must do something, or must not do something, as we have seen in this case. Under this circumstance, certain types of discretionary legislation are not allowed. I would like to analogize Member's complying with its international mandatory legal obligation to the field of conflict between Federal regulations and State common law in U.S domestic legal system. If the fields are exclusively subject to the Federal regulation, then the state absolutely cannot interfere with this area of regulation, under the principle of preemption. There is another possibility, which is more common in WTO provisions, especially in the TRIPS agreement, that the provision doesn't impose a mandatory obligation on the member, but leaves great discretion for the member to obligate itself to meet the minimum standard or some other kind of general requirement. The panel in this case did not directly address this kind of situation. But the issue of discretionary obligations was examined in some other panel reports, such as the Appellate Body Report on India -Patent (US) and I will discuss it later. f. Construction of a System of Different Types of Legislation According to my understanding of the Panel Report, I constructed a system as to when a concerned WTO provision imposes a mandatory legal obligation on the Members, the WTO-consistency of different types of national legislations and the different approaches the DSB will follow in dealing with these respective legislations. I will discuss four types of legislations here: mandatory inconsistent legislation, mandatory discretionary legislation, generally or neutrally discretionary legislation, and finally, mandatory consistent legislation. (1) Mandatory inconsistent legislation: In some extreme case, the legislature might put into its legislation some language that is absolutely inconsistent with its WTO obligations. The statutory language itself leaves no discretion for the executive authority to exercise the law in a WTO-consistent way. For example, in the context of Section 304, if the legislation mandates the making of a determination of inconsistency as soon as a WTO panel has issued its report - without awaiting the result of a possible appeal and the adoption of DSB recommendation, this legislation is a mandatory inconsistent legislation. This will per se violate Article 23.2(a). Since the legislation is the supreme law in the Measure in question and was passed by the legislature, I think the examination of the statute will end at the conclusion that such mandatory inconsistent legislation violates the Member's obligation. Internal regulatory and institutional rules, other elements in the Measure of question, will not be able to salvage this type of legislation. (2) Mandatory discretionary legislation: Section 304, on the one hand, mandates the USTR to make a determination on whether US rights are being denied within 18 months after the request for consultations, while on the other hand, it allows the USTR to exercise wide discretion in all cases concerning the actual content of the determination he or she has to make. The broad discretion given to the USTR neither mandates the USTR to make a determination of inconsistency before the exhaustion of DSB procedure nor precludes him or her from making such a determination. Section 304 is a mandatory discretionary legislation. In other words, in this type of legislation, the legislature put into some language explicitly suggesting that the executive authority has the discretion to behave in a WTO-inconsistent way. If the concerned WTO provisions imposed a mandatory legal obligation on the Member, which prohibits certain legislative discretion, then this type of mandatory discretionary legislation creates a prima facie violation of WTO obligations. Although both mandatory inconsistent legislation and mandatory discretionary legislation create violation presumptively, due to the different nature of these two types of legislations, they get different treatment as to how the other elements of the Measure in question can step in and save the legislation. As I discussed above, in a modern complex society, the legislature delegating power to the government authority is quite common and necessary. Generally, mandatory discretionary legislation regulates WTO covered situations, as well as situations that are not covered by the WTO, (i.e., non-WTO members, or non-WTO subject matters.) For example, the statutory language of Section 304 gives the USTR the broad discretion as regards the entire scope of US trade relations, only a part of which comes within the orbit of WTO obligations. Within the discretion allowed, the statutory language leaves it to the USTR to apply provisions of the Trade Act that relate to the entire gamut of US trade relations in a manner which is consistent with US interests and obligations. The legislation sets out different regimes for the application of Section 304 depending on whether or not it concerns WTO covered situations. The language surely permits the administration to limit the discretion of the USTR so that no determination of inconsistency would be made before the exhaustion of DSU proceedings. Due to the discretionary nature of the mandatory discretionary legislation, finding that the statutory language constitutes a prima facie violation of WTO provisions will not confirm such violation. The panel will then examine the impact of other elements in the Measure in question on the overall conformity with the relevant WTO provisions. The defending party can bring regulatory or institutional rules as evidence to show that the executive authority curtails the discretion and brings the law into conformity with WTO obligations, thus removing the prima facie inconsistency and salvaging the legislation. In this case, the Panel found that the combination of the Statement of Administrative Action ("SAA"), US statements before the Panel and USTR practice under Section 304 successfully curtails the WTO- inconsistent discretion in the language of the statute and removes prima facie inconsistency of the legislation. (3)
General /Neutral discretionary legislation (4) Mandatory consistent legislation Mandatory consistent legislation will certainly constitute a prima facie compliance with the WTO provisions. However, as the Panel emphasized in the report that "it is the end result that counts, not the manner in which it is achieved", the mandatory consistent legislation will also be subject to examination of the internal regulatory or institutional rules and might potentially violate the WTO obligations based on the overall assessment of the elements in the Measure in question. But in practice, the burden might be very heavy for the challenging party to rebut the compliance of a mandatory consistent legislation. g. Effective Removal of Prima Facie Violation As I explained above, even the statutory language of the concerned discretionary legislation creates a prima facie violation, however, if by examining institutional and administrative elements in the Measure in question, the panel can find an overall WTO conformity, the prima facie violation can be effectively removed. The defending party needs to bring sufficient evidence to successfully rebut the prima facie violation. In this case, the Panel concluded that the prima facie violation of Section 304 had been eliminated, since the offending discretionary element of this section had been "effectively and legally curtailed" by the non-statutory element, such as the U.S. Administration's undertakings in the SAA and before the Panel. The Panel consistently followed its obligation-oriented approach and successfully achieved the goal to restrain the US from exercising its unilateral determination before the exhaustion of DSU proceedings. The ultimate goal of the challenging party in front of a WTO panel is to command the challenged Member to comply with its obligation and protect the other Member's legal right to which they are entitled under the WTO Agreements. The remedy a WTO panel can give is to rebalance the concessions among members and I think the Panel in this case did give such remedy to the challenging Members with regard to Section 304. If the law in Section 304, before this case, was ambiguous as to US WTO obligations, the Panel decision effectively fixed the defects by pressuring the U.S. to restore to its WTO partners the guarantees embodied in Article 23.2(a). The Panel repeatedly emphasized the authoritativeness and reliability of the USTR undertakings in the SAA and in front of the Panel. The Panel found the SAA, submitted by the President and approved by the Congress, contains a commitment to be followed by future Administrations, on which domestic as well as international actors can rely; the statements made before the Panel were solemnly made, in a deliberate manner, with the intention that all Members of the WTO can place reliance on them. The Panel concluded that the aggregate effort of the SAA and the US statement made is to provide the guarantee, both direct to other Members and indirect to the market place, that Article 23.2(a) is intended to secure. After all this presumption and expectation of US good faith, the Panel also added that should the U.S. repudiate or remove in any way these undertakings, the US would incur State responsibility since its law would be rendered inconsistent with the obligations under Article 23.2(a). The Panel, functioning as a negotiation forum, successfully set up clear terms for the US to follow in the future. The process can be described as quasi-treaty-making without violating Article 19 of DSU, which prohibits the DSB to add to or diminish the rights and obligations provided in the covered agreements. There are two other issues I want to mention here with regard to the Panel's approach in examining the non-statutory elements of Section 304: First, the Panel decision only focused on the WTO-consistency of the Section 304, rather than trying to solve all the controversies of the Sections 301-310. Highlighting four bullet points in pages 365-66 of the SAA, the Panel took the view that the US Administration legitimately made a commitment not to exercise the discretionary determination before the exhaustion of the DSU proceedings. The relevant part of the SAA to the Section 304 is the second bullet point in which it was made clear that the US wants to comply with the schedule set up by the DSU proceedings. But in future cases that challenge the overall aggressive unilateralism of Sections 301-310, the SAA might not be able to remove the prima facie violation. The preamble paragraph before the fourth bullet points says, "the DSU does not require any significant change in section 301 for investigations that involve an alleged violation of a Uruguay Round agreement or the impairment of US benefits under such an agreement. In such a case, the Trade Representative will" invoke DSU dispute settlement procedure and abide by the rules of DSU. The SAA only promised that the US would follow the procedures prescribed by the DSU in an alleged violation of WTO Agreement. A much-criticized part of Section 301-310 is that the provisions authorizing the USTR to make a determination as to whether or not a matter falls outside the scope of the WTO Agreements. The preamble paragraph does not help to assure a panel that the US gives up its unilateral determination of whether a claim is a WTO-covered one. And once the US unilaterally determines a dispute is not an alleged violation of WTO Agreement, the promise supplied by the four bullet points will not apply to the situation. Second, in a case that challenges the WTO-consistency of a national legislation, it is not the Panel's task to examine the individual conduct of the concerned Member in the specific case. The Panel will, however, examine the practice of the government authorities of Member in specific cases as a means of shedding light on the meaning of the challenged legislation. This approach opens the door to introduce a Member's actual practice in challenging legislation. Although in this case the Panel agreed with US that the record shows that the Trade Representative has never once made a Section 304 (a)(1) determination that US GATT or WTO agreement rights have been denied which was not based on the results of GATT and WTO dispute settlement proceedings. But this does not imply that the Panel indirectly supported the US claim that the United has never once enforced Section 301-310 contrary to WTO obligations since 1995, as some scholar understood the Panel report. On the contrary, Panel's willingness to consider individual case as evidence to understand the meaning of the statute provides the opportunity to introduce cases, such as Japan-Auto and EC-Banana to challenge the Sections 301-310 in the future. h. A Possible Error There is a possible error in the Panel's analysis. In evaluating the SAA, the Panel admitted that some of the language in the SAA appears ambivalent. Then the Panel said, "We note however that, following US constitutional, cases of ambiguity in the construction of legal instruments should, where possible, always be resolved in a manner consistent with US international obligation. We find that it is possible to do so in this case." I think this is a regression from the Panel's methodology used in examining Section 304. The Panel clearly said that it regarded the domestic legislation as factual evidence and would give its independent and objective assessment for the purpose of determining the WTO-conformity of the concerned legislation. In a case of ambiguity in the construction of legal instruments, if the Panel always defers to the interpretation of Member and presumes its good faith in complying with its international obligation, all the discretionary legislation would be found WTO-consistent. The Panel itself, in analyzing the WTO-consistency of Section 304, has already negated this deference approach. Furthermore, from a WTO policy perspective, its seems undesirable for the WTO panel to follow US constitutional law principles in favor of a construction upholding compliance with international obligations in case of ambiguity. This could give an unfair advantage to particular WTO members, such as the United States, over other WTO Members lacking such established constitutional law principles. IV. Discretionary Obligation Imposed by WTO Agreements As I have mentioned in Part II section E, the Panel Report on United States- Section 301 only addressed the situation when a WTO provision imposes a mandatory obligation on Members and how a Member should draft and implement its legislation under this kind of legal obligation. However, there is certainly another more common situation, where the WTO provisions, especially in TRIPS Agreement, does not make a clear requirement to the Member as what it must or must not to do, but set up a minimum standard or a general requirement while leaving great discretion for the Member to enforce it domestically. I would like to call this kind of obligation as Member's discretionary legal obligation under WTO. How the panel approaches this kind of obligation is not the focus of this article. However, I want to elucidate the existence of this prong of WTO obligations as a supplement to my understanding of the methodology adopted in the Panel Report on United States - Section 301. I will use the India - Patent (US) case to give a brief explanation of discretionary obligations and how they are perceived by the DSB. In India - Patent, TRIPS Agreement Article 70.8 (a) requires Members to provide a "means" by which mailbox application can be filed "from the date of entry into force of the WTO Agreement." It is well established that Members shall be free to determine the appropriate method of implementing the provisions for this Agreement within their own legal system and practice. Therefore, a member is free to determine the appropriate method of implementing its obligations under the TRIPS Agreement within the context of its own legal system. So in this case, the Member under TRIPS agreement is obligated to set up a means to preserve both the novelty of the inventions and the priority of the applications as of the relevant filing and priority dates. But what kind of means is sufficient to meet the WTO obligation is subject to the discretion of the Member. This exactly is an example of discretionary obligation imposed on the Members by the WTO. The Appellate Body interpreted that the purpose of Article 70.8(a) in the context of the TRIPS Agreement is to entitle the patent applicant to claim priority on the basis of an earlier filing in respect of the claimed invention over applications with subsequent filing of priority dates. The Appellate Body held that so long as the Member provides a legal system for the filing of mailbox application that provides a sound legal basis to preserve both the novelty of the inventions and the priority of the applications as of the relevant filing and priority dates, it complies with Article 70.8(a). In this case, the Appellate Body used a vague standard of whether there is a sound legal basis to achieve the purpose of the concerned provisions to determine the TRIPS consistency of a Member's legislation and other regulatory measures with its discretionary obligation. The methodology in evaluating a Member's discretionary obligation is worth further research, but I will not go into depth in this article. V. Conclusion This article tries to give a thorough discussion of my understanding of the Panel Report on United States - Section 301 from the perspective of methodology. This Panel Report established a systematic approach to evaluate the WTO-consistency of national legislation and other regulatory measures. It used an obligation-oriented way to determine whether a national legislation meets its obligation prescribed by the WTO. Precise understanding of the concerned provisions in WTO becomes very critical under this approach. According to my understanding, the WTO can impose at least two kinds of obligations: one is mandatory obligation which gives clear guidance as to what a Member must do or must not do and what is an exclusive area only subject to WTO's regulation and which no Member should interfere with; the other kind of obligation is discretionary obligation, which gives great discretion to the sovereign country to implement its WTO obligation. The obligation-focus approach is reasonable because WTO is a multilateral treaty among more than a hundred countries. The obligations, as the result of the negotiation, are promises each member gives to its trading partners in WTO system. Such obligations should be clearly identified and carried out. Another
major jurisprudential contribution of this case is that it
abolished the traditional formalistic approach in dealing
with mandatory legislation and discretionary legislation.
I believe the Panel solved the problem and gave the proper remedy in a very creative way. Functioning as a negotiation forum, based on sound legal theory, the Panel successfully rebalanced the concessions among members by pressuring the U.S. to make an affirmative and reliable promise of not making unilateral determination before the exhaustion of DSU proceedings. This article also includes a summary of the procedural methodology the Panel followed in determining the WTO- consistency of Section 304. I mentioned in several places that the methodology the Panel used and the Panel's understanding of the WTO and DSU are in favor of striking down the general aggressive unilateralism, which will be a real concern for the Members, in the future. (The author is an attorney with Davis Polk & Wardwell in New York.) |