Principles of treaty interpretation in WTO law – I

An important issue for the WTO tribunal (Dispute Settlement Body: DSB) is how to interpret the trade agreements under WTO. The dispute is generally rooted in conflicting understanding of the provisions of the agreement. The application of the Vienna Convention (VCLT) has often been incorporated particularly in the Law of Treaties and through it into GATT law as a guide for interpretation. Whether or not the VCLT applies to the old GATT is not clear since it is uncertain whether it was, in fact, a binding treaty. However, in international law the WTO agreements are treated like any other treaty.

THE LAW OF TREATIES AND VIENNA CONVENTION The principles of customary international law for the interpretation of treaties have been provided in the VCLT.1 However, there exists a need to achieve clarification of the WTO agreements by reference to the fundamental rule of treaty interpretation.2 And since United states and some other states are not parties to the VCLT, hence the provisions of VCLT are not universally applicable.3

For example, Venezuela and Brazil brought a complaint in respect of the effects of rules prescribed under the US Clean Air Act to foreign exported gasoline. The US attempted to justify its measure.4 These regulations related to conservation of natural resources pursuant to Article XX. The Appellate Body overruled panel report for not giving full effect to Article 31 of the VCLT while interpreting a crucial phrase of the GATT 1994.5 The Panel in its report had interpreted the term “relating to” as meaning “primarily aimed at.”

The Appellate Body disagreed with the Panel’s finding that the calculation of baseline levels of clean gasoline qualities, applicable to foreign producers, could be isolated from the overall policy objectives of the legislation,6 and concluded that it was erroneous on the part of panel and observed that baseline rules, in the context of lawmakers’ intention, were not measures “relating to” the conservation of an exhaustible natural resource.

A treaty is to be interpreted in good faith and in accordance with the ordinary meaning given to the terms of the treaty in their context and in the light of the treaty’s object and purpose.7 The Agreement on Textiles and Clothing (ATC) for example is relevant in order to interpret Articles 6.2 and 6.4 of the ATC.8 The cross-references and interrelationship between all the WTO Agreements opens up the possibility of considering them while interpreting a particular agreement.

There exists another fundamental rule of treaty interpretation applicable to WTO Agreements,9 that is where the panel based its conclusions on VCLT principles, the provisions of Article 31 of VCLT stands applicable.10 And for the sake of understanding the ordinary meaning of the word “affecting” in the General Agreement on Trade and Services, the test provided in Article 31 of the VCLT becomes applicable.11

The principle of effectiveness The principle of effectiveness ut res magis valeat quam pereat is a fundamental tenet of treaty interpretation,12 and it flows from the contextual analysis.13 If a treaty is open to two interpretations with one of them disabling the treaty from having the appropriate effects, the objects and purpose of treaty demand that an effective interpretation should be made14 in good faith. However, the Appellate Body in Reformulated Gasoline case held that the interpretation of a provision cannot result in a reading that reduces whole clause or paragraphs of a treaty to make it redundant or a nullity, because all the terms of the treaty are to be given meaning and effect.15 And where treaty provision are being given contextual meaning, there exist a need for flexibility in interpreting WTO agreements.16

In dubio mitius Another tool of interpretation namely, dubio mitius also applies where deference is accorded to the sovereignty of States. A meaning to an ambiguous term is the one that is less onerous on the party assuming an obligation, and it least interferes with territorial and personal supremacy, or imposes fewer general restrictions.

It was wrong to assume that sovereign States intended to impose upon themselves the more onerous obligation, rather than less burdensome one, by mandating conformity or compliance with such standards, guidelines and recommendations.17

Principle of legitimate expectation The foundation of doctrine of legitimacy18 has its foundation in international law, and it represents an underlying principle of treaty interpretation. It is derived from German law and is a principle of interpretation applied by the European Court of Justice.19 Developed in the context of something that traders can rely on, and its principles are related to the doctrine of legitimate expectation including the principles of pacta sunt servanda, estoppel and the abuse of rights.

The Permanent Court of International Justice in one case held that conduct not explicitly prohibited by international law remained lawful.20 Lawful measures adopted by some States easily frustrate the intentions of parties to the GATT 1947. Resultantly it is now a well-established GATT principle that the legitimate expectations of members regarding the conditions of competition are to be protected in order to inject security and predictability into the multilateral trading system.

The protection of legitimate expectations of the tariff treatment of a bound item is one of the most important functions of Article II of the GATT 1994.21 Tariff concessions are granted under the presumption that the price effect of the tariff concessions will not be systematically offset.22

The doctrine of legitimate expectations was a concept developed in the context of non-violation complaints. The application of legitimate expectations in treaty interpretation stands restricted to non-violation complaints.23

Interpreting a concession in the light of the legitimate expectations of an exporter is not consistent with the principle of good faith under VCLT,24 since it applied concepts to the treaty that were not intended by the parties. The purpose of treaty interpretation is to ascertain the common intentions of the parties, which cannot be understood on the basis of the subjective and unilaterally-determined expectation of one of the parties to the WTO Agreements.

WTO agreements and other international agreements A party’s obligations can be affected by international commitments external to the legal regime.25 Conflicting treaty obligations can also arise in numerous situations.26 These issues have arisen mainly in the context of multilateral agreements relating to environment and their potential conflicts which supersede a trade obligation. DSB has been reluctant to rule definitively on this question.27

An opportunity does exist to integrate environmental protection and conservation principles, expressed in numerous MEAs, into WTO law.28 A such dispute involving trade restrictions imposed by the US on shrimp not caught using harvesting methods that had turtle excluder devices (TED) were not repugnant to the WTO law. An argument was raised that States are obligated under international law to supervise and control activities within their jurisdiction that undermine the conservation of endangered species.29 The Panel was asked to recognise the obligations expressed in a number of MEAs including Convention on Biological Diversity, Convention on the International Trade of Endangered Species (CITES), UNCLOS, and the Convention on the Conservation of Migratory Species of Wild Animals (Bonn Convention). The Panel was expected to address the relationship of CITES and the Bonn Convention to the GATT 1994.30 Trade in these species was severely circumscribed under a multilateral regime, whereas trade in shrimp, however, were not. The existence of a regional agreement governing the issue which, the Appellate Body implied, would not violate WTO rules.31

The Appellate Body reviewed this issue in the Beef Hormones dispute in the context of the precautionary principle. The EU argued that the precautionary principle is a general rule of customary international law or at least a general principle of law. When applied to the SPS Agreement, it rendered it unnecessary for scientists from around the world to agree on the possibility and magnitude of the risk from eating hormone-injected beef. The operation of the principle may preclude the necessity for all or most of the WTO members to perceive and evaluate the risk in the same way. However, no consensus emerged on the issue that whether or not States have accepted this principle as general customary international law.32 In fact the appellate body refrained from ruling on this question, however, it confirmed that the precautionary principle was reflected in the SPS Agreement,33 which allow parties to adopt higher or more cautious standards than those accepted internationally. The precautionary principle did not, by itself, and without a clear textual directive to that effect, relieves a Panel from the duty of applying the normal rules of treaty interpretation while reading the SPS Agreement.34

(To be continued)