Our last blog post addressed GATT jurisprudence. We noted concerns about the growth of the non-violation nullification and impairment (“NVNI”) option in dispute settlement which were highlighted in the first WTO case on NVNI – Japan – Measures Affecting Consumer Photographic Film and Paper [WT/DS44]: This suggests that both the GATT contracting parties and WTO Members have approached this remedy with caution and, indeed, have treated it as an exceptional instrument of dispute settlement. We note in this regard that both the European Communities and the United States in the EEC — Oilseeds case, and the two parties in this case, have confirmed that the non-violation nullification or impairment remedy 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. The Uruguay Round negotiations provided an important opportunity to review the dispute settlement process under the WTO. In spite of concerns about the inherent unpredictability and the wider discretion for dispute settlement panels, WTO members decided to maintain the NVNI option. Article 26 of the WTO Dispute Settlement Understanding (DSU) provided additional clarity and required that NVNI claimants provide a “detailed justification” for their claim. It established that a WTO member is under no obligation to withdraw a measure that merely nullifies or impairs benefits where there is no associated violation of a WTO treaty commitment. Instead, the offending party must make a “mutually satisfactory adjustment which compensates the aggrieved party for the loss. Article 26 also provides for arbitration on the level of nullification or impairment and sets the benchmark for permissible retaliation. Ultimately the aggrieved has the right to retaliate by suspending its own concessions if a negotiated settlement cannot be reached. The first of three WTO Panels that dealt with NVNI claims was the Japan Film case noted above. This was a U.S. complaint that a wide range of measures taken by the Japanese Government had the overall effect of preventing U.S. manufacturers of photographic film from competing successfully in the Japanese market....
Read MoreNon-Violation Complaints Part II – The Trade Lawyer’s Equitable Relief?
In our previous article on “non-violation nullification and impairment” (“NVNI”) trade law claims we reviewed the 1993 Canada- U.S. Free Trade Agreement (FTA) Panel –Puerto Rico Regulations on the Import, Distribution and Sale of UHT Milk from Québec [USA-CDA-1993-1807-01]. In that case, Canada successfully relied upon a NVNI claim with respect to the introduction of new measures that had the effect of prohibiting the sale of Québec produced UHT milk in Puerto Rico. While the Panel was not able to find a breach of the “letter” of the FTA, it concluded that the measure in question ran counter to the “spirit” of the agreement and that the requirements for a NVNI claim had properly been met. Non-violation claims have been made in both the GATT and WTO context and the principle has been adopted in other WTO Agreements as well as free trade agreements like the NAFTA. Yet, there have been few successful cases and historically the remedy has been approached with caution as there is concern about the potential for abuse. Nevertheless, the NVNI option demonstrates that the WTO dispute settlement can stretch beyond the “letter” of the trade agreement in question. As highly regarded trade law expert, Professor John H. Jackson noted in World Trade and the Law of GATT: “ … the prerequisite to invoking (the dispute settlement process under GATT) Article XXIII does not depend upon a breach of the GATT agreement and furthermore, does not depend upon any measure of another contracting party.” Rather, the keys to the concept of “nullification or impairment” are the overall “balance of benefits” in the agreement and a parties’ resulting “reasonable expectation.” The overwhelming number of GATT / WTO disputes have involved a review of measure(s) in place that violate one or more provision of the agreement. Such a case is considered to be a prima facie violation (which may be rebutted). In contrast, a NVNI complaint can be made to challenge any measure applied by another Member provided that it results in “nullification or impairment of a benefit.” The basis of NVNI is found in GATT 1994 Article XXIII:1(b): Article XXIII: Nullification or Impairment If any contracting...
Read MoreNon-Violation Complaints – A Contradiction in Terms or the Ultimate Reflection of the “Spirit of Free Trade”
In our recent articles on GATT 1994 Article XXI – the national security exception – we referred to the potential of a “non-violation” claim as a possible response by a WTO member country whose trade is affected by a national security exception measure. This is the first of a series of articles which examines the unique and rarely applied provisions of non-violation nullification and impairment (“NVNI”). We will start with one of the few Chapter 18 (state-to-state) trade panels under the original Canada-U.S. Free Trade Agreement (FTA). In 1993, Canada challenged a Puerto Rican measure that prohibited the sale of ultra-high temperature UHT Milk in Puerto Rico. Pursuant to the terms of the FTA and the NAFTA which supersedes it, the United States (as with the other NAFTA members) is responsible for the measures of its subnational bodies. The Panel –Puerto Rico Regulations on the Import, Distribution and Sale of UHT Milk from Québec [USA-CDA-1993-1807-01]- found that there was no violation by the U.S. of FTA obligations with respect to the probation on import restrictions pursuant to Article 407 or of the rules in Chapter 7 governing trade in agricultural products. The Panel declined to rule on Canada’s national treatment arguments under Articles 501 and 502. Nevertheless, Canada won the case. How? Simply put, the Panel determined that the Puerto Rico measures in question defeated the “reasonable expectation” of benefit that Canada could “expect to derive form the FTA”. In essence, Canada had included a “non-violation nullification and impairment” claim in its complaint and it ultimately proved to be the “trump card.” The case involved aseptically processed ultra-high temperature milk (”UHT milk”) which is produced by treating fluid milk to a high temperature for a specified period of time. The milk is then cooled to room temperature and is aseptically packaged in hermetically sealed containers. The shelf life of properly processed and handled UHT milk is between six and twelve months at room temperature. From 1977 until 1991, UHT milk from Québec, which was exported throughout the Caribbean, dominated the Puerto Rico market. It was sold in Puerto Rico on the basis of the Puerto Rico Secretary of Health’s...
Read MoreThe National Security Exception Part II
In our recent note on the national security exception, we reviewed the text of GATT Article XXI, a controversial provision, and its implications in international trade. The exception under Article XXI distinguishes itself from other traditional exception clauses in international agreements in that it is purely self-declaratory in nature. Based on the rationale of preserving state sovereignty, a country’s decision to invoke Article XXI is subjective and has not typically been reviewable by international regulatory bodies like GATT or WTO. Canada has previously invoked the national security exception to defend government procurement complaints in Lotus Development Canada Limited, Novell Canada, Ltd. and Netscape Communications Canada Inc. [File Nos.: PR-98-005, PR-98-006 and PR-98-009]. The matter was decided by the Canadian International Trade Tribunal (CITT) pursuant to the Government Procurement provisions of the NAFTA, the WTO Agreement on Government Procurement (AGP) and the Agreement on Internal Trade (AIT). This 1998 complaint was filed by Lotus Development Canada Limited (Lotus) concerning the acquisition by the Department of Public Works and Government Services (PWGSC), on a sole source basis from Microsoft Corporation, of a Microsoft NT server, a back-office server and back-office client access licences for the Department of Foreign Affairs and International Trade (DFAIT). Lotus (joined later by Novell Canada, Ltd. and Netscape Communications Canada Inc.) took issue with the fact that the normal competitive procurement process had been side-tracked when the Government decided to proceed on a sole source basis. Canada responded that this action was justified as the procurement was urgent and the urgency was a matter of national security. It cited NAFTA Article 1018(1), Article XXIII(1) of the WTO’s AGP and Article 1804(b) of the AIT, all being similar provisions. NAFTA Article 1018(1) reads: Nothing in this Chapter shall be construed to prevent a Party from taking any action or not disclosing any information which it considers necessary for the protection of its essential security interests relating to the procurement of arms, ammunition or war materials, or to procurement indispensable for national security or for national defense purposes. The CITT reviewed the matter and determined that seeing as the security exceptions of the various agreements had been invoked by...
Read MoreSupply Management – Looking Back, International Jurisprudence and the “Roll of the Dice” Part III
In parts I and II of our review of Canada’s defence of the supply management system, we reviewed details of Canada’s supply management system, including its origins, how it works, and the rationale for keeping it in place. We also looked back to the original GATT trade pact which established the provisions for the co-existence of open and freer trade with the import barriers necessary to ensure the survival of Canada’s regime for the production of dairy, poultry and other products. We saw that as part of the package that created the World Trade Organization (WTO) in 1995, GATT negotiators agreed to convert agricultural trade restrictions on a wide range of products into tariffs – very high, prohibitive tariffs at the outset with the objective of having them negotiated down over time. The NAFTA, which took effect in 1994, effectively eliminated tariffs between the three Parties (Canada, Mexico and the U.S.). However, less than a year after the agreement was signed, the United States challenged the “new” Canadian tariffs claiming that they were incompatible with NAFTA and further claiming that the old import restrictions – abandoned for all WTO partners including the United States – could not be re-introduced In the Matter of Tariffs Applied by Canada to Certain U.S.- Origin Agricultural Products [NAFTA Secretariat No. CDA-USA-1995-2008-01]. The reaction in Canada at the news of the NAFTA challenge’s initiation was quick and included predictions that a U.S. win could result in unlimited American imports and that “ … rural Canada could be devastated …” with a loss of 138,000 jobs and $16 billion in government revenues by the year 2000. [Francis Russell, “Canada’s Lame Defence” Winnipeg Free Press, February 5, 1995, A6]. However, up against the simple logic of the U.S. claim that Canada had “gambled and lost” in the Uruguay Round, Canada’s response included a complex defence that relied upon the provisions of the 1988 Canada –U.S. Free Trade Agreement (FTA), arguing that the FTA exception that provided for the supply management exception had been carried forward into the NAFTA and that the “WTO tariff equivalent” for supply managed products had been incorporated by reference into the NAFTA by...
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