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 party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of
- (b) the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, or
the contracting party may, with a view to the satisfactory adjustment of the matter, make written representations or proposals to the other contracting party or parties which it considers to be concerned. Any contracting party thus approached shall give sympathetic consideration to the representations or proposals made to it.
The first adopted GATT Panel to consider a NVNI claim was the 1950 Working Party Report, The Australian Subsidy on Ammonium Sulphate [II/188]. Chile had negotiated a tariff concession on sodium nitrate fertilizer from Australia. At the time of the negotiations, Australia granted subsidies for the purchase of both sodium nitrate fertilizer and domestically produced ammonium sulphate fertilizer. Subsequently Australia discontinued the subsidy on sodium nitrate which led to a shift in purchases to domestically produced ammonium sulphate. Australia was under no legal obligation to subsidize imported sodium nitrate, but the GATT Working Party stated that “ … the action of the Australian Government which resulted in upsetting the competitive relationship…could not reasonably have been anticipated by the Chilean Government … (when) it negotiated the duty-free binding on sodium nitrate.” In finding that this amounted to nullification or impairment, the Working Party relied on the fact that the fertilizer subsidies were originally introduced at the same time, and had always been equal in amount up to the time of the negotiations. In Germany – Treatment of Imports of Sardines [1/S 58], Norway complained that its 1951 tariff concession from Germany on prats and herring had been nullified and impaired by Germany’s subsequent and more favorable tariff treatment to a competing species of sardine from Portugal. The Panel found that the three species were not “like products” pursuant to Article I but determined that the change in tariff treatment “could not reasonably have been anticipated by Norway at the time it negotiated for tariff concessions.” The Panel pointed out that the three species were closely related and had been treated equally by Germany for tariff purposes since 1925.
The 1985 the Panel, EEC – Tariff Treatment on Citrus Products [L/5776], considered a complaint by the United State (and others) that EEC tariff preferences on citrus products from Mediterranean basin countries were not in conformity with Article XXIV procedures on customs unions and free trade areas. Given a lack of clarity regarding the Article XXIV rules, the United States also pursued a NVNI case. While a number of the tariffs in question were not bound and some of the bound tariffs had been negotiated after the Mediterranean preferences were in place, the Panel found that benefits that the United States could reasonably have expected in connection with GATT Article I had been impaired. It should be noted that the decision was considered to be controversial and it raised the concerns about the abuse the of NVNI principle. The report’s adoption was blocked and eventually the matter was settled through further negotiations.
The final pre-WTO case involving NVNI was the 1992 Panel – EEC – Payments and Subsidies to Processors and Producers of Oilseeds [37/S, 86]. In this case, the United States complained that a 1962 tariff concession from the EC on oilseeds had been undermined by new EEC subsidy programs designed to insulate domestic oilseed producers from competitive harm due to import price fluctuations. The Panel ruled for the United States finding that, “the United States may be assumed not to have anticipated the introduction of subsidies which protect Community producers of oilseeds completely from the movement of prices for imports and thereby prevent tariff concessions from having any impact on the competitive relationship between domestic and imported oilseeds.”
In each of these GATT cases there is an underlying concept of fairness at play. In some ways this might be compared to the concept of equity in common law jurisdictions – something which can be traced to back to medieval England. Equity was born out of the need to introduce balance to the rigid procedures of England’s courts and the common law system based on principles of law shaped and developed in preceding cases. Faced with intricate procedures and “letter of the law” technicalities, subjects turned to the king for relief. These requests for relief to a royal court (Chancery) were a plea for equity – just and fair treatment – based on the king’s mercy or conscience. Principles of equitable relief have grown into a body of law that complements the common law and in the same way NVNI focuses on concepts of reasonable, overall balance and the underlying need for fairness.
In our next article, we will look at the how the WTO has addressed NVNI.
