by André de Hoogh, cross-posted from the GUILD-blog
Last March, a WTO panel issued its report on a dispute between the European Union, the United States and Japan on the one hand and China on the other concerning export duties imposed on certain rare earths, tungsten and molebdynum (here ; China – Rare Earths). The export duties were, quite unsurprisingly, found to be inconsistent with paragraph 11.3 of China’s Protocol of Accession (China – Rare Earths, para. 7.48; Protocol, here ). The crucial legal question was whether China could invoke article XX GATT 1994 (GATT) to justify its violation of obligations under the Protocol.
Various complex and detailed issues arise with respect to the relationship between the Protocol and the GATT, many of which lie beyond the scope of a short contribution. It is proposed therefore to limit the first part of this comment to what may be called, in essence , the incorporation theory . This theory entails that a textual reference to the GATT in the specific, substantive provisions of the Protocol or Working Party Report (WPR, here ) is required to justify recourse to article XX GATT. This contribution will critically investigate the interpretative method and interpretations adopted by the Appellate Body (AB) and the panel .
The state of jurisprudence
The question of the relationship between the Protocol and the GATT first came up regarding certain measures of China leading to the AB report in China – Publications and Audiovisual Products ( here ). The AB held, upon a claim of China to that effect, that the introductory phrase of paragraph 5.1 Protocol – ‘[w]ithout prejudice to China’s right to regulate trade in a manner consistent with the WTO Agreement …’ – allows China to invoke the general exceptions of article XX GATT in relation to its violation of obligations pertaining to trading rights (para. 233).
Another dispute over the imposition of export duties on raw materials led to China’s claim that article XX GATT could also be invoked in relation to a violation of obligations under paragraph 11.3 Protocol . On appeal the AB, in China – Raw Materials ( here ), drew upon the language of paragraph 11.3 and rejected the argument that China could invoke article XX GATT. As no reference is to be found in paragraph 11.3 to the GATT generally or article XX in particular, nor any language similar to that of paragraph 5.1, the AB concluded that paragraph 11.3 provided no textual basis for China’s claim (para. 291). The reference to article VIII of the GATT in paragraph 11.3 of the Protocol also provided no relief to China, since that provision deals with fees for services rendered and excludes export duties from its scope (para. 290). The AB found further support for its conclusion based on context in paragraphs 11.1 and 11.2 and the WPR (paras. 293-299), discarded arguments based on the object and purpose of the WTO agreements (paras. 300-306), and held that China could not invoke article XX GATT (para. 307).
Having lost the battle, China nevertheless proceeded in the next case to press its point in relation to its export duties on rare earths. Pointing out, inter alia, that the Protocol constitutes an integral part of the WTO Agreement pursuant to paragraph 1.2, it argued that paragraph 11.3 of the Protocol is intrinsically related to the GATT and is therefore made part of the GATT (China – Rare Earths, paras. 7.73-7.89). It further argued a similar point in relation to article XII.1 of the WTO Agreement, contending that accession operates in relation to the WTO Agreement and the annexed multilateral trade agreements (paras. 7.90-7.93).
The panel, fully aware of the AB’s earlier rejection of China’s claim, did consider whether cogent reasons might justify a departure from that position. Finding against China, the panel concluded that the exceptions of article XX GATT could not be invoked to justify a violation of paragraph 11.3 Protocol (para. 7.115). However, one panellist disagreed and argued that the defences of the GATT are available to GATT - related obligations established under the Protocol unless a contrary intention were to be established (paras. 7.118-7.138).
The incorporation theory
A preliminary, critical comment relates to the method applied to determine the common intentions of the parties to the Protocol. The AB points out that if the parties had so intended they would have introduced wording in the Protocol allowing, by way of cross-reference, recourse to article XX GATT (China – Raw Materials, paras. 293 and 303). Boiling down to a contrario reasoning – there is no express language, thus recourse is excluded (inclusio unius est exclusio alterius) –, this argument is flawed due to the nature of the inclusion: silence (see Baroncini 2013). The fact that the parties could have made something clear in the text of a document (panel report in China – Raw Materials, para. 7.140,here ; China – Raw Materials, para. 293) is not proof (dis)positive of an intention to exclude, especially since the issue here is not the ordinary meaning of an express term. To interpret a specific term will necessarily, if words are to have meaning at all, require some determination of inclusion and exclusion, but the same cannot be said for silence or absence of specific language.
The AB and the panel do examine the language of the specific provision under scrutiny (paragraph 11.3 Protocol) and more general provisions (paragraph 1.2 Protocol and article XII.1 WTO Agreement) to determine whether recourse to article XX GATT may be available, but in essence their inquiry is already grafted upon their theory that incorporation is required. Thus they are not looking for evidence of a common intention as to the specific issue at hand, but for arguments in support of their theory and rejecting viable arguments against such a theory. Indeed, one may wonder whether any common intention of the parties can realistically be established in relation to this issue in the absence of language addressing it. In this, both bodies appear to adhere to yet another theory, that texts are complete, logically and legally coherent, and consequently sufficient in and of themselves to answer any question of interpretation.
In particular, t wo arguments relating to the incorporation theory may be examined: first, that the parties to the multilateral trade agreements other than the GATT have at times incorporated article XX by way of cross-reference; and second, that the references in the Protocol and the WPR to the WTO Agreement or the GATT can be seen as cross-references to article XX GATT.
As to the former, it stands to reason that other agreements would either include a self-standing provision allowing the balancing of free trade with the pursuit of legitimate objectives (i.e. article XIV GATS), or would make a cross-reference to article XX of the GATT (i.e. article 3 TRIMs). The necessity of a self-standing provision or cross-reference to article XX GATT is a given because article XX GATT is limited to the scope of the GATT itself (‘nothing in this Agreement’). Absence of such language in another multilateral trade agreement would not simply lead to an absurd or unreasonable result as a matter of interpretation, but to an absurd or unreasonable result tout court. This absence of cross-references has precisely led to queries as to the applicability of article XX to the SPS and SCM Agreements, which are linked to the GATT but do not contain any exceptions or cross-reference (Shapiro 2007; Lester, Mercurio and Davies 2012).
As to the latter, references to the WTO Agreement or to the GATT in the Protocol , the AB interprets language such as ‘shall conform to the obligations undertaken under the WTO Agreement’ (paragraph 2.3 Protocol), ‘the right to regulate trade consistent with the WTO Agreement’ (paragraph 5.1 Protocol), ‘in conformity with the GATT 1994’ (paragraphs 11.1-11.2 Protocol), ‘in conformity with article VIII of the GATT 1994’ as references to article XX of the GATT (China – Raw Materials, paras. 291, 293, 303-304). The validity of this claim may very much be doubted, if only because no explicit reference to article XX can be found in the Protocol and only once in the WPR (para. 160). Thus, contrary to what the panel suggests in China – Rare Earths, there is no ‘explicit language throughout the Accession Protocol and the Working Party Report specifically making Article XX exceptions applicable in the case of certain WTO commitments’ (para. 7.86; emphasis added). Such references as may be found do not address the applicability of the GATT to the specific provision of the Protocol, but rather provide clarification as to the scope of obligations undertaken or the interaction between trade instruments. Hence, they are similar in character to the interpretative notes or understandings to the GATT.
Moreover, in many instances the references are redundant, since they simply restate the obvious fact, or rather the obvious norm, that all China’s laws, regulations, restrictions, measures, and conduct must comply with the obligations undertaken in the WTO Agreement. However, this is already given by articles II.2, XVI.4. XVI.5 of the WTO Agreement, and by the rules of customary international law reflected in article 27 of the 1969 Vienna Convention on the Law of Treaties and articles 3 and 32 of the ILC Draft on State Responsibility.
Although quite a few provisions of the Protocol contain the words ‘except’, ‘exceptions’ or refer to ‘exceptional’ cases or circumstances, these tend to constitute a limit to the scope of the substantive obligations undertaken. In only a few cases do they suggest an affirmative defence similar to the exceptions of article XX GATT (i.e. paragraphs 2.(C).2, 2.(C).3, 8.1.(d), 9.2 Protocol). The position of the panel that paragraph 11.3 Protocol lists the exceptions applicable to the obligation to eliminate export duties, to the exclusion of others, ignores the distinction between limitations to or exclusions from the substantive scope of an obligation and the invocation of exceptions as an affirmative defence to the breach of that obligation (see China – Publications and Audiovisual Products, paras. 223, 228 and also 230). Moreover, even when a provision mentions exceptional circumstances, suggesting the presence of an affirmative defence, it does not refer to the GATT and its general exceptions. The Protocol does once use ‘justified under the WTO Agreement’ (paragraph 7.2; arguably also Annex 1A, paragraph IV.5.(a)), which might more appropriately be seen, by implication, as a reference to exception provisions. The WPR more often uses ‘justified under’, but almost always by reference to the WTO Agreement (paras. 122, 128, 165, and 217; see also paras. 37, 113, and 124, which however concern statements by WTO members and not China) and only once to the GATT (para.162).
Pursuing this line of thought further, the AB’s and the panel’s argument in relation to the absence of language similar to that of paragraphs 11.1 and 11.2 Protocol – ‘China shall ensure that … shall be in conformity with the GATT 1994’ – suggests that the exceptions listed in paragraph 11.3 are exhaustive (EC – Raw Materials, para. 293; China – Rare Earths, paras. 7.89). Yet this is a non sequitur. A perfectly valid explanation for the absence of such language is that there are no taxes or charges to exports that may legally be applied under the GATT because China has agreed to eliminate all such taxes or charges (unless in relation to products set out in Annex 6 or applied in conformity with article VIII GATT , which concerns fees for services rendered and excludes export duties). Thus paragraph 11.3 establishes an absolute obligation (with exceptions that limit its scope) that does not allow for any application in conformity with the GATT. The references to ‘in conformity with’ the GATT relate to substantive obligations under the GATT and not to its affirmative defences. Additionally, as has been noted (Qin 2012; Baroncini 2013; Liu 2014), when it comes to the elimination of export duties no specific obligation can be found in the GATT (though export duties may be included in a member’s Schedules of Concessions) and this too may explain the absence of reference to the GATT.
The incorporation theory adopted by the AB in China – Raw Materials and the panel in China – Rare Earths lacks coherence. As it is, no specific references to article XX of the GATT can be found in the Protocol and only one in the WPR. In general, references to the WTO Agreement, the GATT or its specific provisions in the Protocol relate to substantive provisions and not to affirmative defences, and thus do not evidence a common intention of the parties to incorporate article XX.