solution

United States—Sections 301-310 of the Trade Act of 1974

BACKGROUND AND FACTS

The European Communities requested a WTO panel to decide whether U.S. Sections 301-310 [the Act] violated GATT dispute settlement procedures. The Act permits the USTR to investigate possible violations of GATT or other international trade agreements, to negotiate a settlement of the dispute, and to request a WTO dispute settlement panel if necessary. The Act also permits the USTR to impose retaliatory tariffs or other trade sanctions either unilaterally or if authorized by the WTO Dispute Settlement Body. The EC argued that the Act violated WTO rules.

REPORT OF THE PANEL

The European Communities argues that [WTO rules] prohibit unilateralism in the … dispute settlement procedures. Members must await the adoption of a panel or Appellate Body report by the Dispute Settlement Body, or the rendering of an arbitration decision … before determining whether rights or benefits accruing to them under a WTO agreement are being denied. * * *

The European Communities … took the position in the Uruguay Round that a strengthened dispute settlement system must include an explicit ban on any government taking unilateral action to redress what that government judges to be the trade wrongs of others.

The United States argues that nothing in Sections 301-310 requires the U.S. government to act in violation of its WTO obligations. To the contrary, the Act requires the USTR to undertake WTO dispute settlement proceedings when a WTO agreement is involved, and provides that the USTR will rely on the results of those proceedings when determining whether U.S. agreement rights have been denied. Likewise, [the Act] explicitly indicates that the USTR need not take action when the DSB has adopted a report finding no denial of U.S. WTO rights.

Under well-established GATT and WTO jurisprudence and practice which the European Communities appears to accept, a law may be found inconsistent with a Member’s WTO obligations only if it precludes a Member from acting consistently with those obligations. The European Communities must therefore demonstrate that Sections 301-310 do not permit the United States government to take action consistent with U.S. WTO obligations—that this legislation in fact mandates WTO-inconsistent action. The European Communities has failed to meet this burden. Its analysis of the language of Sections 301-310 ignores pertinent statutory language and relies on constructions not permitted under U.S. law. Sections 301-310 of the Trade Act of 1974 are fully consistent with U.S. WTO rights and obligations. * * *

If a law does not make it compulsory for authorities to act so as to violate their international obligations, that law may not be said to command such action. This can be illustrated through a simple example. A law which provides, “the Trade Representative shall take a walk in the park on Tuesdays, unless she chooses not to” does not oblige the USTR to walk in the park on Tuesdays. She has complete discretion not to take a walk in the park on Tuesdays; the law in no way obliges or commands her to do so. This remains true despite the use of the word “shall” in that law.

Decision. Sections 301-310 of the U.S. Trade Act of 1974 were found to be valid under the GATT 1994 agreements. The panel clarified that the United States may impose retaliatory trade sanctions against other WTO members only where the United States strictly followed WTO dispute settlement rules and when authorized by the Dispute Settlement Body.

Comment. Upon entering the WTO, the United States had filed a binding “Statement of Administrative Action,” in which it committed to abide by all WTO dispute settlement procedures and to not act unilaterally. That was noted by the panel in its report and was a factor in the panel’s decision.

Case Questions

1. What does the panel mean by “unilateralism”?

2. If a trade dispute arises, what is the proper procedure under WTO rules for settling that dispute?