Download African Countries and the WTO Dispute Settlement System Mavis

 African Countries and the WTO
Dispute Settlement System
Mavis Marongwe*
tralac Trade Brief
Agri Conference /2004
September 2004

United Nations Volunteer Specialist Ministry of Foreign Trade and International Cooperation of
Guyana

This paper was extracted from the tralac website http://www.tralac.org/scripts/content.php?id=2718
and will form the background to the presentation by Professor Gerhard Erasmus for the conference
“Critical Issues in Agricultural Trade in the African Context” presented in Stellenbosch South Africa on
30 September 2004. tralac appreciates the original author’s collaboration in advancing the trade
debate within an African context.
AFRICAN COUNTRIES AND THE WTO DISPUTE SETTLEMENT SYSTEM
The WTO Dispute Settlement Understanding (DSU) is the often held up as a Symbol of
the success of the multilateral trading system established by the Uruguay Round of
Negotiations.
Looking at the statistics, the system has indeed been a big success. The DSU came into
being on 1st January 1995. Between then and 20th January 2004, some 305 requests for
consultations have been made. Some of these disputes were settled at the consultation
stage, while others were brought before a dispute settlement panel. 63 of the disputes
have been taken to the Appellate Body of the WTO (World Trade Organisation see WTO).
These statistics compare favourably with those of dispute settlement under the GATT
1947. The records under the GATT were not accurate but it has been estimated that in its
48 year existence, the system handled 306 disputes (Jackson, 1997, page 120), compared
to the 305 disputes and counting in just the first 9 years of existence of the DSU.
The argument has been made in some quarters that the statistics show that the DSU has
encouraged WTO Members to become litigious. However, some writers have disagreed
with this argument, and point out that on the contrary the number of disputes brought to
the DSU shows the confidence that Members have in the system (Lacarte-Muro & Gappah
2000: 395-401). This argument is further bolstered by the fact that only slightly over half of
all disputes in which consultations are requested actually end up with the setting up of a
panel. Most Members settle their disputes at the consultation stage. And of the 305
disputes brought before the system as of January 2004, only 20% ended up at the
Appellate Body. WTO Members have therefore found that the DSU actually achieves
results and are thus more inclined than they were under the GATT 1947 to have recourse
to the system.
The statistics and the facts are therefore definitely impressive. However, this Article will not
dwell on the success or otherwise of the WTO DSU. Rather, the Article will examine the
participation by African States in the DSU. A cursory look at the statistics reveals that
African States in the DSU are conspicuous by their absence. This writer seeks to look at
the possible reasons behind this absence, the implications of this for both the DSU and
Africa and what can be done to remedy this shortcoming. The Article will also look at the
implications arising from the participation by some African countries in the ongoing Sugar
Dispute in the DSU.
African Participation in the DSU
As of 20th January 2004, only 2 African countries, South Africa and Egypt, have had ever
consultations requested at the DSU (World Trade Organisation see WTO).
South Africa has had 2 complaints brought against it by India and Turkey respectively.
These are the 1999 complaint brought by India on Anti-dumping duties on the import of
certain pharmaceutical products from India and the complaint brought in 2003 by Turkey
on Definitive Anti-dumping Measures. Egypt received a request in January 2004 from the
USA for consultations on Measures Affecting Imports of Textiles and Apparel Products.
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At the Appellate Body, again as of 20th January 2004, no African country has ever
participated as either a Complainant or a Respondent. Participation has been limited to
third party status. Thus Nigeria participated as a third party in the United States Shrimp
dispute, and the ACP (Grouping of African Caribbean Pacific Countries) participated
similarly in the European Communities Banana dispute, and are also doing the same in
the European Communities Sugar Challenge.
These statistics are certainly not impressive for a continent with 47 countries, 41 of which
belong to the WTO (World Trade Organisation see WTO). In particular, the record is not
impressive when compared with other continents with large numbers of developing
countries, namely Asia and South America. Some of the biggest users of the DSU have
been developing countries from these continents, such as Brazil, India and Argentina.
Implications of Africa’s No Show
There are several problems arising from the absence of African countries in the DSU.
Firstly, the first 9 years of the DSU have been exciting in that the system is new and is still
developing its practice and jurisprudence. The point has been made that since its
establishment, the Appellate Body has made rulings on many substantive legal issues,
practice and procedural matters (Lacarte –Muro & Dr. Gappah 2000: page 398). However,
the practice and jurisprudence can only be developed by those who are actively
participating in the DSU system. A lack of participation therefore means that Africa has not
made any meaningful contribution to the development of WTO jurisprudence and practice.
Among other things, it means that the jurisprudence is not being shaped in a way that
takes into account the peculiarities of Africa in a special and differential manner. This point
will be explored in greater detail below when African participation in the Sugar challenge is
examined.
Secondly, and most important, however, it means that African countries are neither fully
integrated into nor integrating into the multilateral trading system. This is a cause of
concern since trade is very important in the development process of any country being
widely touted as the new panacea and tool for development. Thus the reasons behind the
no show by African countries must be detected and resolved if the WTO and the
multilateral trading system are to be meaningful in the context of development for Africa.
Finally, the DSU is at the core of the WTO and its effective access and use is necessary
in order to ensure that the rights of Members are enforced and maintained. The absence
of African States in the DSU effectively means that their role and participation in the WTO
is peripheral and that their rights are not being properly asserted.
The Reasons behind Africa’s Lack of Participation
The DSU is about the settlement of trade disputes in the multilateral trading system.
Trade disputes are a normal occurrence in the conduct of international trade. If any region
or country finds that it is not actively participating in the DSU as either a complainant or a
respondent, it could be attributed to any or all of 3 reasons. It is either not an active
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participant in the world trading system or it finds the DSU, a confusing and expensive
labyrinth to navigate or it is intimidated by the prospect of taking any of the other Members
to the DSU.
For Africa, lack of participation in the DSU is a result of a combination of all these
3reasons.
Firstly, and most important, Africa is not yet a very active participant in the world trading
system. Trade between Africa States is still limited at only 10.5 % of the continent’s trade
volumes. Further, Africa’s trade accounts for only 2% of global trade (Trade Law Centre for
Southern Africa see Tralac). The reasons for this are many and varied. However, they
include the fact that historically, Africa has been a source of commodities rather than value
added merchandise which usually fetches higher prices on the world markets. Further,
Africa is a highly fragmented continent divided into a disproportionate number of countries,
many of which are landlocked. These factors discourage trade because they mean that
African markets are small and that transportation costs are higher in Africa than in other
regions.
With such meager volumes of trade, it follows that the likelihood of disputes occurring
between African States or with other regions would also be meager. Translated, this
means that the volume of disputes arising within and from Africa is commensurate with the
volumes of trade happening within the continent and with other regions.
Secondly, in the event that disputes do arise, the likelihood of their being brought before
the DSU is hindered by the fact that although the WTO is touted as system of equals, most
African countries probably feel intimidated to challenge some of their trading partners.
Most of Africa’s outside trade is tied to non-reciprocal trade arrangements such as the
ACP-EU and AGOA. These arrangements can properly be called ‘favours’ and participants
are not likely to want to bring a challenge to the hand that feeds them. Further, most
African countries are still heavily dependent on donor funding and again this compromises
their power in fora such as the WTO.
Finally, in the event that a trade challenge is mooted, countries may be intimidated by the
maze which is the DSU which can be a challenge to navigate for countries with few human
and capital resources as is the case with most African countries Taking up a challenge
through the DSU is also very expensive with the estimated of taking a case right up to the
Appellate Body being around US$500 000. So for African countries, it is a vicious circle.
The less they make use of the DSU, the less experience and confidence they gain and the
more the system remains a challenging maze.
Possible Solutions
Disputes cannot and should not be manufactured. However, as seen above, the lack of
participation by Africa in the WTO’s DSU shows deep systemic problems which need to be
addressed.
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The most important problem is Africa’s limited participation in the international trading
arena and the meager volumes of intra African trade. Participation or non-participation in
the DSU is an excellent gauge of the degree of integration of a region into the world
trading system. Those regions which are marginal participants are obviously marginal
traders on the world scene. This translates into developmental problems since trade can
be a tool to expand markets, facilitate competition, disseminate knowledge and create
opportunities for growth and human development. Trade can also raise productivity and
increase exposure to new technologies. This limited participation needs to be addressed
and this could be done in various ways.
For a start, Africa should develop its trading blocs to the proportions of such as the
European Union in order to compensate for the disproportionate number of countries, the
factor of being landlocked and the small markets. Trading blocs could also translate into
more intra African trade as well as trade with other regions.
A growth in trade volumes on more equal terms may mean that Africa becomes less
dependent on preferential regimes and donor funding. This may lead to countries on the
continent gaining the confidence to bring challenges before the DSU against the more
powerful Members.
The trade patterns in and from Africa therefore need changing and until this happens,
participation in the DSU will be peripheral. However, in the meantime, African countries
should be creative and seize any opportunity to appear at the DSU, even if it is only as
third parties in a dispute. Third party status in the DSU is very important as it enables a
country which may be affected by a dispute to bring its views to the table. This
participation is very important for African countries which sometimes find that in trade
disputes between the bigger economies, their own economies may suffer collateral
damage. As mentioned above some African countries participated as such in the Shrimp
and Banana disputes as well as in the ongoing Sugar dispute.
The Sugar Challenge
The unfolding Sugar dispute has shown that participation in the DSU is important as it is
one way in which African Members can influence the development of the WTO
jurisprudence and practices.
In September 2002, Australia and Brazil (later to be joined by Thailand) made a request for
consultations at the DSU on the European Union’s (EU) sugar regime. The complainants
asserted that the export subsidies which the EU has on sugar is in violation of its WTO
commitments since the subsidies depress world prices and weaken the earnings of all
other sugar producers.
African countries which export sugar to the EU under the Africa Caribbean and Pacific
(ACP) trading regime with the EU benefit from the preferential sugar prices which are
offered by the EU from the subsidization regime. The regime is called the Sugar protocol.
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ACP countries currently receive a price over 300% higher than the world sugar price for
their sugar exports to the EU under the Sugar protocol. This high price is considered of
vital survival importance to many of these countries especially since the world sugar prices
are at record lows. Since the Sugar protocol forms an integral part of the EU sugar regime,
attacking any of the components of the regime could destabilize the entire system with
disastrous consequences fro the ACP beneficiary countries. In just one country,
Swaziland, for example, sugar production accounts for 60% of agricultural production and
11% of the country’s GDP, with most of the exports being to the EU.
With this background, 14 ACP countries requested and were granted Third Party status in
both the consultation and Panel Stages of the Dispute. Of these fourteen countries, seven,
namely Cote d’Ivoire, Kenya, Madagascar, Malawi, Mauritius, Swaziland and Tanzania are
African, six are from the Caribbean namely Barbados, Belize, Guyana, Jamaica, Trinidad
and Tobago and St. Kitts and Nevis with one, Fiji being from the Pacific (ACP Secretariat
see ACP Sec).
At the first Panel working session held in late March 2004, the fourteen countries spoke
with one voice through their nominated spokesman, the Minister from Mauritius. At the
conclusion of the Session, the ACP countries submitted a request for extended Third Party
Rights which would enable them to continue actively participating in the DSU process
especially the Panel’s second working session and the right to inspect the second
submissions by the parties and the drafting of the Panel’s final report (ACP Secretariat see
ACP Sec).
The Panel’s second working session was held in May 2004 and a final panel Report will be
issued be the end of the year
In the meantime, the Sugar Dispute is proving to be very important in number of ways.
Already the case has set a record for the number of participants. Apart from the 4
protagonists and the 14 ACP countries, India, China, the USA, Cuba, Canada, Colombia,
Paraguay, and New Zealand all have Third Party Status in the dispute. Also the legal and
factual arguments brought before the Panel have been such that, whatever its outcome
will be, the dispute is likely to have significant effects on the jurisprudence and operations
of the DSU, not to mention how future negotiations are conducted.
At the Panel hearings, both sides to the dispute, (Brazil, Australia and Thailand on one
side and the EU on the other) presented strong arguments. The arguments put forth by the
Third Parties are therefore likely to influence which side the scale tips.
The ACP countries strongly argued in support of the EU and focused on the role of sugar
in their countries and the possible economic, social and political ramifications of a ruling for
the Complainants.
In their argument, the ACP countries stated that the objective of the Marrakech Agreement
setting up the WTO was to ‘raise the standard of living, provide full employment and a high
and ever increasing level of real income…’(World Trade Organisation see WTO Legal
Texts). They thus stated that it was in good faith and with the conviction that their
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preferential trade agreements would be implemented in a stable and predictable manner
that they joined the WTO in 1995. However, the Sugar Challenge is threatening the
preferential regimes and the livelihood of their small and/or vulnerable economies which
can never hope to attain the level of efficiency and competitiveness of the Complainants.
To bolster up their argument, they gave the example of Caribbean islands such as
Dominica whose economies were devastated by the effects of the ruling in the ‘Banana
dispute’ (ACP Secretariat see ACP Sec).
In the past, Panels and the Appellate Body at the WTO have not paid much attention to
the outcome of their rulings, being more concerned with ensuring that the letter rather than
the spirit of the WTO Agreements is enforced. However, this case could be the landmark
case where a dispute swings on the possible ramifications of the decision. If the Panel
decides to rule in favour of the EU because of the possible effects of a negative ruling for
the ACP countries, then Africa countries as a part of this grouping would have made a big
contribution to DSU jurisprudence ensuring that future Panels will take into account their
special circumstances and development needs. Thus far this has been lacking because of
their limited or non-participation. And has already been pointed it is important for the WTO
jurisprudence to take into account in its development the special and differential
circumstances of Africa as a continent.
The African countries participating must also have realized that in future they need to
carefully analyze what they sign onto. Many benefits enjoyed by developing countries
under preferential regimes are being eroded through challenges at the DSU with sugar
being the latest one. If they had known then that this would happen, it is probable that they
would not have signed onto the Uruguay Text as they are and would have negotiated for
better terms.
Even if the Panels and the Appellate Body find in favour of the complainants, the
experience gained from participation is invaluable for the seven African countries which
have participated. The maze which can be the DSU would be clearer for them and most
important they now know how to work the system as it is only by taking part that African
countries would gain the experience needed to navigate the system. As Brazil and India
have shown, the confidence needed to make extensive use of the DSU to assert rights at
the WTO grows with each challenge made.
Conclusion
It is hoped that with the experience gained from the Sugar Challenge, Africa will continue
to seize any opportunity to participate in the DSU process. However, as already pointed
out, the deeper systemic problem of marginal participation in the world trading system
needs to be addressed first. Until that happens, Africa‘s participation in the WTO’s DSU
will be like that of someone invited to a party but is unable to get into the venue because
they are not properly dressed. Their participation will be limited to peeping through a
window and watching those inside shaping the gathering to suit their own needs.
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Bibliography
Jackson, John H. 1997, The World Trading System, Law and Policy of International
Economic Relations, Second Edition. Massachusetts Institute of Technology
Lacarte-Muro, Julio and Gappah Pettina, 2000. Developing Countries and the WTO Legal
and Dispute Settlement System: A View from the Bench. Journal of International
Economic Law, Page 395
WTO 2002, The Results of the Uruguay Round of Multilateral Trade Negotiations
Geneva, WTO Publications
ACP Secretariat: Press Release (online) (Accessed on June 16 2004) DECLARATION OF
ACP SUGAR PRODUCERS AFTER THE FIRST METING OF THE WTO PANEL ON
THE
CLAIMS
BY:
BRAZIL/THAILAND/AUSTRALIA,
URL
http://acpsec.org/file://A:\Secretariat%20General%20ACP.htm
Tralac News: Free trade areas the answer to poor African Growth (online) (Accessed on
January 26 2004) URL http://www.tralac.org/scripts/contents.php?id=2362
WTO Dispute Settlement Rulings by Country (online) (Accessed on February 2, 2004)
URL http://www.wto.org/english/tratop_e/dispu_e/distabase=wto_members1_ehtm
WTO Understanding the WTO-Members (online) (Accessed on February 11, 2004). URL
http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm
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