Good Faith in WTO Dispute Settlement

Beginning of article

[The definition of good faith in international law has been largely elusive, and its indefinite boundaries complicate its use in the World Trade Organization. Nevertheless, good faith is almost certainly a general principle of law and a principle of customary international law. It is also a principle of WTO law that is reflected in several provisions of the Understanding on Rules and Procedures Governing the Settlement of Disputes. WTO Tribunals may use the principle of good faith not merely to interpret WTO provisions, but also in the exercise of their inherent jurisdiction, such as when employing the doctrine of estoppel, which is one particularisation of good faith. However, the use of good faith in WTO dispute settlement entails three important considerations and qualifications. First, the principle should not be used to overwhelm WTO provisions that appear to be based on concepts similar to those underlying the principle of good faith, such as non-violation complaints, which are subject to detailed rules. Second, the principle should not be confused with other principles that may appear to be related, particularly due process. Third, in my view, WTO Tribunals have no legal basis for finding that a Member has violated a principle of good faith independent of a violation of a WTO provision. Some existing reports err in this regard.]

CONTENTS

I Introduction

II Good Faith in International Law outside the WTO

   A A General Principle of Law
   B A Principle of Customary International Law
   C Towards a Definition of Good Faith
   D Particularisations of Good Faith

       1 Performance of Treaties: Pacta Sunt Servanda
       2 Interpretation of Treaties: VCLT Article 31(1)
       3 Estoppel
       4 Abuse of Rights

III Using Good Faith in WTO Disputes

   A Good Faith as a Principle of WTO Law
   B Procedural Implications of Good Faith

       1 Engaging in Dispute Settlement Procedures (DSU Article 3.10).
       2 Resorting to Dispute Settlement (DSU Articles 3.7, 23)
       3 Good Faith and Inherent Jurisdiction: Estoppel

   C Substantive Implications of Good Faith

       1 Performance of WTO Obligations: Pacta Sunt Servanda
       2 Non-Violation Complaints
       3 General Exceptions and Abuse of Rights
IV Conclusion

   Men must be able to assume that those with whom they deal in the
   general intercourse of society will act in good faith. (1)

I INTRODUCTION

The principle of good faith has a great deal of normative appeal, and most commentators would acknowledge that it plays a role in all legal systems. The ordinary meaning of good faith is 'honesty of purpose or sincerity of declaration' or the 'expectation of such qualities in others'. (2) 'Good faith' is often used interchangeably with 'bona fides', which is defined as 'freedom from intent to deceive'. (3) The touchstone of good faith is therefore honesty, a subjective state of mind, but the principle can also incorporate notions of fairness and reasonableness, both of which concern an objective state of affairs. Unfortunately, terms like honesty, fairness and reasonableness are almost as vague as good faith. This leads Rosenne to ask of good faith: 'Is it a principle and a rule of law, having an identifiable and where necessary enforceable legal content, or is it nothing more than a throw-back to outmoded natural law concepts?' (4) If good faith has no independent legal content, it may be of little use to World Trade Organization Tribunals in resolving disputes: 'one may acknowledge the power and attraction of a general idea but the idea may be so general that it is of no practical utility to the merchant'. (5)

In this article, I attempt to clarify the meaning of good faith to the extent relevant to the WTO, by examining good faith as a general principle of law, a principle of customary international law, and a principle of WTO law. Below, I start by considering the existence and meaning of the principle of good faith in international law outside the WTO. Although I do not aim to establish definitively whether good faith is a general principle of law or a principle of customary international law, it is undoubtedly a well-accepted fundamental norm in many domestic and international contexts. It takes several more specific forms in relation to the interpretation and performance of treaties, as well as in the doctrines of abuse of rights and estoppel. Having considered good faith outside the WTO, I turn to the use of this principle in WTO disputes. I first determine the scope of good faith as a principle of WTO law, before assessing the procedural and substantive implications of good faith for WTO dispute settlement. I pay particular attention to the ways in which WTO Tribunals have used the principle of good faith so far.

II GOOD FAITH IN INTERNATIONAL LAW OUTSIDE THE WTO

A A General Principle of Law

   Unquestionably, the obligation to act in accordance with good faith,
   being a general principle of law, is also part of international
   law. (6)

Good faith was recognised as a general principle of law during the drafting of the Statute of the Permanent Court of International Justice. (7) This principle is described as 'the foundation of all law, or a fundamental principle of law'. (8) O'Connor suggests that good faith derived from 'the necessity for a minimum of human co-operation and tolerance if group living is to emerge and survive'. (9) Although good faith has origins in the earliest human societies, O'Connor suggests that the Roman concept of bona tides (associated with trustworthiness, conscientiousness and honourable conduct) represents its most direct ancestor. (10) By about 1450 it was applied in both civil and common law systems, and was 'reflected in specific rules incorporating or referring to good conscience, fairness, equitable dealing and reasonableness'. (11)

Today, the principle of good faith is recognised in most civil codes, in essence being 'a principle of fair and open dealing'. (12) Most importantly, civil law regimes tend to require that contracts be formed and performed in good faith. (13) One explanation for this may be economic. If parties act in bad faith, this leads to mistrust, making contracting more complex and expensive. A rule of good faith increases contracting parties' confidence that contractual obligations will be performed. (14)

The principle of good faith is less established and less uniform in common law systems. At one extreme is the United Kingdom, which has no general doctrine of good faith. (15) However, equity developed many doctrines to promote specific notions of good faith, including the concepts of undue influence and promissory estoppel. (16) Good faith is also recognised in relation to particular classes of contracts, for example, contracts of insurance. At the other extreme is the United States, where 'every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement'. (17) Farnsworth notes that US courts have used good faith in at least three different ways: to imply terms to fill gaps; to prevent a party from reclaiming opportunities it agreed to forgo when entering a contract; and to exclude bad faith. (18) One disadvantage of using 'bad faith' to define or justify the principle of good faith

   is that it seems tantamount to saying that the good faith duty is
   breached whenever a judge decides that it has been breached ...
   [which] hardly advances the cause of intellectual inquiry and ...
   provides absolutely no guide to the disposition of future cases,
   except to the extent that they may be on all fours with a decided
   case. (19)

Rosenne argues that while examples of good faith from domestic laws are of limited relevance for international law, they nevertheless 'illustrate vividly that "good faith" is a recognized legal notion, and one that can be creative of significant legal institutions'. (20)

B A Principle of Customary International Law

The principle of good faith in customary international law has a long history. Grotius recognised that 'good faith should be preserved, not only for other reasons but also in order that the hope of peace may not be done away with'. (21) Schwarzenberger and Brown list good faith as one of the seven fundamental principles of international law. (22)

Good faith is 'included in a long series of law-declaring instruments of major significance', (23) some or all of which may be collectively regarded as codifying customary international law. (24) Many of these references to good faith are broadly analogous to domestic obligations to perform contracts in good faith. For example, art 2(2) of the Charter of the United Nations states that '[a]ll Members ... shall fulfil in good faith the obligations assumed by them in accordance with the present Charter'. This represents the first modern and universalised statement of the principle of good faith in treaty law, (25) and it 'constitutes ... an undertaking to comply with the whole of public international law, in so far as it is not amended by the UN Charter'. (26) Muller and Kolb explain in relation to this provision:

   a set of treaties with such comprehensive objectives as those of
   the UN does not survive merely on the strength of the terms used
   and on its individual provisions, but only achieves its reality
   via the communal will of its members, for which there is
   ultimately no guarantee. (27)

The Declaration on Principles of International Law concerning Friendly Relations and Co-Operation among States contains several references to good faith, including the following:

   Every State has the duty to fulfil in good faith its obligations
   under the generally recognized principles and rules of
   international law.

   Every State has the duty to fulfil in good faith its obligations
   under international agreements valid under the generally
   recognized principles and rules of international law. (28)

A number of international tribunals have recognised the principle of good faith. According to the International Court of Justice, although good faith is '[o]ne of the basic principles governing the creation and performance of legal obligations', (29) it is 'not in itself a source of obligation where none would otherwise exist'. (30) This could suggest that, in a treaty context, a violation of good faith cannot arise in the absence of a violation of a treaty provision (a possibility to which I return below). Conversely, the ICJ has rejected the contention that a violation of a treaty provision cannot arise in the absence of a violation of good faith. (31) This distinction may reflect the gravity of a good faith violation, which also explains why international tribunals often presume that states act in good faith and why they do not lightly find bad faith. (32)

In the Nuclear Tests Case, the ICJ used the principle of good faith to find that unilateral statements by the French Government indicating its intention to cease atmospheric nuclear testing in the South Pacific were legally binding. (33) In the WHO/Egypt Agreement Case, the ICJ recognised 'the mutual obligations incumbent upon Egypt and the [World Health] Organization to cooperate in good faith with respect to the implications and effects of the transfer of the Regional Office from Egypt'. (34) These included a duty upon the parties to 'consult together in good faith' (35) and to continue to fulfil in good faith their obligations during any transition between the decision to move the office and the completion of the move. (36) In the North Sea Continental Shelf Case, the ICJ relied on good faith to explain why certain states were required to enter into meaningful negotiations with the objective of reaching an agreement, 'which will not be the case when either of them insists upon its own position without contemplating any modification of it'. (37)

C Towards a Definition of Good Faith

Unfortunately, of all the principles of international law, the principle of good faith is perhaps the hardest to define. Cheng considered the principle capable of illustration but not of definition, like other 'rudimentary terms applicable to human conduct' such as 'honesty' or 'malice'. (38) O'Connor, in his study on the principle, considered that good faith includes the general elements of 'honesty, fairness and reasonableness', (39) but then went on to propose the following more specific definition:

   The principle of good faith in international law is a fundamental
   principle from which the rule pacta sunt servanda and other legal
   rules distinctively and directly related to honesty, fairness and
   reasonableness are derived, and the application of these rules is
   determined at any particular time by the compelling standards of
   honesty, fairness and reasonableness prevailing in the international
   community at that time. (40)

This definition makes it clear that good faith is a general principle of law or a principle of customary international law that manifests itself in various other obligations, such as the following obligations on states:

   (1) to settle disputes in good faith; (2) to negotiate in good
   faith; (3) having signed a treaty, not to frustrate the achievement
   of its object and purpose prior to ratification; (4) having ratified
   a treaty, to apply and perform it in good faith and not to frustrate
   the achievement of its object and purpose; (5) to interpret treaties
   in good faith, in accordance with their ordinary meaning considered
   in context and in the light of their object and purpose; (6) to
   fulfil in good faith any obligations arising from other sources of
   international law; and (7) to exercise rights in good faith. (41)

Obligations such as these may be more precise than the broader principle of good faith, and eventually they may develop sufficiently to be used without reference to the principle. Therefore, as legal systems develop and mature, resort to the principle of good faith may be less frequent. (42) In this sense, the principle of good faith 'is both a first principle and one of last resort, finding practical relevance chiefly when a more definable rule cannot be found, when there is a collision of rights, or when seemingly contradictory concepts are at play'. (43) As regards the relationship between the general and particular notions of good faith, Sim writes:

   there is nothing wrong with subscribing to the very general notion
   that 'good faith' is synonymous with anything that requires
   contracting parties to behave in a manner that ensures justice and
   fairness. The merit of this approach is that we do not omit anything
   that can assist us in circumscribing unethical behaviour. This idea,
   however, is not concrete enough to form the basis of a workable
   legal doctrine. (44)

In the following section, I consider some expressions or particularisations of the principle of good faith in international law, namely: (i) good faith performance of treaties; (ii) good faith interpretation of treaties; (iii) estoppel; and (iv) abuse of rights. These expressions could themselves be regarded as rules, obligations, principles or doctrines. They may also exist in domestic law, treaty law, customary international law, and general principles of law. I am concerned here not with their precise categorisation, but with their meaning.

D Particularisations of GoodFaith

1 Performance of Treaties: Pacta Sunt Servanda

Like good faith generally, pacta sunt servanda (agreements must be kept) originated in Roman law and was later incorporated into customary international law and treaty obligations. (45) In 1910, for example, the Permanent Court of Arbitration held that 'every State has to exercise the obligation incurred by treaty bona fide and is urged thereto by the ordinary sanctions of international law'. (46) Also as regards treaties, art 26 of the Vienna Convention on the Law of Treaties ('VCLT') (47) is entitled 'Pacta sunt servanda' and provides that '[e]very treaty in force is binding upon the parties to it and must be performed by them in good faith'.

The ICJ has read the good faith …