Agenda

“We will. The only decision is when,” Roberto Azevedo, Brazil’s chief trade official, told journalists, according to Reuters.

The announcement comes three weeks after the WTO’s Appellate Body upheld Brasilia’s challenge to the support that the US offers its upland cotton producers. The panel ruled that the US subsidies, which include marketing loans, counter-cyclical payments and export credit guarantees, were inconsistent with the country’s WTO obligations.

Brazil had complained that the payments artificially depress global cotton prices, pushing Brazilian producers out of the market (See BRIDGES Weekly, 11 June 2008, http://www.ictsd.org/weekly/08-06-11/wtoinbrief.htm#2).

But before it can take any retaliatory measures, Brazil must re-activate its request, first submitted in 2005, for permission to take countermeasures against the US. Usually, complainant countries apply sanctions to goods from the same sector in which the dispute occurred. In this case, however, Brasilia plans to renew its request for authorisation to ‘cross-retaliate’ in other sectors. Specifically, it will ask permission to suspend intellectual property protection obligations (in copyrights, trademarks, industrial designs, patents and the protection of undisclosed information), and to suspend concessions in several services sectors.

If and when Brasilia re-commences arbitration, the WTO panel will need to rule on both the type of countermeasures that can be taken as well as the level of sanctions that can be applied. Brazil is considering making two requests, one for US$1 billion and one for US$3 billion.

However, Brazilian officials have said that it would be at least a few months before any request is submitted. The issue of retaliation is especially complex and will be considered with great care, especially as Brazil must consider the risk of US retaliation in another sector.

Meanwhile, the US has again declared its disagreement with the recent ruling of the WTO Appellate Body, saying that the decision was based on outdated evidence. Washington claims that the land devoted to cotton in the US has fallen by 38.5 percent in the last two years, that subsidies have been reduced and that marketing loans were eliminated in September 2007. Furthermore, Washington has suggested that it will not take additional measures to remove its cotton subsidies. That sentiment, coupled with the farm bill passed by the US Congress last month - which generally maintains payments to cotton producers - has led many in Brazil to denounce the Washington’s lack of goodwill on the issue.

ICTSD reporting. “Brazil to seek U.S. trade sanctions over cotton” REUTERS, 20 June 2008; “Brazil Ponders on How to Retaliate Against US Cotton,” BRAZZILMAG.COM, 22 June 2008; “Brazil to Pursue $4 Billion in Sanctions Against U.S. on Cotton” Bloomberg, 17 June 2008; “EUA não devem rever política do algodão” AGENCIA ESTADO, 20 June 2008.

The US and Canadian claims, both submitted on 9 June (WT/DS320/13; WT/DS321/13), follow an appeal filed by the EU late last month. In that claim, Brussels protested the panel’s finding that its ban on imports of hormone-treated beef was illegal. The EU also faulted the panel for stopping short of explicitly ordering Washington and Ottawa to remove the extra duties they had imposed in retaliation to the ban (WT/DS320/12 and WT/DS321/12).

In a ruling circulated in March, the panel found fault with all three parties involved in the dispute (see BRIDGES Weekly, 2 April 2008, http://www.ictsd.org/weekly/08-04-02/story1.htm).

For the EU, the panel ruled that a lack of adequate scientific risk assessment meant that the import ban on hormone-treated beef, which Brussels modified in response to an earlier panel ruling, still failed to comply with the requirements of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures.

The panel further ruled that the US and Canada had not followed proper procedures in continuing their trade retaliation against the ban. Washington and Ottawa have retained over US$125 million in annual sanctions on EU exports, such as Dijon mustard and Roquefort cheese, based on their unilateral determination that the EU’s modifications to its ban were not sufficient to bring it into compliance with a 1998 WTO ruling. The panel maintained that the US and Canada should have initiated legal proceedings to determine whether the import ban still violated WTO rules in order to maintain the sanctions.

In its appeal filed last week, the US stated that the panel’s finding on that topic “is in error and is based on erroneous findings on issues of law and legal interpretations.”

For its part, Brussels welcomed the panel’s ruling that US and Canadian retaliatory tariffs breached WTO rules, but disagreed with the panel’s determination that its ban was illegal, calling the assessment “flawed.”

“The panel made legal errors when it found that the new EU hormones directive does not comply with the WTO Agreement on Sanitary and Phytosanitary Measures,” the EU appeal stated.

The dispute began more than a decade ago, when a WTO panel first ruled that the US and Canada could impose punitive tariffs on European products to retaliate against Brussels’ ban on imports of beef produced with six growth-promoting hormones that are common in the US and Canada.

ICTSD reporting; “Notification of an Other Appeal by Canada,” WWW, 16 June 2008; “Notification of an Other Appeal by the United States,” WWW, 16 June 2008; “EU appeals WTO ruling over US beef hormone ban,” EU BUSINESS, 2 June 2008; “EU appeals WTO panel ruling on US and Canadian sanctions on EU goods in hormone-treated meat dispute,” EUROPEAN COMMISSION, 29 May 2008.

The DSB’s ruling, which confirms Brazil’s view after several years of disputes and appeals, marks the first time that a developed country’s agricultural policy has been successfully challenged at the WTO.

In December, five years after Brazil first requested a consultation, a WTO panel issued a report, known as Article 21.5, upholding Brazil’s claim that the marketing loans and countercyclical payments that the US offers its cotton farmers violate both the Agreement on Subsidies and Countervailing Measures and the General Agreement on Tariffs and Trade.

The US appealed that ruling in February, maintaining that its cotton payments fall outside the scope of Article 21.5 and that they do not significantly suppress global cotton prices.

The panel, in its report last week, again sided with Brazil, rejecting the US appeal. It was convinced by Brazil’s arguments that even a small drop in prices harms Brazilian producers, given their narrow profit margins, and that US cotton producers’ ‘artificially high’ market share reflects the impact of these subsidies.

Furthermore, the Appellate Body ruling allows Brazil to retaliate by imposing more than US$1 billion worth of sanctions on US imports each year. The WTO has suggested that this could take the form of a suspension of intellectual property rights.

While the ruling will prove encouraging to developing country trade negotiators, it is far from certain that the US will terminate its cotton subsidies. Indeed, after the issuing of an interim report by the WTO last July, then-US Agriculture Secretary Mike Johanns said that his government would “work very, very hard” to maintain payments to domestic cotton producers. This stance was confirmed in the farm bill passed by the US Congress last month. That legislation offers cotton producers subsidies of US$2-4 billion for over the next five years.

ICTSD reporting. “Brazil claims WTO cotton victory,” BBC NEWS, 27 July 2007; “US loses in cotton dispute at WTO,” BBC NEWS, 2 June 2008; “US loses WTO Brazil cotton appeal,” AL JAZEERA INTERNATIONAL, 2 June 2008.

The official complaint centres on three products: cable or satellite boxes with internet capability; flat panel displays for computers; and computer printers that also have the capacity to scan, copy or fax.

Washington and Tokyo claim that these products should be duty free under the WTO’s Information Technology Agreement (ITA), which prohibits tariffs on high-tech products among the agreement’s signatories.

But Brussels maintains that the ITA does not apply when technology changes have given a product multiple functions. For example, from the EU perspective, cable boxes with internet capability should properly be classified as video recorders because they can record live television, and thus should fall outside the scope of the ITA.

According to a statement by the European Commission “both the spirit and explicit provisions in the ITA make it clear that extension to new products to reflect technological change would not be automatic, but based on periodic review by signatories.”

Indeed, Brussels has on several occasions called for a renegotiation of the ITA, but the US has objected, arguing that technological developments of the products covered by the agreement were foreseeable and that new products should therefore be automatically included under its rules.

Global exports of the products targeted in the complaint amounted to an estimated US$70 billion in 2007. US Trade Representative Susan Schwab has said that EU duties reach 14 percent on some items.

Under WTO rules, the countries involved will now engage in consultations for 60 days. If no resolution has been reached at the end of that period, the US and Japan can ask a WTO panel to determine whether the EU is meeting its trade obligations.

ICTSD reporting; “EU-US trade row erupts over IT products,” EURACTIV, 30 May 2008; “U.S. files WTO case vs EU over tech tariffs,” REUTERS, 28 May 2008; “Remarks by Ambassador Susan Schwab United States Trade Representative,” 28 May, 2008; “EU rejects claims over technology tariffs,” EUROPEAN COMMISSION TRADE ISSUES, 28 May, 2008.

Les plaignants estimaient que le dispositif européen constituait une discrimination envers les pays d’Amérique latine. Ils critiquent le régime d’importation européen de bananes, entré en vigueur en janvier 2006, qui impose un droit de douane de 176 euros par tonne pour les bananes non originaires de la zone ACP. Devant ces griefs, l’OMC soutient que “la préférence accordée par l’UE sous la forme d’un contingent tarifaire annuel exempt de droits de 775.000 tonnes de bananes importées des pays ACP constitue un avantage pour cette catégorie de bananes”.

On peut retenir de cette condamnation que les juges ont retenu la même conclusion que celle rendu dans le même objet en avril. La Commission européenne s’était défendue en février dernier, lors de la parution du rapport intermédiaire de l’OMC, en affirmant que “depuis le 1er janvier 2008, les préférences aux ACP sont octroyées par des accords de partenariat économique ou des accords intérimaires compatibles avec l’OMC.

Ce nouveau jugement ne satisfait guère l’UE. Selon l’UE, la décision ainsi rendue «créé une mauvaise jurisprudence et que celle-ci entre en contradiction (…) avec (le) système de préférences qui a été aboli au début de l’année ». Elle compte par conséquent faire appel de cette décision. “C’est notre intention de faire appel de cette décision”, a déclaré devant la presse le porte-parole du Commissaire européen au Commerce Peter Mandelson. Il poursuit pour dire qu’une telle décision «crée un mauvais précédent, et n’a pas de sens, étant donné que notre régime préférentiel aux pays ACP (Afrique-Caraïbes-Pacifique) a été aboli au début de l’année ».

En effet depuis le 1er janvier 2008 est en effet entré en vigueur un nouveau régime commercial entre l’UE et les ACP, qui remplace l’ancien régime de préférences jugé non conforme aux règles internationales par l’OMC. Ce nouveau système, qui inclut les bananes, permet aux ACP d’exporter tous leurs produits, sucre et riz exceptés, sans droit de douane vers l’UE. Il oblige en échange les pays ACP à ouvrir progressivement 80% de leur marché aux produits européens, ce qui pour Bruxelles répond aux exigences de l’OMC. Les nouveaux accords, qui incluent les bananes, devraient permettre aux ACP d’exporter tous leurs produits, sucre et riz exceptés, sans droit de douane vers l’UE. Cette affaire de la banane constitue l’un des litiges les plus anciens de l’OMC.

C’est depuis le 25 septembre 1997 que l’Organe de règlement des différends de l’OMC a adopté les rapports du Groupe spécial et le rapport de l’Organe d’appel au sujet du régime d’importation, de vente et de distribution des bananes. C’est certainement l’une des affaires les plus complexes et les plus difficiles que l’OMC a eu à faire face depuis sa création. Aucune des parties prenantes de ce litige ne s’avoue vaincue. Depuis les premières condamnations, l’UE a souligné son engagement de respecter le mémorandum d’accord sur le règlement des différends de l’OMC, elle a également accepté les différentes recommandations des rapports du Groupe spécial et de l’Organe d’appel. Mais aussi pendant longtemps, elle avait une forte volonté de respecter ses obligations à l’égard des 71 pays d’Afrique, des Caraïbes et du Pacifique signataires de la Convention de Lomé et de Cotonou.

Aujourd’hui, l’UE se défend et rejette cette nouvelle condamnation parce que dans tous les pays qui exportent la banane dans le marché de l’UE, elle a réussi à avoir des accords de partenariat économique ; même si dans certains pays ACP, il y’a des accords intérimaires. Toujours est – il que ce nouveau régime commercial entre l’UE et certains ACP règle d’avis de Bruxelles cette question de la banane.

Mais les plaignants ne semblent pas se satisfaire de ce nouveau régime commercial. Il faudra d’abord surmonter l’hostilité très ancrée des pays d ‘Amérique latine producteurs de bananes face au régime de la CE appliqué aux bananes. Leur hostilité st sortie du cadre de la banane pour se transporter sur le terrain des préférences de longue date dont bénéficient les pays ACP ; dans les négociations agricoles, ils sont très offensifs sur la libéralisation totale des produits tropicaux qui incluent les bananes sous toutes ses formes, qu’elles soient fraîches ou sèches. Il faut aussi préciser la forte pression des multinationales américaines qui transforment la banane provenant des pays d’Amérique latine. Les grands pays producteurs de banane tel l’équateur, le Guatemala, l’Honduras ne transforment pas souvent la banane. C’est des sociétés comme Chiquita Brands, une multinationale américaine qui transforment cette production. Et elles exercent une forte pression sur les Etats, étant entendu que seul les Etats disposent de la prérogative de saisir l’organe juridictionnel de l’OMC.

Avec cette affaire de la banane, ce sont toutes les préférences accordées aux ACP qui sont visées. Ces préférences accordées titre des accords de Cotonou font l’objet d’une exemption à la règle de la nation la plus favorisée, sous la forme d’un waiver renouvelé par la conférence ministérielle de Doha jusqu’au 31 décembre 2007. Pour la banane, le waiver accordé implique l’engagement de l’UE de passer à un système uniquement tarifaire au 1er janvier 2006.

Force est de constaté aujourd’hui que cette affaire risque de continuer encore à être un litige opposant l’UE à certains Etats. Et l’on assistera à une succession de plaintes et d’appel sur la table de l’organe de règlement des conflits de l’OMC.

While the notion of prima facie (often translated as ‘on the face of it’) is a standard of evidence without a fixed definition, international tribunals have characterised it as evidence that “unexplained or uncontradicted is sufficient to maintain the proposition affirmed.”1

Under WTO jurisprudence, a complainant that is unable to pass the prima facie test runs the risk of failure.

Lawyers with a background in common law find this fact troubling since WTO panels are not confined to considering only the factual record presented by parties. (Under Article 13 of the Dispute Settlement Understanding, panels may seek information from anywhere they deem appropriate to supplement evidence provided by the parties. This is also the practice of civil law courts and most international tribunals).

The Prima Facie Standard and Burden of Proof within the WTO

‘Burden-shifting’ refers to the point in legal proceedings when a court has completed its analysis of whether the challenger has presented enough evidence to warrant a case and starts to consider counterclaims presented by the defendant and, possibly, other parties with an interest in the dispute.

The WTO Appellate Body (AB) first addressed this issue in its 1997 report on US – Shirts and Blouses (WT/DS33/AB/R). That ruling confirmed the original GATT practice regarding the allocation of burden of proof: the complaining party must establish the violation it alleges before a panel can start consideration of evidence presented by any other parties.

The 1998 Appellate Body report on EC – Hormones (WT/DS26/AB/R) clarified that this standard was to be applied to all WTO disputes. The AB emphasised that the burden of proof could shift only once the panel had conducted an analysis to determine that the complaining party had met the requisite prima facie standard. It further noted that the defending party’s ability to refute evidence presented by the claimant should have no effect on the initial determination of whether the complainant was able to satisfy the prima facie standard.

What Evidence Should Be Considered?

The Dispute Settlement Understanding (DSU) does not contain an explicit standard of review of what constitutes prima facie evidence. In EC-Hormones, the AB explained that “the issue of failure to apply an appropriate standard of review […] resolves itself to the issue of whether or not the panel […] made an objective assessment of the facts.’’ While this language is consistent with DSU Article 11, the task of developing the jurisprudence for its implementation has been left to the Appellate Body.

However, AB rulings have been far from consistent with respect to exactly what evidence should be considered by a panel in deciding whether a prima facie case has indeed been presented.

For instance, in February 1999 the Appellate Body applied the US – Shirts and Blouses burden-shifting approach in Japan – Measures Affecting Agriculture Products (WT/DS76/AB/R). It would be an abuse of authority for a panel to investigate under its own initiative and then proceed to rule in favour of a complaining party that had failed to establish a prima facie case, the AB stated. This ruling clearly limits the evidence that panels may consider during the prima facie analysis to that provided by the complainant.

Only months later, however, the Appellate Body directly reversed itself with respect to the evidence a panel should take into account in its prima facie determination. In Canada – Measures Affecting the Export of Civilian Aircraft , it ruled that a panel was free to request and consider information from parties or anyone else. In particular, the AB specified that the panel was under no obligation to wait until the complaining party had presented a prima facie case before conducting its own investigation. The Appellate Body further explained that outside information might indeed be necessary to determine whether the complaining party had presented a prima facie case. This view was reiterated in the Appellate Body’s 2006 report on US – Zeroing .

And yet, in its 2005 ruling on US – Gambling (WT/DS285/AB/R), the Appellate Body had reverted to its original position that a panel should be satisfied that the complainant had established a prima facie case before considering other evidence, such as a defendant’s rebuttal. In other words, a panel should refrain from further proceedings on a claim for which the complaining party has failed to make a prima facie case.

In light of such contradictions, it is not clear how a panel should conduct its prima facie analysis. Would it be justified in simultaneously considering outside evidence and argumentation presented by both parties, as advocated by the Appellate Body in Zeroing and Aircraft? Or should a panel limit itself to considering only evidence proffered by the complainant, as laid out in Shirts, Hormones and advanced in Gambling? Clarification is necessary.

Sheila Sabune is Trade in Services and Dispute Settlement Programme Officer at ICTSD. James Headen Pfitzer is Legal Technical Officer at the World Health Organisation in Geneva.