Table of Contents

Foreword v

Acknowledgements vii

List of Tables and Figures xv

List of Abbreviations xvii

1 Overview 1

I Introduction to WTO Dispute Settlement: The Best Vote of Confidence for the Multilateral Trading System 1

A Consultations 2

B Adjudication by Panels 3

C The Implementation of Rulings 4

II Problems Presented: Retaliation, a Flaw in the Successful System? 5

A First Concern: The (In)effectiveness of WTO Retaliation 6

B Second Concern: Debates Regarding the Purpose(s) of WTO Retaliation 8

I Inducing Compliance 8

II A Means of Obtaining Some Form of Temporary Compensation 9

III Rebalancing 10

IV 'To Deter Inefficient Breach but to Encourage Efficient Breach' 10

III WTO Law in Relation to Other Legal Systems 11

A WTO Law in Relation to Public International Law 11

I WTO Remedies and Public International Law Remedies: Inclusive or Exclusive From the System? 12

B WTO Law in Relation to Contract 14

IV The Objective and Plan of the Book 15

2 Retaliation in the Multilateral Trading System 17

Overview 17

I Temporary Remedies in the DSU 18

A Compensation in GATT/WTO Dispute Settlement 19

B What is 'Retaliation' in the Context of the Multilateral Trading System? 22

II Law to Retaliate Under GATT and WTO Dispute Settlement 23

A Retaliation Cases in GATT Dispute Settlement 23

B Substantive Rules of GATT Retaliation 24

C Substantive Rules of WTO Retaliation 26

I The Basic Elements of WTO Retaliation in the Multilateral DSU Framework 26

II Three Principles and Calculation Methods of Retaliation in the DSU 31

III Countermeasures Under the SCM Agreement 37

III Retaliation in Regional Trade Agreements 44

Summary 48

3 Shortcomings of WTO Retaliation and Reform Proposals 49

Overview 49

I The Shortcomings and Problems Inherent in WTO Retaliation 50

A 'Shooting [Oneself] in the Foot' 51

B Contrary to the Basic Principle of the WTO 52

C Imposing an Inappropriate Burden on Innocent Industries 53

D Lack of Inducement Power for the Measures that Have Strong Domestic Political Support 54

E Continued Sanctions 55

F Lack of Retaliating Capacity for Small Developing Countries and Least-Developed Countries 56

II Proposals to Enhance WTO Retaliation and the Criticisms 58

A Collective Retaliation 60

B Transferable Retaliatory Rights 63

C Financial/Monetary Compensation 64

D Compulsory Compensation 66

E Automatic Application of Cross-Retaliation 66

F Retroactive Remedies 67

Summary 68

4 Purposed-based Approach in Evaluating Effectiveness 70

Overview 70

I Compliance, Implementation, Effectiveness and Purpose-based Approach 71

A The Distinction Between Implementation, Compliance and Effectiveness 71

B A Purpose-based Approach to Effectiveness 73

C The Importance of Identifying the Purpose of Retaliation and the Uncertainty on the Purpose(s) of WTO Retaliation 75

II Debates Regarding the Purpose of Retaliation 77

A The Purpose of Retaliation: Inducing Compliance vs Rebalancing 78

I Inducing Compliance 78

II Rebalancing 81

Summary 83

5 Legal Quests in Searching for the Purposes of Retaliation 84

Overview 84

I First Quest: Reference to Remedies Under the ILC Draft Articles on State Responsibility 85

A Remedies Under the ILC Draft Articles 86

I Cessation and Non-Repetition 86

II Reparation 87

III Restitution 88

IV Compensation 88

V Satisfaction 89

VI Countermeasures 89

B Contracting Out of Remedies Under State Responsibility 90

C Reference to the ILC Draft Articles in Determining the Purpose of WTO Retaliation in Brazil-Aircraft: Sound or Unsound Approach? 93

II Second Quest: Reference to Contract Remedies from Law and Economics Perspective 94

A Property or Liability Rules and Their Relevance in WTO Law 95

I Property Rules 96

II Liability Rules 97

B Evaluating WTO Entitlements from the Perspective of Protection Rules 98

I The Debate over Protection Rules of WTO Entitlements: Property or Liability Rules 99

II WTO Law Accommodates Some Amount of Intra-Contractual Flexibility, Yet WTO Entitlements are Protected by a Property Rule 100

III WTO Enforcement in the Context of Property Rules Protection 101

III Third Quest: Article 22.6 Arbitrators' Statements With Regard to the Purpose of Retaliation 103

A The Purpose of 'Inducing Compliance' with 'Equivalent' Level Requirement 103

B The Purpose of 'Inducing Compliance' with 'Appropriate' Level Requirement 105

C Inducing Compliance is 'Not the Only Purpose' Pursued by Retaliation 106

IV Fourth Quest: Interpretation of Article 22 of the DSU in Accordance with the Customary Rules of Interpretation to Clarify the Purposes of WTO Retaliation 107

A The Customary Rules of Interpretation 108

I Good Faith 108

II Ordinary Meaning 109

III The Context, and the Object and Purpose of a Treaty 110

IV Relevant Rules of International Law 110

V Supplementary Means of Interpretation 112

B Interpretation of Article 22 of the DSU in Accordance with the Customary Rules of Interpretation 112

I Contracted In: The Customary Rules of Interpretation 113

II The Multiple Purposes Identified from the Text of Article 22 of the DSU 113

III Multiple Purposes Carried Out in the Context of Article 22 of the DSU 114

IV Multiple Purposes in the Light of the Object and Purpose of WTO Dispute Settlement 118

V The Assessment of Remedies Provisions Under the ITO Charter, the GATT 1947 and the Uruguay Round Draft Texts as Supplementary Means of Interpretation 120

Summary 124

6 Retaliation to Induce an Amicable Settlement as Another Competing Purpose and the Effectiveness of WTO Retaliation 126

Overview 126

I Amicable Settlements in the Multilateral Trading System 127

A A Brief Historical Context of Amicable Settlements in the GATT Practice 128

B Amicable Settlement in WTO Dispute Settlement 128

I Notification Obligation of MAS 130

II Consistent with Covered Agreement 131

C Amicable Settlements at Non-Implementation Level Induced by Retaliation 132

I 'Greater Market Access' Reached in EC-Hormones 133

II 'Cash Payments' in US-Upland Cotton 136

III 'GSP Facilitation' Reached in US-Clove Cigarettes 137

D The Purpose of Inducing a Mutually Agreeable Solution (Final Settlement) 139

I Retaliation Inducing a Mutually Agreeable Solution: A Defeat for the Winning Party? 141

II Retaliation Inducing a Mutually Agreeable Solution: Systemic Implications and Third Parties' Interests 141

III Solutions Allowing the Continuity of Inconsistent Measures: Legal or Illegal? 145

II The Question About the Effectiveness of WTO Retaliation 145

III A Way Forward a 149

Summary 151

7 Concluding Remarks 152

I Summary of the Book 152

II Final Observations 154

Bibliography 157

Index 179