The Political Economy of International Trade Law: Essays in Honor of Robert E. Hudec

By Daniel L. M. Kennedy; James D. Southwick | Go to book overview

21
Problems with the compliance structure of the WTO
dispute resolution process*
GARY N. HORLICK

The crown jewel of the Uruguay Round is the Dispute Settlement Understanding (DSU). The DSU, it is generally argued, brings quasi-juridical order to the General Agreement on Tariffs and Trade (GATT)1 regime maintenance system. Several recent World Trade Organization (WTO) dispute settlement cases, however, have highlighted structural tensions within this dispute settlement system

____________________
*
I wish to thank Lisa Pearlman, of Harvard Law School, for her insights and assistance. Any errors are my responsibility.
1
I first heard the word GATT as a first-year law student in my contracts course, which may sound odd until you know that my contracts professor was Bob Hudec. I should begin by noting that Bob is the unacknowledged father of the most important single concept in the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement)– “specificity. ” One night in Poland in 1980, during the International Law Institute's Interface II Conference, the group took up the topic of the role of exchange rates in international trade and their interaction with theories of comparative advantage. This may sound like a fairly intense topic for conversation on a bus ride, but most other topics had been exhausted over a series of dinners during the previous days. One of the sessions was held, appropriately, in a meeting room at the aircraft factory, which was the assembly point for the famous Polish golf carts that became the source of the most ridiculed antidumping case ever. Electric Golf Carts from Poland, 40 Fed. Reg. 53383 (Treas. Nov. 18, 1975) (Antidumping Order), revoked by Electric Golf Carts from Poland, 45 Fed. Reg. 52780 (Dep't Comm. Aug. 8, 1990), and too many law review articles since to be cited. In theory (although rarely in practice, see Brink Lindsey, The U. S. Antidumping Law– Rhetoric Versus Reality, 34 J. World Trade 1–38 (Feb. 2000)), in an antidumping case, one compares the open market prices of comparable products in the exporting country and the importing country. At the time of the Polish Golf Carts case, however: (1) the US was the only country in the world where there was mass production of golf carts (or mass market for them), and (2) Poland was not a free market economy, and (3) Poland did not even have a golf course (except for a seven-hole diversion on the grounds of the British embassy), so (4) the US decided to calculate the true “fair value” of Polish golf carts and the amount of dumping by (5) calculating the precise cost of constructing those golf cars at the Polish golf-cart “factory” had the factory been in Spain. This methodology has since become imbedded in US law, resulting in completely unpredictable antidumping calculations, so that no non-market economy exporter can possibly know in advance if it is dumping. The methodology has been judged so successful as a trade barrier that its maintenance against China after China'– in violation of the express language of the Ad Note to VI of GATT 1994–became a higher priority for the US administration than further opening of the Chinese market to US exports. The underlying assumption of this methodology, of course, is that countries with equal GDP per capita (say, Germany and the United States) have equal costs–and thus will not trade with each other. See Gary N. Horlick & Shannon S. Shuman, Nonmarket Economy Trade and U. S. Antidumping/Countervailing Duty Laws, 18 Int'l. Lawyer 807–840 (Fall 1984). On this particular bus ride, Bob commented that it was important to distinguish between general changes in a national economy with floating exchange rates and distortions in favor of specific industries.

A few months later, two related issues were rather forcefully brought to my attention while I was international trade counsel for the US Senate Finance Committee: US concerns about Canada's National Energy Program which attempted to set the price of oil for Canadian industry at 15 percent below the price in the United States, and EU complaints about low fixed natural gas prices in the United States. Fortunately, the two issues looked like ones that could be studied further. Unfortunately, the eventual study was severely cut back. The Probable Impact on the U. S. Petrochemical Industry of the Expanding Petrochemical Industries in the Conventional-Energy-Rich Nations, Inv. No. 332–137, United States International Trade Commission (April 1983).

Then, in 1982, a countervailing duty (CVD) petition was filed against imports of fresh asparagus from Mexico, alleging that the availability of cheap irrigation water–available to all crops– was a subsidy. The argument against cheap irrigation water was soon followed by CVD petitions claiming that everything from road building to Canadian provincial forest management practices to the racist apartheid system then in effect in South Africa was a subsidy. The “specificity” rule, enunciatedin 1982 by the US Commerce Department, see GaryN. Horlick, Introductory NoteUnited States: Court of Appeal for the Federal Circuit Opinion in PPG Industries, Inc. v. United States, 30 I. L. M. 1179 (1991), and adopted in the WTO Agreement on Subsidies and Countervailing Measures, see Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, April 15, 1994, Agreement on Subsidies and Countervailing Duty Measures, Art. 2, was squarely based on Bob's reasoning that widely distributed government benefits do not cause a distortion within the economy and are not a subsidy, but government conferral of benefits limited in law or in fact to specific industries are countervailable subsidies if not otherwise exempted.

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