Functions of Good Faith in the WTO: Institutional, Substantive

and Procedural

by Dr. Marion PanizzonWorld Trade Institute/ NCCR-TradeECIPE Book Forum 13 June 2007

‘An international tribunal chooses, edits, and adapts

elements from better-developed systems: the result is a new

element of international law (...)’.Ian Brownlie, The Rule of Law in International Affairs, International Law at the

Fiftieth Anniversary of the United Nations (The Hague, Martinus NijhoffPublishers), 1998, p. 15

Outline• Foundations• Normative Value• Functions

– Substantive– Procedural– Institutional?

• Good Faith in Negotiations

Foundations of Good Faith

Behavioral, Legal, International

Foundations of Good Faith

environment

Decision-making

norms confidence/faith

overflow of impulses & simultaneous lack of information:complexity & lack of control

Human being or a State

impuls

impulsimpuls

impuls

good faith

Good Faith in WTO?

Normative ValueCodification in

DSU

Applicable Law& Scope of WTO

Jurisdiction

Relationship withDue Process Rights

Relationshipto non-violation

complaints

Linkage w/ Corrolaries

Good Faith InterpretationVCLT & WTO

Presumption of Good Faith

Judicial Activism

Normative Value of Good Faith

Self-standing Obligation or Accessory Enforceability?

Question for GF in the WTO

Is it lawful for a Panel or AB to find that a Member has acted in bad faith (or failed to act in good faith) in the absence of a specific obligation requiring a conduct in good faith (such as the Chapeau of Article XX GATT)? and do Panels and the AB have a duty to fill in gaps in the treaties with good faith?

Degrees of Normativity(pursuant to 38 ICJ Statute, VCLT & 3.2 DSU)

1. binding rule of custom (when good faith in treaty performance is linked to pacta suntservanda)

2. express & thus enforceable WTO treaty obli-gation in DSU 3.10 & 4.3

3. binding source of treaty interpretation of Article 31 (1) VCLT binding to WTO judiciary via 3.2 DSU

4. Binding or non-binding general principle of law?

• When implied (3.7 DSU, XX GATT, 5.2 SPS, ADA)• When not implied: good faith in negotiations

Factors of GF normativity• Contested in Public International Law

– Good faith is ‘not in itself a source of obligation where none would otherwise exist’. ICJ Nicaragua vs Honduras, 1988

• Scope of WTO Jurisdiction & Applicable Law– Substantive Law?

• Sources of interpretation—31 (3)(c) VCLT?– EC-Biotech Panel jurisprudence, difficult for general principles

of law• Presumption of Good Faith-Rule applicable in WTO law?

– Byrd Amendment AB Report endorses it• Non-Violation Complaints as Procedural Tool Requiring GF (PLE)

– “safe entry point” for good faith/PLE, but difficult to use in practice & no case successful on NVNI

“Nothing, however, in the covered agreements supports the conc-lusion that simply because a WTO Member is found to have vio-lated a substantive treaty provision, it has therefore not acted in good faith. In our view, it would be necessary to prove more than mere violation to support such a conclusion.” Byrd Amendment, AB Report, para. 289.

prima facie case of violation of substantive provision ne-cessary, but not sufficient to rebut presumption of good faith

Proof of bad faith?

Proof of violated good faith?

reinforces regular violation

without any changes as to legal consequences

no supplementary burden of proof for WTO Member

AccessoryComplementary Alternative

Violation of GF adds on to viol-ation of substan-tive provision

Functions of WTO Good Faith

Substantive, Procedural, Institutional

Substantive Good Faith

Balancing, Corrective & Gap-filling Functions

Case Law

• Balancing: Chapeau of Art. XX GATT (US-Shrimp)

• Corrective: Art. 6 ASG applied abusively by government failing to withdraw SG when post-determination evidence relating to pre-determination facts showed that SG was unfounded (US-Cotton Yarn)

Case law, cnt’d

• Complementary/Gap-Filling: 5.2 SPS risk assessment– Good faith opens basis of risk assessment for

divergent in addition to mainstream scientific opinion

– AB substitutes its lack of standard of review for facts, with good faith duty of governments in order to be able to review measures based on minority scientific opinion (EC-Hormones)

Procedural Good Faith

Express Treaty Provisions, Implied Treaty Obligations,

Inherent Good Faith Standard

AB

Parties Panel

Due process rights

Due processrights

Good faithcompliance

Standard of review

ADR: mutually agreed solution

Good faith in resolving disputes

“new function of 3.10”“new” function of 3.10

Trade litigation

“traditional” function of 3.10“traditional” function of 3.10

Development of Procedural GFCanada-Aircraft 1999

US-FSC 2000 US-FSC 2000 EC-Sardines, 2002

Article 13 DSUis an expres-sion of GF in DSU 3.10

“traditional”approach, analogy to GATT XX

Concretizing or broadening scope of DSU 3.10?

GF additional duty to existing DSU ob-ligations? judicial activism?

use of due process rights of one party find limit in GF of other (costs to developing countries)

Keep open ADR avenue

Article 3.10 DSUis an expres-sion of general principle of GF

GF standard of “fair, prompt and effective resolution of trade disputes”

GF standard guards against abuse of WP Rule 30

When liti-gating, fair!

“good faith comp-liance”

Balance of power/ institutional GF

Good Faith in Negotiations

“L’engagement de négocier n’implique pas celui de s’entendre, la simple obligation de négocier n’emporte jamais l’obligation de

conclure l’accord”E. Zoller, 1977, pp. 64-65.

PILDuty to Negotiate

In good faith

Prohibition tonegotiate in

bad faith

Level of“seriousness”?Different or equal?

Criteria of“seriousness”

Danger of Overregulating

Presumption of GFin negotiations

Interpretation againstOfferor/demandeur

Duty to negotiate in good faith in PIL

• Article 18 VCLT• US-British Jay Treaty of 1794 and Treaty of

Ghent 1814 (as compiled by Cheng, 1987)

– Propose nothing which is nominal or illusory– Not intend anything which is unreasonable, absurd or

contradictory, or which leads to impossible conse-quences

– In case of doubt words have to be interpreted againstthe party which has proposed them, and according to the meaning that the other party would reasonably and naturally have understood

WTO Features GF in negotia-tions ≥ PIL

GF in negotia-tions ≤ PIL

ProgressiveLiberalization

X

Multilateral X, if you negotiate with one, you have to negotiate with all

Single Undertaking of UR, also for Doha?

no pick and choose

S&D Mandate to alleviate asymetry of power

Less seriousness required of developing countries?

More seriousness required of powerful Members?

WTO Duty to Negotiate

in Good Faith

Definition of Duty to to negotiate pluri-lateral agreement

PresumptionConsistency withGeneral Exceptions

Gaps in WTO lawDSU GF in analogy?

WTO Specifics1. MFN offer 2. NVNI3. Link to litigation

WTO Duty to Negotiate in GF• Duty to negotiate in good faith is presumed (EC-

Sardines)– Clear evidence to contrary shown by complaining

party• and is broader than prohibition to negotiate in

bad faith (Korea-Government Procurement)– Absence of fraud

• Misleading other party about the conclusion of a treaty or goals of the treaty

• Intention of harming or cheating on other party• Corrupting government officials

• reasonable attitude in the light of the object and purpose of the treaty

Specifically

Prohibition of bad faith negotiations

• Not portray interests in a misleading way

Duty to good faith negotiations

• Be prepared to modify interests or hold back interests in order to reach a solution

• Not start litigation?• Not go public?• Not draw out?

Applications in WTO Case Law

US-Shrimp (21.5)Korea-Government Procurement

Two-tier good faith test in the Chapeau of Article XX GATT

1. Chapeau itself is an expression of the general principle of law of good faith

– Prohibits the abuse of a specific exception for protectionist reasons (disguised restriction)

2. “Ongoing serious good faith efforts to reach a multilateral agreement” on the “measure”

– works as presumption that “measure” falling under a specific exemption of Article XX(a-j) is applied in a manner consistent with the Chapeau of Article XX

Trust thru transparency equals new norm

“Good faith effort to negotiate multilateral agreement”

Transparency: int’l agreement > nat’l measure

“Measure is not applied as a means of unjustifiable or arbitrary discrimination”

Trust: Fact of negotiating a non-WTO agreement spills over trust leading to the WTO-consistency of the measure

Panel vs AB in US-Shrimp (21.5)

• Panel says how much effort is necessary for serious good faith effort depends on which WTO Member is imposing an import restriction

• Good faith as equity

• AB reverses Panel: good faith effort necessary does not depend on whothe WTO Member is

• good faith “applies to allWTO Members equally”

• and offer needs to be extended to all WTO Members equally

• Good faith as equality

constituent elementsUS-Shrimp (21.5)

1. Scientific, diplomatic and financial means2. Capacity of persuasion3. Successful negotiations of similar agreements

(comparability of efforts)4. Duty to negotiate not just with some, but with all5. Seriousness of good faith effort must not be made

dependant on whether the WTO Member is “demandeur” (conflict w/ Korea-Government Procurement)

6. Treshhold for good faith must not depend on the scientific, diplomatic financial and persuasive capacities of a WTO Member

Korea-Government Procurement

“In this case, it was the negotiations which allegedly gave rise to the reasonable expec-tations rather than any concessions” (para. 7.120)

– self-standing enforceability of the duty to negotiate in good faith

– based on a non-violation complaint– founded upon the protection of the US’ legitimate

expectations as to the value of assurances Korea gave the US and which Korea violated by inadequate bidding deadlines and procedures

constituent elementsKorea-Government Procurement

1. Not negotiating on a full and forthcoming basis2. Not providing full, timely and complete, frank

and forthright answers3. Negotiations are deficient in transparency and

openness4. Duty of good faith (and transparency) stronger

for offering party (in plurilateral negotiations)5. Other negotiating parties are not relieved from

duty of diligence (to verify offers as best as they can)

Plurilateral vs Multilateral

Korea-Government Procurement

1. Duty to negotiate in GF as a self-standing com-plaint via NVNI

2. Interpreted against offeror

3. Plurilateral WTO agreement

• no MFN of offer to negotiate

US-Shrimp (21.5)

1. Seriousness of GF ne-gotiations exculpate measure from GATT-inconsistency

2. Equal GF efforts by all parties

3. MFN offer to negotiate

Open questions

• Presumption of GF negotiations?• Right to be offered negotiations in WTO Law?

– If they are started with one Member– also when negotiating GATT & GATS plus

agreements not justified by XXIV GATT & V GATS?• Non-violation complaints

– Legal basis for litigation lack of good faith in negotiations

Open questions, cnt’d• Constitutive elements (“seriousness”)

– Offer of negotiations– Results required (conclusion of MOU or more) or

“ongoing serious effort” sufficient? – Equity in burden of “seriousness”

• Allocation of Burden of Interpretation– Against offeror/demandeur?

• “If negotiations are fruitless, litigation takes over”(FT, 20 March 2007)– Vicious circle: negotiations that are not in good faith

lead to disputes that are not fruitful (not in good faith)

Thank you