Non-violation nullification of benefits

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Non-violation nullification of benefits (NVNB) claims are a species of dispute settlement in the World Trade Organization arising under World Trade Organization multilateral and bilateral trade agreements.[ clarification needed ] NVNB claims are controversial in that they are widely perceived to promote the social vices of unpredictability and uncertainty in international trade law. [1] Other commentators have described NVNB claims as potentially inserting corporate competition policy into the World Trade Organization Dispute Settlement Understanding (DSU). [2]

Dispute settlement or dispute settlement system (DSS) is regarded by the World Trade Organization (WTO) as the central pillar of the multilateral trading system, and as the organization's "unique contribution to the stability of the global economy". A dispute arises when one member country adopts a trade policy measure or takes some action that one or more fellow members considers to be a breach of WTO agreements or to be a failure to live up to obligations. By joining the WTO, member countries have agreed that if they believe fellow members are in violation of trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally — this entails abiding by agreed procedures—Dispute Settlement Understanding—and respecting judgments, primarily of the Dispute Settlement Board (DSB), the WTO organ responsible for adjudication of disputes. A former WTO Director-General characterized the WTO dispute settlement system as "the most active international adjudicative mechanism in the world today." Chad P. Bown of the Peterson Institute for International Economics and Petros Mavroidis of Columbia Law School remarked on the 20th anniversary of the dispute settlement system that the system is "going strong" and that "there is no sign of weakening".

World Trade Organization Intergovernmental trade organization

The World Trade Organization (WTO) is an intergovernmental organization that is concerned with the regulation of international trade between nations. The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the largest international economic organization in the world.

Contents

Location of NVNB claims

NVNB claims are directly referred to in Article 26 of the World Trade Organization DSU, Article XXIII of the General Agreement on Tariffs and Trade 1994 (GATT 1994) Article XXIII of the General Agreement on Trade in Services (GATS) and Article 64 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). [3]
In GATT jurisprudence, NVNB complaints appear to have originally been designed to counter the capacity of countries to avoid relatively simple obligations and specific tariff concessions in multilateral trade agreements, by making ambiguous domestic regulatory arrangements. [4]

The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis."

The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.

NVNB claims provisions also exist in many bilateral trade agreements. In the Australia-United States Free Trade Agreement(AUSFTA) article 21.2 (c) provides an NVNB claim:

Except as otherwise provided in this Agreement or as the Parties otherwise agree, the dispute settlement provisions of this Section shall apply with respect to the avoidance or settlement of all disputes between the Parties regarding the interpretation or application of this Agreement or wherever a Party considers that:

(a) a measure of the other party is inconsistent with its obligations under this Agreement (b) the other Party has otherwise failed to carry out its obligations under this Agreement; or (c) a benefit the Party could reasonably have expected to accrue to it under Chapters Two (National Treatment and Market Access for Goods [including Annex 2C on pharmaceuticals]), Three (Agriculture), Five (Rules of Origin), Ten (Cross-Border Trade in Services), Fifteen (Government Procurement) or Seventeen (Intellectual Property Rights) is being nullified or impaired as a result of a measure that is not inconsistent with this Agreement.

The Australian academic Thomas Alured Faunce has argued that by expressly applying Annex 2C on pharmaceuticals, the NVNB claim in article 21.2(c) of the AUSFTA may have been responsible for lobbying by United States negotiators around the constructive ambiguity of reward of innovation (through the Medicines Working Group established by article 2C of the AUSFTA) that influenced Australian legislative changes impacting on reference pricing under the Pharmaceutical Benefits Scheme. He maintains that such pressure from NVNB claims is most likely to arise from 'behind doors' lobbying using threats of cross-retaliation (threatening a trade dispute in one trade area to obtain a result in a different sector) if a planned or existing domestic policy is perceived to breach the 'spirit' of the relevant bilateral trade agreement. Formal dispute resolution proceedings may never be initiated or be intended to commence if such lobbying is persuasive. [5] If this hypothesis is correct, it represents a disturbing example of regulatory capture and has worrying implications for democratic sovereignty. The Australian government, however, strenuously denies such claims.

Lobbying attempting to influence decisions of government officials

Lobbying, persuasion, or interest representation is the act of attempting to influence the actions, policies, or decisions of officials, most often legislators or members of regulatory agencies. Lobbying, which usually involves direct, face-to-face contact, is done by many types of people, associations and organized groups, including individuals in the private sector, corporations, fellow legislators or government officials, or advocacy groups. Lobbyists may be among a legislator's constituencies, meaning a voter or bloc of voters within their electoral district; they may engage in lobbying as a business. Professional lobbyists are people whose business is trying to influence legislation, regulation, or other government decisions, actions, or policies on behalf of a group or individual who hires them. Individuals and nonprofit organizations can also lobby as an act of volunteering or as a small part of their normal job. Governments often define and regulate organized group lobbying that has become influential.

Constructive ambiguity is a term generally credited to Henry Kissinger, said to be the foremost exponent of the negotiating tactic it designates. It refers to the deliberate use of ambiguous language on a sensitive issue in order to advance some political purpose. Constructive ambiguity is often disparaged as fudging. It might be employed in a negotiation, both to disguise an inability to resolve a contentious issue on which the parties remain far apart and to do so in a manner that enables each to claim obtaining some concession on it.

Innovation in its modern meaning is "a new idea, creative thoughts, new imaginations in form of device or method". Innovation is often also viewed as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. Such innovation takes place through the provision of more-effective products, processes, services, technologies, or business models that are made available to markets, governments and society. An innovation is something original and more effective and, as a consequence, new, that "breaks into" the market or society. Innovation is related to, but not the same as, invention, as innovation is more apt to involve the practical implementation of an invention to make a meaningful impact in the market or society, and not all innovations require an invention. Innovation often manifests itself via the engineering process, when the problem being solved is of a technical or scientific nature. The opposite of innovation is exnovation.

Operation of NVNB claims

Under such NVNB provisions, the full range of dispute resolution mechanisms may be invoked whether or not a breach of any specific provision is alleged or substantiated. The precondition is that a 'reasonably expected' 'benefit' accruing under the relevant trade agreement, has been 'nullified or impaired' by a 'measure' applied by a WTO Member. Five requisite elements of a NVNB claim arguably have been identified by Dispute Resolution Panels:
1. That a 'measure' has been applied by a party subsequent to the entry into force of the relevant trade agreement;
2. That a 'benefit' was reasonably expected by the other party as being negotiated in return for some textual agreement; and
3. That as a result of the application of the measure that benefit has been 'nullified or impaired.'
4. That the nullification or impairment was contrary to the legitimate or reasonable expectations of the complainant at the time of the negotiations
5. That such claims will only be used in extremely rare circumstances (for example proven bad faith during negotiations), due to their capacity to upset the certainty of the international trading order. [1]

Debate about NVNB claims

Article 3.2 of the World Trade Organization DSU requires panels to clarify existing provisions of agreements in accordance with customary rules of interpretation of public international law. This leads to consideration of how the NVNB principle interacts with Article 26 of the Vienna Convention on the Law of Treaties, incorporating the principle of pacta sunt servanda: "Every treaty in force is binding upon the parties to it and must be performed by them in good faith." NVNB claims appear to undermine this fundamental principle of international law by subsequent reinterpretations based on the 'spirit' of the agreement. [1]

Vienna Convention on the Law of Treaties treaty

The Vienna Convention on the Law of Treaties (VCLT) is an international agreement regulating treaties between states. Known as the "treaty on treaties", it establishes the rules and procedures for how treaties are defined, drafted, enforced, amended, interpreted, and generally operate.

Pacta sunt servanda, a brocard, is a basic principle of civil law, canon law, and international law.

Both the United States and European Economic Community have argued before a GATT 1994 panel that recourse to NVNB claims should remain 'exceptional' or the trading world would be plunged into a state of precariousness and uncertainty. [6] Despite this, however, the United States has inserted NVNB claims in many bilateral trade agreements.

The Appellate Body in the WTO EC - Asbestos Case agreed with the Panel in the WTO Japan – Film Case, [7] stating that the non-violation nullification or impairment remedy in GATT Article XXIII:1(b): "should be approached with caution and treated as an exceptional concept." The reason for this caution is straightforward. Members negotiate the rules that they agree to follow and only exceptionally would expect to be challenged for actions not in contravention of those rules. [8]

The governments of Canada, the Czech Republic, the European Communities, Hungary and Turkey have stated at the World Trade Organization that "the uncertainty regarding the application of such non-violation complaints needs to be resolved so as to minimize the possibility of unintended interpretation." [9]

Contemporary controversy over NVNB claims and proceedings arises in large part from their potential to allow a WTO Member to threaten a trade dispute if a wide and largely undefined range of domestic regulatory components are not altered, or compensation organised. It may facilitate a WTO dispute settlement process involving deliberate diplomatic ‘gaming’ of trade ‘rules,’ breaking of finely balanced textual truces and dispute panel interpretations that more an act of ongoing negotiation, than judicial analysis. [10]

WTO Moratorium on NVNB Claims

At the WTO meeting in Hong Kong in December 2005, the United States delegation pushed hard behind the scenes for trade concessions in return for its acquiescence to the moratorium on the use of NVNB provisions under TRIPS. [11] The resultant Ministerial Declaration left the position of NVNB claims under TRIPS extremely uncertain.

45. We take note of the work done by the Council for Trade-Related Aspects of Intellectual Property Rights pursuant to paragraph 11.1 of the Doha Decision on Implementation-Related Issues and Concerns and paragraph 1.h of the Decision adopted by the General Council on 1 August 2004, and direct it to continue its examination of the scope and modalities for complaints of the types provided for under subparagraphs 1(b) and 1(c) of Article XXIII of GATT 1994 and make recommendations to our next Session. It is agreed that, in the meantime, Members will not initiate such complaints under the TRIPS Agreement.

— WTO Ministerial Conference Sixth Session Hong Kong, [12]

Circumscribing NVNB Claims in Trade Law Dispute Resolution Panels

One way of circumscribing NVNB claims so they are compatible with the obligation to act in good faith and with other rules of treaty interpretation under Articles 31 and 32 of the Vienna Convention on the Law of Treaties is to restrict their operation to ensuring 'transparency and openness' in the negotiating process. In consequence, in NVNB disputes, the inquiry to be made by a dispute resolution Panel is whether the complaining party was induced into error during negotiations by the other treaty Party about a fact or situation, that the former could not reasonably have foreseen. [1]

See also

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References

  1. 1 2 3 4 Faunce TA, Neville W and Anton Wasson A. Non Violation Nullification of Benefit Claims: Opportunities and Dilemmas in a Rule-Based WTO Dispute Settlement System in Bray M (ed) Ten Years of WTO Dispute Settlement: Australian Perspectives. Office of Trade Negotiations of the Department of Foreign Affairs and Trade.Commonwealth of Australia. 123-140
  2. ↑ F Roessler, 'Should Principles of Competition Policy be Incorporated into WTO Law Through Non-Violation Complaints?' (1999) 3 Journal of International Economic Law 413.
  3. ↑ The TRIPS Agreement is Annex 1C of the 1994 Marrakesh Agreement Establishing the World Trade Organization. The DSU is more formally styled, in Annex 2 to the same Agreement, as the Understanding on Rules and Procedures Governing the Settlement of Disputes. All relevant texts are published by the WTO (on line and in hard-copy with Cambridge University Press 1994) as The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations.
  4. ↑ Communication from Canada to WTO, Non-Violation Nullification or Impairment Under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) IP/C/W/127 10 Feb 1999.
  5. ↑ Faunce TA. Reference pricing for pharmaceuticals: is the Australia–United States Free Trade Agreement affecting Australia’s Pharmaceutical Benefits Scheme? Medical Journal of Australia 2007; 187 (4): 240-242 http://www.mja.com.au/public/issues/187_04_200807/fau10585_fm.html (last accessed 19 June 2009)
  6. ↑ EEC - Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal-Feed Proteins, BISD 37S/86, 118 [114-113].
  7. ↑ Japan - Measures Affecting Consumer Photographic Film and Paper, WTO Doc WT/DS44/R (1998) [10.50] (Report of the Panel).
  8. ↑ Ec – Measures Affecting Asbestos and Asbestos-Containing Products, WTO Doc WT/DS135/AB/R, AB-2000-11 (2001) [185] (Report of the Appellate Body).
  9. ↑ Communication from Canada, the Czech Republic, the European Communities and their Member States, Hungary and Turkey, Non-Violation Complaints under the TRIPS Agreement - Suggested Issues for Examination of Scope and Modalities under Article 64.3 of the TRIPS Agreement, [13], (IP/C/W/191).
  10. ↑ Abbott FM, Non-Violation Nullification or Impairment Causes of Action under the TRIPS Agreement and the Fifth Ministerial Conference: A Warning and Reminder (2003).
  11. ↑ Faunce TA, Neville W and Anton Wasson A. Non Violation Nullification of Benefit Claims: Opportunities and Dilemmas in a Rule-Based WTO Dispute Settlement System in Bray M (ed) Ten Years of WTO Dispute Settlement: Australian Perspectives. Office of Trade Negotiations of the Department of Foreign Affairs and Trade.Commonwealth of Australia. 123-140 fn 58
  12. ↑ WTO Ministerial Conference Sixth Session Hong Kong, 13–18 December 2005. Doha Work Programme. Draft Ministerial Declaration. WT/MIN(05)/W/3/Rev.2 18 December 2005.
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