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Functions of Good Faith in the WTO: Institutional, Substantive
and Procedural
by Dr. Marion PanizzonWorld Trade Institute/ NCCR-TradeECIPE Book Forum 13 June 2007
‘An international tribunal chooses, edits, and adapts
elements from better-developed systems: the result is a new
element of international law (...)’.Ian Brownlie, The Rule of Law in International Affairs, International Law at the
Fiftieth Anniversary of the United Nations (The Hague, Martinus NijhoffPublishers), 1998, p. 15
Outline• Foundations• Normative Value• Functions
– Substantive– Procedural– Institutional?
• Good Faith in Negotiations
Foundations of Good Faith
Behavioral, Legal, International
Foundations of Good Faith
environment
Decision-making
norms confidence/faith
overflow of impulses & simultaneous lack of information:complexity & lack of control
Human being or a State
impuls
impulsimpuls
impuls
good faith
Good Faith in WTO?
Normative ValueCodification in
DSU
Applicable Law& Scope of WTO
Jurisdiction
Relationship withDue Process Rights
Relationshipto non-violation
complaints
Linkage w/ Corrolaries
Good Faith InterpretationVCLT & WTO
Presumption of Good Faith
Judicial Activism
Normative Value of Good Faith
Self-standing Obligation or Accessory Enforceability?
Question for GF in the WTO
Is it lawful for a Panel or AB to find that a Member has acted in bad faith (or failed to act in good faith) in the absence of a specific obligation requiring a conduct in good faith (such as the Chapeau of Article XX GATT)? and do Panels and the AB have a duty to fill in gaps in the treaties with good faith?
Degrees of Normativity(pursuant to 38 ICJ Statute, VCLT & 3.2 DSU)
1. binding rule of custom (when good faith in treaty performance is linked to pacta suntservanda)
2. express & thus enforceable WTO treaty obli-gation in DSU 3.10 & 4.3
3. binding source of treaty interpretation of Article 31 (1) VCLT binding to WTO judiciary via 3.2 DSU
4. Binding or non-binding general principle of law?
• When implied (3.7 DSU, XX GATT, 5.2 SPS, ADA)• When not implied: good faith in negotiations
Factors of GF normativity• Contested in Public International Law
– Good faith is ‘not in itself a source of obligation where none would otherwise exist’. ICJ Nicaragua vs Honduras, 1988
• Scope of WTO Jurisdiction & Applicable Law– Substantive Law?
• Sources of interpretation—31 (3)(c) VCLT?– EC-Biotech Panel jurisprudence, difficult for general principles
of law• Presumption of Good Faith-Rule applicable in WTO law?
– Byrd Amendment AB Report endorses it• Non-Violation Complaints as Procedural Tool Requiring GF (PLE)
– “safe entry point” for good faith/PLE, but difficult to use in practice & no case successful on NVNI
“Nothing, however, in the covered agreements supports the conc-lusion that simply because a WTO Member is found to have vio-lated a substantive treaty provision, it has therefore not acted in good faith. In our view, it would be necessary to prove more than mere violation to support such a conclusion.” Byrd Amendment, AB Report, para. 289.
prima facie case of violation of substantive provision ne-cessary, but not sufficient to rebut presumption of good faith
Proof of bad faith?
Proof of violated good faith?
reinforces regular violation
without any changes as to legal consequences
no supplementary burden of proof for WTO Member
AccessoryComplementary Alternative
Violation of GF adds on to viol-ation of substan-tive provision
Functions of WTO Good Faith
Substantive, Procedural, Institutional
Substantive Good Faith
Balancing, Corrective & Gap-filling Functions
Case Law
• Balancing: Chapeau of Art. XX GATT (US-Shrimp)
• Corrective: Art. 6 ASG applied abusively by government failing to withdraw SG when post-determination evidence relating to pre-determination facts showed that SG was unfounded (US-Cotton Yarn)
Case law, cnt’d
• Complementary/Gap-Filling: 5.2 SPS risk assessment– Good faith opens basis of risk assessment for
divergent in addition to mainstream scientific opinion
– AB substitutes its lack of standard of review for facts, with good faith duty of governments in order to be able to review measures based on minority scientific opinion (EC-Hormones)
Procedural Good Faith
Express Treaty Provisions, Implied Treaty Obligations,
Inherent Good Faith Standard
AB
Parties Panel
Due process rights
Due processrights
Good faithcompliance
Standard of review
ADR: mutually agreed solution
Good faith in resolving disputes
“new function of 3.10”“new” function of 3.10
Trade litigation
“traditional” function of 3.10“traditional” function of 3.10
Development of Procedural GFCanada-Aircraft 1999
US-FSC 2000 US-FSC 2000 EC-Sardines, 2002
Article 13 DSUis an expres-sion of GF in DSU 3.10
“traditional”approach, analogy to GATT XX
Concretizing or broadening scope of DSU 3.10?
GF additional duty to existing DSU ob-ligations? judicial activism?
use of due process rights of one party find limit in GF of other (costs to developing countries)
Keep open ADR avenue
Article 3.10 DSUis an expres-sion of general principle of GF
GF standard of “fair, prompt and effective resolution of trade disputes”
GF standard guards against abuse of WP Rule 30
When liti-gating, fair!
“good faith comp-liance”
Balance of power/ institutional GF
Good Faith in Negotiations
“L’engagement de négocier n’implique pas celui de s’entendre, la simple obligation de négocier n’emporte jamais l’obligation de
conclure l’accord”E. Zoller, 1977, pp. 64-65.
PILDuty to Negotiate
In good faith
Prohibition tonegotiate in
bad faith
Level of“seriousness”?Different or equal?
Criteria of“seriousness”
Danger of Overregulating
Presumption of GFin negotiations
Interpretation againstOfferor/demandeur
Duty to negotiate in good faith in PIL
• Article 18 VCLT• US-British Jay Treaty of 1794 and Treaty of
Ghent 1814 (as compiled by Cheng, 1987)
– Propose nothing which is nominal or illusory– Not intend anything which is unreasonable, absurd or
contradictory, or which leads to impossible conse-quences
– In case of doubt words have to be interpreted againstthe party which has proposed them, and according to the meaning that the other party would reasonably and naturally have understood
WTO Features GF in negotia-tions ≥ PIL
GF in negotia-tions ≤ PIL
ProgressiveLiberalization
X
Multilateral X, if you negotiate with one, you have to negotiate with all
Single Undertaking of UR, also for Doha?
no pick and choose
S&D Mandate to alleviate asymetry of power
Less seriousness required of developing countries?
More seriousness required of powerful Members?
WTO Duty to Negotiate
in Good Faith
Definition of Duty to to negotiate pluri-lateral agreement
PresumptionConsistency withGeneral Exceptions
Gaps in WTO lawDSU GF in analogy?
WTO Specifics1. MFN offer 2. NVNI3. Link to litigation
WTO Duty to Negotiate in GF• Duty to negotiate in good faith is presumed (EC-
Sardines)– Clear evidence to contrary shown by complaining
party• and is broader than prohibition to negotiate in
bad faith (Korea-Government Procurement)– Absence of fraud
• Misleading other party about the conclusion of a treaty or goals of the treaty
• Intention of harming or cheating on other party• Corrupting government officials
• reasonable attitude in the light of the object and purpose of the treaty
Specifically
Prohibition of bad faith negotiations
• Not portray interests in a misleading way
Duty to good faith negotiations
• Be prepared to modify interests or hold back interests in order to reach a solution
• Not start litigation?• Not go public?• Not draw out?
Applications in WTO Case Law
US-Shrimp (21.5)Korea-Government Procurement
Two-tier good faith test in the Chapeau of Article XX GATT
1. Chapeau itself is an expression of the general principle of law of good faith
– Prohibits the abuse of a specific exception for protectionist reasons (disguised restriction)
2. “Ongoing serious good faith efforts to reach a multilateral agreement” on the “measure”
– works as presumption that “measure” falling under a specific exemption of Article XX(a-j) is applied in a manner consistent with the Chapeau of Article XX
Trust thru transparency equals new norm
“Good faith effort to negotiate multilateral agreement”
Transparency: int’l agreement > nat’l measure
“Measure is not applied as a means of unjustifiable or arbitrary discrimination”
Trust: Fact of negotiating a non-WTO agreement spills over trust leading to the WTO-consistency of the measure
Panel vs AB in US-Shrimp (21.5)
• Panel says how much effort is necessary for serious good faith effort depends on which WTO Member is imposing an import restriction
• Good faith as equity
• AB reverses Panel: good faith effort necessary does not depend on whothe WTO Member is
• good faith “applies to allWTO Members equally”
• and offer needs to be extended to all WTO Members equally
• Good faith as equality
constituent elementsUS-Shrimp (21.5)
1. Scientific, diplomatic and financial means2. Capacity of persuasion3. Successful negotiations of similar agreements
(comparability of efforts)4. Duty to negotiate not just with some, but with all5. Seriousness of good faith effort must not be made
dependant on whether the WTO Member is “demandeur” (conflict w/ Korea-Government Procurement)
6. Treshhold for good faith must not depend on the scientific, diplomatic financial and persuasive capacities of a WTO Member
Korea-Government Procurement
“In this case, it was the negotiations which allegedly gave rise to the reasonable expec-tations rather than any concessions” (para. 7.120)
– self-standing enforceability of the duty to negotiate in good faith
– based on a non-violation complaint– founded upon the protection of the US’ legitimate
expectations as to the value of assurances Korea gave the US and which Korea violated by inadequate bidding deadlines and procedures
constituent elementsKorea-Government Procurement
1. Not negotiating on a full and forthcoming basis2. Not providing full, timely and complete, frank
and forthright answers3. Negotiations are deficient in transparency and
openness4. Duty of good faith (and transparency) stronger
for offering party (in plurilateral negotiations)5. Other negotiating parties are not relieved from
duty of diligence (to verify offers as best as they can)
Plurilateral vs Multilateral
Korea-Government Procurement
1. Duty to negotiate in GF as a self-standing com-plaint via NVNI
2. Interpreted against offeror
3. Plurilateral WTO agreement
• no MFN of offer to negotiate
US-Shrimp (21.5)
1. Seriousness of GF ne-gotiations exculpate measure from GATT-inconsistency
2. Equal GF efforts by all parties
3. MFN offer to negotiate
Open questions
• Presumption of GF negotiations?• Right to be offered negotiations in WTO Law?
– If they are started with one Member– also when negotiating GATT & GATS plus
agreements not justified by XXIV GATT & V GATS?• Non-violation complaints
– Legal basis for litigation lack of good faith in negotiations
Open questions, cnt’d• Constitutive elements (“seriousness”)
– Offer of negotiations– Results required (conclusion of MOU or more) or
“ongoing serious effort” sufficient? – Equity in burden of “seriousness”
• Allocation of Burden of Interpretation– Against offeror/demandeur?
• “If negotiations are fruitless, litigation takes over”(FT, 20 March 2007)– Vicious circle: negotiations that are not in good faith
lead to disputes that are not fruitful (not in good faith)
Thank you