Themes > Current Issues
30.11.1999
The US and the WTO
Biswajit
Dhar
The
fragile foundations of the multilateral system underlined by the WTO have
been cruelly exposed in a recent decision by a dispute settlement panel
in a dispute involving the United States and the European Communities.
The Panel has held that the provisions of the United States Trade Act
(the Trade Act of 1974), which are designed to take unilateral action
against the country's trade partners do not in any way violate the commitments
taken by it under the WTO.
This can be considered as one of the landmark rulings for it allows the United States to use unilateral action against countries that are seen by the US Administration to be undermining its trading interests, conveniently by-passing the multilateral system. What makes the ruling of the Panel more significant is fact that no less than 11 countries, which included Japan, Canada, Korea, Brazil and India, joined in the dispute as third parties to the dispute adding their weights to the complainant. It was the combined strength of the arguments some of the more important players in the WTO that thus fell by the way-side.
The ruling of the Panel sets at rest all the speculation that was rife in the five years that the WTO has been in existence that the United States would find ways of providing legitimacy to the controversial provisions of its Trade Act of 1974, viz. Sections 301 to 310, which provide for unilateral action. This speculation was strengthened as a result of two moves that the United States Trade Administration took in the post-WTO phase. The first was a pre-emptive move that the Administration took in 1994 by enacting the Uruguay Round Agreements Act (URAA).
The URAA was intended to provide an assessment of the future of the domestic legislations of the United States in a regime, which was to be defined by the WTO rules. The second was the continued use of Section 301 for identifying the countries that were seen as violating the trading interests of the United States even when the WTO had emerged as the organisation that was responsible for ensuring fair trade.
In respect of the Section 301 of the Trade Act of 1974 the URAA has the following comment: "The administration intends to use Section 301 to pursue vigorously foreign unfair barriers that violate U.S. rights or deny benefits to the United States under the Uruguay Round Agreements". This comment should be seen in the context of the actions that the United States Trade Representative (USTR) had been threatening to use against countries in a more extensive manner since the Omnibus Trade and Competitiveness Act was adopted in 1988.
The new Act added two new sections to Section 301, viz. Special and Super 301, aimed at focusing action that could now be taken against the trading partners. While Special 301 was designed to address violations in the area of intellectual property rights, Super 301 was to perform similar functions in the area of services. It needs to be added here that Special and Super 301 gave the USTR the powers to threaten action of trade retaliation in two of the key areas in the Uruguay Round of multilateral trade negotiations.
Although no action of trade retaliation was taken under the two provisions, the USTR used the powers available to it in quite an effective manner. The countries most likely to face trade retaliation were put under a "priority watch list" following which their attitudes towards US business interests were closely scrutinised. In the early years of USTR action under Special and Super 301, India was one of the main targets for action.
Apart from being on the "priority watch list" under Special 301 for its Patents Act which, in view of the US Trade Administration was allowing infringement of patents held by the US business, action was also threatened against India for its negotiating stance in the area of intellectual property rights in the Uruguay Round negotiations. The then US Trade Representative, Carla Hills, had stated while issuing the 1989 list of countries on the "priority watch list" that India's actions in the Uruguay Round negotiations would be watched closely before any decision of trade retaliation was taken. The pressure put on India remains among the more stark examples of the threatened use of unilateral action of trade retaliation by a major trading country to realise its objectives in the multilateral negotiations.
It was particularly in light of these developments that the multilateralism of the WTO was considered to be a positive outcome. There were two main strengths of the WTO that were perceived of as it was being put in place. The first was the element of predictability that it imparted to the trading system. The second was that the stronger and the more effective dispute settlement mechanism provided for in the organisation would work as a deterrent for the use of unilateral actions of the kind provided for under Section 301.
The United States had, however, seen the WTO in a completely different light. This was evident from the one of the statements issued subsequent to the country acceding to the WTO: "There is no basis for concern that the Uruguay round agreements in general, or the DSU in particular, will make future Administrations more reluctant to apply Section 301 sanctions that may be inconsistent with US trade obligations because such sanctions could engender DSU-authorized counter-retaliation. Although in specific cases the United States has expressed its intention to address an unfair trade practice by taking action under Section 301 that has not been authorized by the GATT, the United States has done so infrequently. In certain cases the United States has taken such action because the foreign government has blocked adoption of a GATT panel report against it. Just as the United States may now choose to take Section 301 action that are not GATT-authorized, governments that are the subject of such actions may choose to respond in kind.
That situation will not change under the Uruguay Round agreements". The intention of the US Trade Administration to seek resolution of a trade dispute through the unilateral means even in the presence of the multilateral system provided by the WTO was thus stated quite ambiguously. What the ruling of the Panel in its favour may now do is to push it into taking recourse to these means.
This can be considered as one of the landmark rulings for it allows the United States to use unilateral action against countries that are seen by the US Administration to be undermining its trading interests, conveniently by-passing the multilateral system. What makes the ruling of the Panel more significant is fact that no less than 11 countries, which included Japan, Canada, Korea, Brazil and India, joined in the dispute as third parties to the dispute adding their weights to the complainant. It was the combined strength of the arguments some of the more important players in the WTO that thus fell by the way-side.
The ruling of the Panel sets at rest all the speculation that was rife in the five years that the WTO has been in existence that the United States would find ways of providing legitimacy to the controversial provisions of its Trade Act of 1974, viz. Sections 301 to 310, which provide for unilateral action. This speculation was strengthened as a result of two moves that the United States Trade Administration took in the post-WTO phase. The first was a pre-emptive move that the Administration took in 1994 by enacting the Uruguay Round Agreements Act (URAA).
The URAA was intended to provide an assessment of the future of the domestic legislations of the United States in a regime, which was to be defined by the WTO rules. The second was the continued use of Section 301 for identifying the countries that were seen as violating the trading interests of the United States even when the WTO had emerged as the organisation that was responsible for ensuring fair trade.
In respect of the Section 301 of the Trade Act of 1974 the URAA has the following comment: "The administration intends to use Section 301 to pursue vigorously foreign unfair barriers that violate U.S. rights or deny benefits to the United States under the Uruguay Round Agreements". This comment should be seen in the context of the actions that the United States Trade Representative (USTR) had been threatening to use against countries in a more extensive manner since the Omnibus Trade and Competitiveness Act was adopted in 1988.
The new Act added two new sections to Section 301, viz. Special and Super 301, aimed at focusing action that could now be taken against the trading partners. While Special 301 was designed to address violations in the area of intellectual property rights, Super 301 was to perform similar functions in the area of services. It needs to be added here that Special and Super 301 gave the USTR the powers to threaten action of trade retaliation in two of the key areas in the Uruguay Round of multilateral trade negotiations.
Although no action of trade retaliation was taken under the two provisions, the USTR used the powers available to it in quite an effective manner. The countries most likely to face trade retaliation were put under a "priority watch list" following which their attitudes towards US business interests were closely scrutinised. In the early years of USTR action under Special and Super 301, India was one of the main targets for action.
Apart from being on the "priority watch list" under Special 301 for its Patents Act which, in view of the US Trade Administration was allowing infringement of patents held by the US business, action was also threatened against India for its negotiating stance in the area of intellectual property rights in the Uruguay Round negotiations. The then US Trade Representative, Carla Hills, had stated while issuing the 1989 list of countries on the "priority watch list" that India's actions in the Uruguay Round negotiations would be watched closely before any decision of trade retaliation was taken. The pressure put on India remains among the more stark examples of the threatened use of unilateral action of trade retaliation by a major trading country to realise its objectives in the multilateral negotiations.
It was particularly in light of these developments that the multilateralism of the WTO was considered to be a positive outcome. There were two main strengths of the WTO that were perceived of as it was being put in place. The first was the element of predictability that it imparted to the trading system. The second was that the stronger and the more effective dispute settlement mechanism provided for in the organisation would work as a deterrent for the use of unilateral actions of the kind provided for under Section 301.
The United States had, however, seen the WTO in a completely different light. This was evident from the one of the statements issued subsequent to the country acceding to the WTO: "There is no basis for concern that the Uruguay round agreements in general, or the DSU in particular, will make future Administrations more reluctant to apply Section 301 sanctions that may be inconsistent with US trade obligations because such sanctions could engender DSU-authorized counter-retaliation. Although in specific cases the United States has expressed its intention to address an unfair trade practice by taking action under Section 301 that has not been authorized by the GATT, the United States has done so infrequently. In certain cases the United States has taken such action because the foreign government has blocked adoption of a GATT panel report against it. Just as the United States may now choose to take Section 301 action that are not GATT-authorized, governments that are the subject of such actions may choose to respond in kind.
That situation will not change under the Uruguay Round agreements". The intention of the US Trade Administration to seek resolution of a trade dispute through the unilateral means even in the presence of the multilateral system provided by the WTO was thus stated quite ambiguously. What the ruling of the Panel in its favour may now do is to push it into taking recourse to these means.
© MACROSCAN 1999