1

THE ISSUE OF THE ADMISSIBILITY OF DISPUTES BEFORE WTO

PANELS IN CONFLICTS RELATED WITH FREE TRADE

AGREEMENTS: DOES THE WTO’S DISPUTE SETTLEMENT

BODY´S JURISDICTION PREVAIL OVER THE FTA’S DISPUTE

SETTLEMENT MECHANISM?

PROYECTO DE GRADO

PONTIFICIA UNIVERSIDAD JAVERIANA

FACULTAD DE CIENCIAS JURÍDICAS

DEPARTAMENTO DE DERECHO ECONÓMICO

BOGOTÁ D.C.

2017

  2

PONTIFICIA UNIVERSIDAD JAVERIANA

FACULTAD CIENCIAS JURÍDICAS

BOGOTÁ D.C.

2017

PROYECTO DE GRADO

THE ISSUE OF THE ADMISSIBILITY OF DISPUTES BEFORE WTO PANELS IN

CONFLICTS RELATED WITH FREE TRADE AGREEMENTS: DOES THE WTO’S

DISPUTE SETTLEMENT BODY´S JURISDICTION PREVAIL OVER THE FTA’S

DISPUTE SETTLEMENT MECHANISM?

2017

  3

INDEX

I. Introduction

II. Preliminary issues

a. The dispute settlement system of the WTO

b. Inherent jurisdiction

c. The difference between jurisdiction and admissibility

III. Legal impediments as a motive for declining the exercise of jurisdiction

a. The existence of legal impediments

b. Article 3.7 of the DSU

c. Article 3.10 of the DSU

IV. The CHIMEHA FTA between Chilo, Meco and Haito

a. Presentation of the case

b. Arguments for the complainant

c. Arguments for the respondent

V. Conclusions

VI. Bibliography

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Nota de Advertencia: Artículo 23 de la Resolución N° 13 de Julio

de 1946

“La Universidad no se hace responsable por los conceptos

emitidos por sus alumnos en sus trabajos de tesis. Solo velará por

qué no se publique nada contrario al dogma y a la moral católica y

porque las tesis no contengan ataques personales contra persona

alguna, antes bien se vea en ellas el anhelo de buscar la verdad y

la justicia”.

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Abstract: El auge en la celebración de TLCs, donde las partes acuerdan la creación un foro

de resolución de disputas, que conoce todas las controversias que surjan en el marco del

tratado, incluso en aquellas donde se debe aplicar derecho de la OMC, ha suscitado un gran

debate: ¿los hechos ocurridos entre las partes en el marco de un TLC afectan la capacidad de

los tribunales de la OMC de decidir la controversia, por virtud de una objeción a la

admisibilidad? Este escrito analizará las decisiones proferidas por los tribunales de la OMC,

buscando plantear una respuesta a dicho interrogante.

Palabras clave: Organización Mundial del Comercio, tratado de libre comercio,

admisibilidad, superposición de jurisdicciones

Abstract: The rise of FTAs, where the parties agree to set up a dispute settlement forum,

which will hear of all disputes arising under the treaty, including those where the WTO law

is to be applied, has arose the present debate: Can facts between the parties in the frame of

an FTA affect the capacity of panels and the Appellate Body to decide the merits of the

dispute, by virtue of an objection to the admissibility of the dispute? This paper will analyze

the different rulings from WTO tribunals in order to answer the question.

Keywords: World Trade Organization, free trade agreement, admissibility, overlapping of

jurisdictions

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THE ISSUE OF THE ADMISSIBILITY OF DISPUTES BEFORE WTO PANELS IN

CONFLICTS RELATED WITH FREE TRADE AGREEMENTS: DOES THE

WTO’S DISPUTE SETTLEMENT BODY´S JURISDICTION PREVAIL OVER

THE FTA’S DISPUTE SETTLEMENT MECHANISM?

I. Introduction

The issue that this paper will address was born from the proliferation of free trade agreements

in the late twentieth century. Traditionally, it had been understood that the jurisdiction of the

Dispute Settlement Body (Hereafter “DSB”) of the World Trade Organization (Hereafter

“WTO”) is compulsory and exclusive. However, with the rise of free trade agreements

(Hereafter “FTAs”) with dispute settlement forums, beyond the "spaghetti bowl" problem,

the overlapping of jurisdictions has arisen a conflict amongst the jurisdictions of the DSB

and the dispute settlement mechanisms of the free trade agreements.

Given the lack of a solution to this problem in the covered agreements, international doctrine

began to propose a myriad of possible solutions to the overlapping of jurisdictions. These

proposals led to a new doctrinal debate: the application of non-WTO rules, such as the ones

contained in an FTA, to WTO law disputes.

Different panels and the WTO Appellate Body have been able to set a precedent in resolving

various disputes arising in the framework of a free trade agreement, but there has not been a

clear position that can be applied to all cases, either because of the lack of arguments of the

defendants or because of the ease of solving the cases on the basis of criteria other than

jurisdiction or admissibility. The approach to this issue is not peaceful, since in one way or

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another it is required to balance the sovereignty of states to bear on new treaty obligations,

even over WTO law, versus the supremacy of WTO law, as the multilateral organization par

excellence, over free trade agreements.

However, as the WTO tribunals have ruled in cases were an overlapping of jurisdictions

exists, this paper will analyze the thesis of the “legal impediments”, as a way to preclude the

panel to exercise its jurisdiction.

Moreover, this paper will analyze the case proposed in the ELSA Moot Court competition

2016-20171, as it is the ideal scenario to debate the different arguments that can lead a panel

to decide whether to decline the exercise of its validly established jurisdiction, due to a

admissibility objection.

II. Preliminary issues

a. The dispute settlement system of the WTO

The WTO was created in the Uruguay Round negotiations, which took place from 1986 to

1994, by means of the Marraquesh Agreement. Later, it was established and became

operational on January 1st, 1995. Nowadays, 164 countries from around the globe are

members of the WTO, being one of the most successful international organization in the

world.2 The WTO has six widely defined functions: (i) administer WTO trade agreements;

(ii) be a forum for trade negotiations; (iii) handling trade disputes; (iv) monitoring national

                                                            1 The ELSA Moot Court competition is a simulated hearing of the WTO dispute settlement system, organized by the European Law Student’s Association. Teams from all the world prepare and analyze a fictive case and present their arguments both for the Complainant and the Respondent in front of a Panel which consists of WTO and trade law experts. More information available at: https://emc2.elsa.org/ 2 What is the WTO? (n.d) Retrieved from: https://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm

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trade policies; (v) give technical assistance and training for developing countries; and (vi)

cooperate with other international organizations.3

Without a doubt, the administration of the WTO dispute settlement system is one of the most

important functions of the WTO. Indeed, Article 3.2 of the Dispute Settlement Understanding

(Hereafter “DSU) states that: “The dispute settlement system of the WTO is a central element

in providing security and predictability to the multilateral trading system”.4 Furthermore,

Article 3.3 of the DSU recognizes that: “The prompt settlement of situations in which a

Member considers that any benefits accruing to it directly or indirectly under the covered

agreements are being impaired by measures taken by another Member is essential to the

effective functioning of the WTO”.5

Therefore, the two main functions of the WTO dispute settlement system are to seek “the

maintenance of a proper balance between the rights and obligations of Members”6 and

“clarify the existing provisions of those agreements in accordance with customary rules of

interpretation of public international law”,7 but having in consideration that

“Recommendations and rulings of the DSB cannot add to or diminish the rights and

obligations provided in the covered agreements.”.8

                                                            3 Ibidem; Marrakesh Agreement Establishing the World Trade Organization, Apr 15, 1994, 1867 U.N.T.S.154, 33 I.L.M1144 (1994), Article 3. 4 Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994), Article 3.2. 5 Ibidem. 6 Ibidem Article 3.3. 7 Ibidem, Article 3.2 8 Ibidem.

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In words of Peter Van den Bossche and Werner Zdouc, the WTO dispute settlement system

is the jewel in the crown of the WTO, and has arguably been the most prolific of all State-to-

State dispute settlement systems since its establishment.9 In fact, on November 10th, 2015,

the 500th dispute was submitted to the WTO by Pakistan, requesting consultations with South

Africa due to its provisional anti-dumping duties on cement from Pakistan.10 More than 500

disputes over 20 years of history of the WTO dispute settlement system demonstrates its

importance in international trade. This fact can be contrasted with the 300 disputes that were

brought in a period of 47 years to the dispute settlement system of the General Agreement

on Tariffs and Trade (Hereafter “GATT”), that is an agreement signed in 1947 that regulates

trade between nations, which had a dispute settlement system that ceased to exist when the

agreement was incorporated in the WTO system.11

The success of the WTO dispute settlement system is due to its very own characteristics and

the changes that were introduced by the contracting parties from the previous GATT dispute

settlement system. One of its main characteristics, is that the jurisdiction of the WTO dispute

settlement system has a compulsory and exclusive nature. According to its compulsory

nature, a responding member has, as a matter of law, no choice but to accept the jurisdiction

of the WTO dispute settlement system. This characteristic is reflected on Article 6.1 of the

DSU, which states: “If the complaining party so requests, a panel shall be established at the

latest at the DSB meeting following that at which the request first appears as an item on the

DSB's agenda, unless at that meeting the DSB decides by consensus not to establish a

                                                            9 Peter Van den Bossche & Werner Zdouc, The Law and Policy of the World Trade Organization: Text, Cases and Materials, Cambridge University Press, 3rd edition (2013), page 94 10 World Trade Organization, (2016) Annual report 2016. Retrieved from: https://www.wto.org/english/res_e/booksp_e/anrep_e/anrep16_chap6_e.pdf 11 Ibidem.

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panel.”12 Therefore, the main difference with other international courts is that there is no

need for the parties to a dispute to accept in a separate declaration or agreement the

jurisdiction of the WTO dispute settlement system to adjudicate the dispute, since, the

membership of the WTO constitutes consent to, and acceptance of, the jurisdiction of the

WTO dispute settlement system.13

On the other hand, according to its exclusive jurisdiction, a complaining member is obliged

to bring any dispute arising under the covered agreements to the WTO dispute settlement

system.14 This characteristic is reflected on Article 23.1 of the DSU:

“When Members seek the redress of a violation of obligations or other nullification or

impairment of benefits under the covered agreements or an impediment to the attainment of

any objective of the covered agreements, they shall have recourse to, and abide by, the rules

and procedures of this Understanding”.15

Therefore, accordingly, the panel in US – Section 301 Trade Act (2000) stated that this

provision:

“imposes on all Members to ‘have recourse to’ the multilateral process set out in the DSU

when they seek the redress of a WTO inconsistency. In these circumstances, Members have to

have recourse to the DSU dispute settlement system to the exclusion of any other system, in

particular a system of unilateral enforcement of WTO rights and obligations. This, what one

                                                            12 Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994), Article 6.1. 13 Peter Van den Bossche & Werner Zdouc, The Law and Policy of the World Trade Organization: Text, Cases and Materials, Cambridge University Press, 3rd edition (2013), page 160. 14 Ibidem, page 161. 15 Ibidem, Article 23.1.

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could call ‘exclusive dispute resolution clause’, is an important new element of Members’

rights and obligations under the DSU”.16

Later, the Panel in EC – Commercial Vessels clarified the extent of the exclusive nature of

the WTO dispute settlement system’s jurisdiction by stating:

“It follows from this conception of Article 23.1 as a general obligation not to act unilaterally

when seeking redress of a violation of an obligation under the WTO that the requirement to

have recourse to the DSU is not limited to an "exclusive jurisdiction clause", in the sense in

which that expression is used by the European Communities. Interpreted in light of its context

and purpose, Article 23.1 not only ensures the exclusivity of the WTO vis-à-vis other

international fora but also protects the multilateral system from unilateral conduct.”17

These previous ruling of different panels shows that WTO members have the obligation to

abstain from taking unilateral actions against other members that violate one provision of the

covered agreements, but they must also abstain from presenting their claims before other

international dispute settlement forums. Note that the rulings of the WTO tribunals are not

binding as such, but as Article 3.2 of the DSU states that “The dispute settlement system of

the WTO is a central element in providing security and predictability to the multilateral

trading system.”18 subsequent panels must consider those rulings, since they create legitimate

expectations among WTO members.19

                                                            16 Panel Report, United States – Sections 301-310 of the Trade Act 1974, WT/DS152/R, adopted 22 December 1999, paragraph 7.43 17 Panel Report, European Communities – Measures Affecting Trade in Commercial Vessels, WT/DS301/R, adopted 22 April 2001, paragraph 7.193 18 Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994), Article 3.2. 19 Appellate Body Report, Japan - Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 4 October 1996, page 14.

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However, an agreement is not worth much, if its obligations cannot be enforced when one of

the signatories fail to comply with such obligations. This is why the members of the WTO

established a system during the Uruguay round of negotiation, underscoring the high

importance to the compliance by all members with their obligations under the WTO

agreement.20 In the previous GATT system, there was a need for consensus among the

contracting parties in order to approve the request of the complaining party to establish and

compose a panel. However, even if this consensus was reached, the final report also needed

to be adopted by consensus, which clearly did not happen often, since the respondent voted

against the adoption. Moreover, even if it permitted the adoption, anyhow it was able to

refuse to implement the recommendations without suffering any consequence, since it could

block any authorization of sanctions against it. 21

In words of William Davey:

“Indeed, only about one-half of the panel reports issued in the 1990’s were adopted by the

GATT contracting parties. As a consequence, the GATT dispute settlement system became

perceived as being incapable of handling controversial cases, since it was assumed that one

of the parties would block adoption of the panel report. This meant that disputes that should

have been considered in the system were not brought to it because of a belief that no positive

results could be obtained”22

This was one of the mayor changes that were agreed in the Uruguay Round, since the

contracting parties knew that the problems of delay and blockage were a priority to be

                                                            20 Introduction to the WTO dispute settlement system (n.d) Retrieved from: https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c1s1p1_e.htm 21 Andrew T. Guzman & Joost Pauwelyn, International Trade Law, Wolters Kluwer Law & Business, 2nd edition (2012), page 129 22 Ibidem

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solved.23 The DSU removed the possibility for defendants to block access to justice, since it

provides for “strict time limits and what is referred to as “automaticity” which effectively

removes the power of a party to block the process”.24 In short, the new system contemplates

that the adoption of the report has to take place within 60 days after it is referred to the DSB,

unless there is a consensus not to adopt the report, which is called “negative consensus”.

This means that “as long as one member want the report adopted, it will be adopted”.25

Therefore, if a complaining party wishes to claim its case before a panel, it must request the

DSB to establish a panel. Such a request serves two essential purposes: (i) it defines the scope

of the dispute and delimits the jurisdiction of the panel; and (ii) it serves the due process

objective of notifying the respondent and third parties of the nature of the complainant’s case.

According to Article 6.2 of the DSU, “The request for the establishment of a panel shall be

made in writing. It shall indicate whether consultations were held, identify the specific

measures at issue and provide a brief summary of the legal basis of the complaint sufficient

to present the problem clearly.”26

Moreover, note that Article 1.1 of the DSU states that:

“The rules and procedures of this Understanding shall apply to disputes brought

pursuant to the consultation and dispute settlement provisions of the agreements listed

in Appendix 1 to this Understanding (referred to in this Understanding as the

“covered agreements”). The rules and procedures of this Understanding shall also

                                                            23 Ibidem 24 Ibidem 25 Ibidem, page 135 26 Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994), Article 6.2

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apply to consultations and the settlement of disputes between Members concerning

their rights and obligations under the provisions of the Agreement Establishing the

World Trade Organization (referred to in this Understanding as the “WTO

Agreement”) and of this Understanding taken in isolation or in combination with any

other covered agreement.”.27

That is why, the complainant must prove the connection between the measure that is

inconsistent with WTO law, and the specific provision of the covered agreements28 from

which the inconsistency emerges.

Furthermore, those are not the only remarkable features of the WTO dispute settlement

system. In order to avoid denial of justice, the disputes are adjudicated by independent,

impartial judges every time that a willing complainant has expressed his desire to this effect.

More concretely, the WTO establishes a two-stage adjudication process, whereby disputes

will be first submitted to panels, which are ad-hoc bodies, not permanent, which are

established for the purpose of adjudicating a particular dispute, and are dissolved once they

have accomplished this task. Moreover, Article 17.1 of the DSU provides for the

establishment of a standing 7-judges Appellate Body, to hear the appeals of panel reports,

                                                            27 Ibidem, Article 1.1 28 The covered agreements are listed in Annex 1 of the DSU, they are: “(i) the Agreement Establishing the World Trade Organization (Marraquesh Agreement); (ii) Multilateral Trade Agreements, which contains: Annex 1A: Multilateral Agreements on Trade in Goods; Annex 1B: General Agreement on Trade in Services; Annex 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights; and Annex 2: Understanding on Rules and Procedures Governing the Settlement of Disputes; and (iii) Plurilateral Trade Agreements, such as Annex 4: Agreement on Trade in Civil Aircraft, Agreement on Government Procurement, International Dairy Agreement and International Bovine Meat Agreement. However, the application of the plurilateral trade agreements is subject to the condition that the state gave it additional consent for being part of the agreement, being an exception to the single undertaking principle.”

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with the limitation of not extending its review beyond the understanding of the legal issues

involved.29

According to the statistics provided by the WTO, in the period 1995-2014, 136 panel reports

from the 201 adopted reports were appealed by the Members. Specifically, 21 reports out of

29 reports adopted of panel established pursuant Article 21.5 of the DSU (Compliance

procedures after a panel of Appellate Body decision), and 115 out of 172 adopted panel

reports panel reports established pursuant other Articles than 21.5 of the DSU were appealed.

In sum, 68% of all panel reports were appealed.30

In sum, the dispute settlement system of the WTO plays an essential role in protecting the

multilateral trading system, by providing an strict procedure which ensures the compliance

of the decision by the defeated party.

b. Inherent jurisdiction

Before analyzing if WTO panels and the Appellate Body have inherent jurisdiction, and if

they can apply inherent powers, it is pertinent to address the meaning of each of these

concepts. According to the International Court of Justice, the inherent jurisdiction can be

understood in this way:

“It should be emphasized that the Court possesses an inherent jurisdiction enabling

it to take such action as may be required (…) to provide for the orderly settlement of

                                                            29 Louise Johannesson and Petros C. Mavroidis, The WTO Dispute Settlement System 1995-2016: A Data Set and its Descriptive Statistics, European University Institute, EUI Working Paper RSCAS 2016/72 (2016), page 1. Available at: http://cadmus.eui.eu/bitstream/handle/1814/44568/RSCAS_2016_72.pdf?sequence=1&isAllowed=y 30 Dispute Settlement: Statistics (n.d) Retrieved from: https://www.wto.org/english/tratop_e/dispu_e/stats_e.htm

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all matters in dispute, to ensure the observance of the “inherent limitations on the

exercise of the judicial function” of the Court, and to “maintain its judicial

character”. Such inherent jurisdiction, on the basis of which the Court is fully

empowered to make whatever findings may be necessary for the purposes just

indicated, derives from the mere existence of the Court as a judicial organ established

by the consent of States, and is conferred upon it in order that its basic judicial

functions may be safeguarded”.31

For that reason, one international tribunal may go beyond the strict mandate of the agreement,

in order to solve issues related to its jurisdiction.

However, the real issue relies on consequences that the recognition of the inherent

jurisdiction would make, i.e. entitling the court to use inherent powers to resolve the dispute.

As Orakhelashvili states, “the judicial nature of international tribunals and inherent powers

following therefrom may produce a jurisdiction ‘supplement’ not directly foreseen under a

given jurisdictional clause.”32 Therefore, in words of Andrew D. Mitchel and David Heaton:

“Inherent jurisdiction is the source of such incidental powers as an international court or

tribunal requires in order to maintain and exercise its subject-matter jurisdiction in a judicial

manner. Despite a lack of any mandate to do so in the instrument creating the international

tribunal or conferring upon it jurisdiction, a tribunal may—under its inherent jurisdiction—

apply principles or rules16 of international law to these ends. An example is the International

Criminal Tribunal for the Former Yugoslavia’s (ICTY) recognition that it “possesses inherent

                                                            31 I.C.J. Reports, Nuclear Tests (Austl. v. Fr.), Judgmenet, I.C.J. Reports 1974, pages 253, 259–60 32 Alexander Orakhelashvili, Questions of International Judicial Jurisdiction in the LaGrand Case, 15 Leiden J. Int’l L. 105, 115 (2002).

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jurisdiction to prosecute the crime of contempt,” although no provision for this is made in its

statute.”33

However, these inherent powers that are not recognized by instrument creating the

international tribunal or conferring upon its jurisdiction cannot be broadly used. According

to Joost Pawelyn, the inherent jurisdiction and the inherent powers must be solely used by

the tribunal to:

“(i) “to interpret the submissions of the parties” in order to “isolate the real issue in the case

and to identify the object of the claim”; (ii) (…) to determine whether one has substantive

jurisdiction to decide a matter (the principle of la compétence de la compétence; (iii) (…) to

decide whether one should refrain from exercising substantive jurisdiction that has been

validly established; and (iv) (…) to decide all matters linked to the exercise of substantive

jurisdiction and inherent in the judicial function such as claims under rules on burden of

proof, due process, and other general international rules on the judicial settlement of

disputes.”34

Having analyzed the concepts of inherent jurisdiction and inherent powers, one question

arises: Does WTO tribunals have inherent jurisdiction and therefore can apply their inherent

powers in solving the disputes?

                                                            33 Andrew D. Mitchell, David Heaton, “The Inherent Jurisdiction of WTO Tribunals: The select application of Public International Law required by the judicial function”, Michigan Journal of International Law, Vol. 31:561 (2009), pages 565-566 34 Joost Pauwelyn, Conflict of Norms in Public International Law International Law: How WTO Law Relates to other Rules of International Law, Cambridge Studies in International and Comparative Law (2003), pages 447-48

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In fact, in the frame of the WTO, the panels and the Appellate Body have been reluctant in

recognizing the existence of the inherent powers. However, they have used them in several

cases. It was until the Mexico – Soft Drinks dispute, the Appellate Body stated that:

“WTO panels have certain powers that are inherent in their adjudicative function. Notably,

panels have the right to determine whether they have jurisdiction in a given case, as well as

to determine the scope of their jurisdiction. In this regard, the Appellate Body has previously

stated that “it is a widely accepted rule that an international tribunal is entitled to consider

the issue of its own jurisdiction on its own initiative, and to satisfy itself that it has jurisdiction

in any case that comes before it.” Further, the Appellate Body has also explained that panels

have “a margin of discretion to deal, always in accordance with due process, with specific

situations that may arise in a particular case and that are not explicitly regulated.”35

Therefore, one WTO tribunal may go beyond the mandate of the covered agreements when

resolving one specific dispute, due to its inherent jurisdiction. Despite the above, according

to Andrew D. Mitchel and David Heaton, after analyzing the cases in which different panels

and the Appellate Body used their inherent powers, the use of these powers is subject to the

following conditions:

“(1) necessity to resolve an issue; (2) lack of autonomous substantive content in the principle;

and (3) consistency with the constitutive instruments of the international tribunal in question

(the Covered Agreements in the context of the WTO). In addition, a principle must be

recognized in customary international law or be a general principle of law. Inherent

                                                            35 Appellate Body Report, Mexico - Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R, adopted 6 March 2006, paragraph 45

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jurisdiction does not provide a vehicle for applying any rule an international tribunal wishes

to apply.”36

For the matter of this paper, the application of the principle of “La compétence de la

competence” in the WTO system is essential, since it is the first step on analyzing if a panel

can decline to exercise its jurisdiction. To resolve this question, Andrew D. Mitchel and

David Heaton applied their purposed test, and they found that:

“the power of a WTO Tribunal to decide whether or not it has jurisdiction over a particular

claim is necessary, at least where raised by one of the parties or the WTO Tribunal, as if it

does not have jurisdiction then it can make no judicial determination on the merits at all. The

ability to examine whether a tribunal has jurisdiction also has no autonomous substantive

content: the criteria of jurisdiction themselves are provided by the relevant agreements. For

example, in the case of a compliance panel, Article 21.5 of the DSU normatively establishes

the panel’s jurisdiction: a measure must be one “taken to comply” with a previous DSB ruling

to fall within the scope of compliance proceedings. The inherent power to examine

jurisdiction merely enables application of this norm. Finally, there is nothing in the DSU or

elsewhere that suggests that a WTO Tribunal cannot ascertain whether it has jurisdiction.

Indeed, the requirements in the DSU that the complaining party specify the relevant Covered

Agreements, “the reasons for the request” (for consultations), and “the measures at issue”

provide criteria through which a panel can ensure that a complaint is properly before it. (…)

Under the three criteria, then, the exercise of la compétence de la compétence is clearly an

incident of inherent jurisdiction that can and does apply within WTO dispute settlement.”37

                                                            36 Andrew D. Mitchell, David Heaton, “The Inherent Jurisdiction of WTO Tribunals: The select application of Public International Law required by the judicial function”, Michigan Journal of International Law, Vol. 31:561 (2009), page 574 37 Ibidem, page 582

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In conclusion, WTO tribunals are entitled to use their inherent powers in order to determine

whether they have jurisdiction in a specific dispute.

c. The difference between jurisdiction and admissibility

To address and solve the question posed in the title of this paper, it is important to

differentiate the concepts of jurisdiction and admissibility. This, since the overlapping of

jurisdictions between the dispute settlement of an FTA and the WTO’s DSB, generally

creates a problem of admissibility of the issue, rather than a jurisdictional problem.

At the international level, multiple tribunals have accepted this distinction when addressing

preliminary issues to a dispute. In fact, the International Court of Justice have stated that:

“Objections to admissibility normally take the form of an assertion that, even if the Court

has jurisdiction and the facts stated by the applicant State are assumed to be correct,

nonetheless there are reasons why the Court should not proceed to an examination of the

merits.”38

Also, in the SGS v. Philippines case,39 the International Centre for Settlement of Investment

Disputes arbitral tribunal stated that, even though it had jurisdiction to rule on the claim at

issue, it was going to decline to exercise it, since the tribunal found that the claim was not

admissible due to a forum clause in the contract, which stated that contractual claims were

supposed to be presented before national courts.

                                                            38 I.C.J. Reports, Oil Platforms (Iran v US), Judgment, I.C.J. Reports 2003, paragraph 29 39 SGS Société Generale de Surveillance S.A. v. Republic of Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004, paragraphs. 113-124

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According to Pauwelyn and Salles,40 in the frame of the WTO the application of the concept

of admissibility is discussed, since the DSU does not expressly state the differentiation

between issues of jurisdiction and admissibility. They propose that the differentiation has to

be based on the scope of the authority of a panel to decide the existence of the conditions

related to the exercise of a given action or process.

However, the Appellate Body decision on the Mexico – Soft Drinks case, seemed to

introduce this differentiation. As it will be explained in the next section, it is possible to

understand that there was an implicit recognition of legal impediments as a motive for panels

to decline to exercise its validly established jurisdiction, in that specific case, due to a possible

relinquishment of WTO rights in the NAFTA.

For that reason, given that the Appellate Body seemed to introduce this difference, this paper

will analyze the problem of the overlapping of jurisdictions as an admissibility objection,

since the issues of jurisdiction and admissibility are not identical. In fact, Pauwelyn and

Salles,41 explain that there are one similarity and four differences between this two concepts.

In general, the objections to jurisdiction and the ones to admissibility are similar, since they

are both preliminary objections, which are analyzed before the merits of the case, and their

ultimate effect would be the same, i.e. to avoid findings on the merits. However, they differ

one from another in several ways:

                                                            40 Joost Pauwelyn and Luis E. Salles, Forum Shopping Before International Tribunals: (Real) Concerns, (Im) Possible Solutions, 42 Cornell International Law Journal 77 (2009), page 93. 41 Joost Pauwelyn and Luis E. Salles, Forum Shopping Before International Tribunals: (Real) Concerns, (Im) Possible Solutions, 42 Cornell International Law Journal 77 (2009), pages 94-97

  22

First of all, objections to jurisdiction are raised to attack the authority of the court to rule on

the claims, while the objections to admissibility target the conditions for the specific action

or complaint. Therefore, objections to admissibility are raised after finding that the court has

jurisdiction to rule on the merits.

In second place, the governing law of jurisdictional objections refers to the tribunal’s

jurisdictional field (also known as substantive, original or primary jurisdiction), which

basically depends on the fact that the parties granted the explicitly granted the tribunal

jurisdiction on that matter. A contrario sensu, the governing law of admissibility objections

are principles and rules that are binding on the parties to the dispute, which are not necessarily

incorporated in the clause of instrument that granted jurisdiction to the tribunal. In that sense,

one admissibility objection does not touch the jurisdiction of the court, and moreover, if one

tribunal decides not to examine the merits of the case, based on the inadmissibility, the court

would be exercising its jurisdiction.

In third place, the burden of raising one jurisdiction objection is different from raising one of

admissibility, since the lack of jurisdiction is an issue that a tribunal must examine at its own

initiative, while the admissibility issue must be raised by the parties. This difference is

definitely the most important one. A tribunal must sort the jurisdictional issue for itself, even

if neither party raises the question, otherwise it could be resolving the merits without having

the authority to decide the issue. Inadmissibility, in contrast, relates to the legal relationship

between the parties, this is, for example, if the complainant has previously waived its right

to present a case, or if it has to exhaust domestic remedies before filing the case.

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Fourth, on the one hand, a decision on the inadmissibility of one claim does not acquire the

full force of res judicata when the issue that underlined the inadmissibility may be cured. On

the other hand, a decision on jurisdiction cannot be cured, and therefore, the decision acquire

the force of red judicata.

In that sense, since the issues are so different, it is import to analyze if the responding party

its presenting an objection to the jurisdiction of the court, or to the admissibility to the

dispute, in order to provide a well-founded ruling. For these reason, the next sections will

present different answers to the possibility of a panel to decline to exercise its jurisdiction as

an admissibility issue, rather than a jurisdictional issue itself, due to the overlapping of

jurisdictions.

III. Legal impediments as a motive for declining the exercise of jurisdiction

a. The existence of legal impediments

Before explaining the concept of legal impediments this paper will explain the reasoning

made by the Appellate Body, when recognizing that one WTO tribunal is entitled to decline

to excise its validly established jurisdiction, when certain conditions are present on a dispute.

The Appellate Body in Mexico – Soft Drinks stated that a panel’s decision to decline its

validly established jurisdiction would diminish the right of the complaining member to seek

the redress for a violation of the covered agreements by another member:

“46. In our view, it does not necessarily follow, however, from the existence of these inherent

adjudicative powers that, once jurisdiction has been validly established, WTO panels would

have the authority to decline to rule on the entirety of the claims that are before them in a

  24

dispute. To the contrary, we note that, while recognizing WTO panels' inherent powers, the

Appellate Body has previously emphasized that:

“Although panels enjoy some discretion in establishing their own working procedures, this

discretion does not extend to modifying the substantive provisions of the DSU. … Nothing in

the DSU gives a panel the authority either to disregard or to modify ... explicit provisions of

the DSU.94 (emphasis added)””42

After stating this, the Appellate Body analyzed different provision of the DSU that would be

disregarded by a panel if it decides to decline to exercise it validly established jurisdiction:

The first analyzed article was Article 7 of the DSU, which reads as follows:

“Article 7

Terms of Reference of Panels

1. Panels shall have the following terms of reference unless the parties to the dispute agree

otherwise within 20 days from the establishment of the panel:

“To examine, in the light of the relevant provisions in (name of the covered agreement(s)

cited by the parties to the dispute), the matter referred to the DSB by (name of party) in

document ... and to make such findings as will assist the DSB in making the recommendations

or in giving the rulings provided for in that/those agreement(s).”

                                                            42 Appellate Body Report, Mexico - Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R, adopted 6 March 2006, paragraph 46

  25

2. Panels shall address the relevant provisions in any covered agreement or agreements cited

by the parties to the dispute. (…)”43

The Appellate Body considered that the panel in that specific dispute was established with

standard terms of reference, and therefore the panel was instructed to examine the claims

raised by the United States, and to make findings regarding the consistency of the measures

at issue with WTO law. Moreover, the Appellate Body stated that the words “shall address”

indicates that “panels are required to address the relevant provisions in any covered

agreement or agreements cited by the parties to the dispute.”44 This statement was said, by

reaffirming the previous Appellate Body decisions, for example the one in the Mexico – Corn

Syrup case, in which it stated that: "as a matter of due process, and the proper exercise of

the judicial function, panels are required to address issues that are put before them by the

parties to a dispute."45

Then, the Appellate Body analyzed Article 11 of the DSU, which provides that:

“Article 11

Function of Panels

The function of panels is to assist the DSB in discharging its responsibilities under this

Understanding and the covered agreements. Accordingly, a panel should make an objective

assessment of the matter before it, including an objective assessment of the facts of the case

                                                            43 Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994), Article 7 44 Appellate Body Report, Mexico - Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R, adopted 6 March 2006, paragraph 49 45 Appellate Body Report, Mexico - Anti-Dumping Investigation of High-Fructose Corn Syrup (HFCS) from the United States, WT/DS132/AB/RW, 22 October 2001, paragraph 36.

  26

and the applicability of and conformity with the relevant covered agreements, and make such

other findings as will assist the DSB in making the recommendations or in giving the rulings

provided for in the covered agreements. Panels should consult regularly with the parties to

the dispute and give them adequate opportunity to develop a mutually satisfactory solution.”46

The Appellate Body considered that the fact that Article 11 states that panels should make an

objective assessment of the matter before it does not necessarily imply that it is discretionary,

but instead states that in previous decisions the Appellate Body held that the word “should”

can be used not only "to imply an exhortation, or to state a preference", but also "to express

a duty [or] obligation".47 Taking into account that statement, it continues arguing that a panel

“would not fulfil its mandate if it were not to make an objective assessment of the matter.”

Therefore, it considered that the wording of article 11 imposes an obligation for the panel to

make an objective assessment of the matter, as well as to make such other findings, and

furthermore, assisting the Dispute Settlement Body in making the recommendations or in

giving the rulings. Finally, it concluded that “It is difficult to see how a panel would fulfil

that obligation if it declined to exercise validly established jurisdiction and abstained from

making any finding on the matter before it.”48

Afterwards, the Appellate Body analyzed Articles 3 and 23 of the DSU, which reads:

“Article 3

General Provisions

                                                            46 Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994), Article 11 47 Appellate Body Report, Mexico - Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R, adopted 6 March 2006, paragraph 51 48 Ibidem.

  27

(…)

3. The prompt settlement of situations in which a Member considers that any benefits accruing

to it directly or indirectly under the covered agreements are being impaired by measures

taken by another Member is essential to the effective functioning of the WTO and the

maintenance of a proper balance between the rights and obligations of Members.”49

“Article 23

Strengthening of the Multilateral System

1. When Members seek the redress of a violation of obligations or other nullification or

impairment of benefits under the covered agreements or an impediment to the attainment of

any objective of the covered agreements, they shall have recourse to, and abide by, the rules

and procedures of this Understanding.

(…)”50

The Appellate Body considered that both articles entitle any member of the WTO to have

recourse to the DSB whenever it considers that any benefits accruing to it are being impaired

by measures taken by another member, and therefore to have a ruling by a WTO panel.51

After having analyzed all previously developed articles, the Appellate Body considered that

a panel’s decision to decline to exercise its validly established jurisdiction “would seem to

"diminish" the right of a complaining Member to "seek the redress of a violation of

                                                            49 Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994), Article 3.3 50 Ibidem, Article 23.1 51 Appellate Body Report, Mexico - Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R, adopted 6 March 2006, paragraph 52

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obligations" within the meaning of Article 23 of the DSU, and to bring a dispute pursuant to

Article 3.3 of the DSU.”52 In addition, beyond rendering nugatory the right of members

Consider that such a decision “would not be consistent with a panel's obligations under

Articles 3.2 and 19.2 of the DSU.”53 That is why it concluded that “We see no reason,

therefore, to disagree with the Panel's statement that a WTO panel "would seem … not to be

in a position to choose freely whether or not to exercise its jurisdiction.””54

At this point, the ruling of the Appellate Body seemed to indicate that there was nothing that

could preclude a panel from exercising its validly established jurisdiction. However, the

Appellate Body opened the door to future possibilities in which a panel could decline to

exercise validly established jurisdiction without disregarding its obligations nor affecting

member’s rights, by stating that:

“Mindful of the precise scope of Mexico's appeal, we express no view as to whether there may

be other circumstances in which legal impediments could exist that would preclude a panel

from ruling on the merits of the claims that are before it. In the present case, Mexico argues

that the United States' claims under Article III of the GATT 1994 are inextricably linked to a

broader dispute, and that only a NAFTA panel could resolve the dispute as a whole.

Nevertheless, Mexico does not take issue with the Panel's finding that "neither the subject

matter nor the respective positions of the parties are identical in the dispute under the NAFTA

... and the dispute before us." Mexico also stated that it could not identify a legal basis that

would allow it to raise, in a WTO dispute settlement proceeding, the market access claims it

is pursuing under the NAFTA. It is furthermore undisputed that no NAFTA panel as yet has

                                                            52 Ibidem. 53 Ibidem. 54 Ibidem.

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decided the "broader dispute" to which Mexico has alluded. Finally, we note that Mexico has

expressly stated that the so-called "exclusion clause" of Article 2005.6 of the NAFTA had not

been "exercised". We do not express any view on whether a legal impediment to the exercise

of a panel's jurisdiction would exist in the event that features such as those mentioned above

were present. In any event, we see no legal impediments applicable in this case.”55

This quote shows that all the reasoning of the Appellate Body in this case, was strictly linked

with Mexico’s arguments. Therefore, if other respondent party were to present a different

argumentation, it is possible that the Appellate Body would recognized that the panel was

precluded from exercising its validly established jurisdiction. Natens and Descheemaeker

explain this issue stating that:

“Once jurisdiction has been validly established, there is no margin of discretion for a panel

to decline to exercise this jurisdiction. However, this is not the crux of the issue. As the AB

accurately noted, for these arguments to apply, the jurisdiction of a panel must be validly

established. This requires the absence of procedural impediments, such as Articles 1.1, 4 and

6 DSU. Moreover, and crucially, valid establishment of jurisdiction also requires the absence

of legal impediments. Note that, in paragraph 54 of its report in Mexico – Soft Drinks, the AB

differentiates from paragraph 53 by stating that “legal impediments could exist that would

preclude a panel from ruling on the merits of the claims that are before it.” The AB does not

say that there may be legal impediments that allow a panel to decline jurisdiction, once the

jurisdiction is validly established. It merely states that the existence of legal impediments

precludes the valid establishment of jurisdiction, and consequentially impedes a ruling on the

merits. It seems that the valid establishment of jurisdiction would precede an analysis of

violation of the aforementioned provisions. Consequentially, when a panel declines to

                                                            55 Ibidem, paragraph 54.

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exercise jurisdiction because such jurisdiction is not validly established, it does not act

inconsistently with Articles 23.1, 3.3, 3.2, 7.2 and 11 DSU.”56

In that sense, the key issue to understand when a panel is entitled to decline to exercise its

jurisdiction due to legal impediments, is to determine the concept of legal impediments itself.

Scholars from around the globe have tried to present what could constitute a legal

impediment. Bregt Natens and Sidonie Descheemaeker, gathered the different doctrinal

positions as follows:

“Van Damme mentions “reasons of political propriety, the doctrines of forum non

conveniens, res judicata, lis alibi pendens, and abus de droit, though this list is by no means

exclusive and exhaustive.”57 Henckels highlights forum exclusion clauses, lex posterior and

lex specialis, and elaborately discusses comity.58 Davey and Sapir argue that the Appellate

Body’s remarks point towards several potential legal impediments.59 All of these authors

acknowledge that there are substantial difficulties in reconciling these potential legal

impediments with the Appellate Bodys’s case law. Van Damme concludes, “Ultimately, the

Appellate Body in Mexico – Taxes on Soft Drinks left its report open-ended and internally

contradictory”60.61

                                                            56 Bregt Natens and Sidonie Descheemaeker, Say it Loud, Say it Clear — Article 3.10 DSU’s Clear Statement Test as a Legal Impediment to Validly Established Jurisdiction, Forthcoming, Journal of World Trade 49:5., (2014), page 3 57 Isabelle Van Damme, Inherent Powers of and for the WTO Appellate Body, Graduate Institute Geneva – Centre for Trade and Economic Integration Working Paper (2008), pages 29-30, 102. 58 Caroline Henckels, Overcoming Jurisdictional Isolationism at the WTO – FTA Nexus: A Potential Approach for the WTO, (19:3) The European Journal of International Law (2008), pages 571, 581-599. 59 William J Davey and André Sapir, The Soft Drinks Case: The WTO and Regional Agreements, 8:1 World Trade Review (2009), pages 5, 13-17 60 Isabelle Van Damme, Inherent Powers of and for the WTO Appellate Body, Graduate Institute Geneva – Centre for Trade and Economic Integration Working Paper (2008), pages 29, 102 61 Bregt Natens and Sidonie Descheemaeker, Say it Loud, Say it Clear — Article 3.10 DSU’s Clear Statement Test as a Legal Impediment to Validly Established Jurisdiction, Forthcoming, Journal of World Trade 49:5., (2014), page 4

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However, irrespective of the opinion of such scholars, several panel’s and Appellate Body’s

decisions seem to provide the answer to what can constitute a legal impediment. In the same

Mexico – Soft Drinks decision, the Appellate Body stated in foot note 101 that the right to

have recourse to the DSB to initiate a proceeding, in the term of Articles 3.3 and 23.1 of the

DSU is not absolute. This, taking into account its past report from the EC – Export Subsidies

on Sugar case, where it stated that:

“We see little in the DSU that explicitly limits the rights of WTO Members to bring an action;

WTO Members must exercise their "judgement as to whether action under these procedures

would be fruitful", by virtue of Article 3.7 of the DSU, and they must engage in dispute

settlement procedures in good faith, by virtue of Article 3.10 of the DSU.”62

Therefore, the Appellate Body is stating that Articles 3.7 and 3.10 of the DSU limits the right

of a WTO member to have recourse to the DSB. That line of ideas goes in accordance with

the statement made by the Appellate Body un US – Corrosion-Resistant Steel Sunset Review,

were it held that:

“As long as a Member respects the principles set forth in Articles 3.7 and 3.10 of the DSU,

namely, to exercise their "judgement as to whether action under these procedures would be

fruitful" and to engage in dispute settlement in good faith, then that Member is entitled to

request a panel to examine measures that the Member considers nullify or impair its benefits.

We do not think that panels are obliged, as a preliminary jurisdictional matter, to examine

whether the challenged measure is mandatory. This issue is relevant, if at all, only as part of

                                                            62 Appellate Body Report, European Communities - Export Subsidies on Sugar, WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 28 April 2005, paragraph 312.

  32

the panel's assessment of whether the measure is, as such, inconsistent with particular

obligations”63

In that sense, a violation of those articles would seem to be enough to demonstrate that the

panel is precluded to consider if the measure at issue nullify or impairs the benefit of the

complaining member, due to the existence of legal impediments. Furthermore, this thesis was

once again confirmed by the Appeal Body in EC – Bananas III (2nd Recourse to Article 21.5),

when analyzing if the Understanding on Bananas could prevent the complainants from

initiating compliance proceedings pursuant to Article 21.5 of the DSU.64

Taking into account those quotes from Mexico – Soft Drinks, US – Corrosion, EC – Export

Subsidies on Sugar and EC – Bananas III (2nd Recourse to Article 21.5), it is clear that the

Appellate Body seems to indicate that, if there are no procedural impediments, the panel can

only decline to exercise its jurisdiction by a breach of Articles 3.7 or 3.10 of the DSU.

b. Article 3.7 of the DSU

Having concluded that a panel can decline to exercise its validly established jurisdiction when

there is a violation of Articles 3.7 or 3.10 of the DSU, it is relevant to analyze both provisions.

First, this paper will analyze Article 3.7 of the DSU, which states:

“Article 3

General Provisions

                                                            63 Appellate Body Report, United States - Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan, WT/DS244/AB/R, Adopted 15 December 2003, paragraph 89. 64 Appellate Body Report, European Communities - Regime for the Importation, Sale and Distribution of Bananas, Second Recourse to Article 21.5 of the DSU by Ecuador, WT/DS27/AB/RW2/ECU, WT/DS27/AB/RW/USA, adopted 26 November 2008, paragraph 227

  33

7. Before bringing a case, a Member shall exercise its judgement as to whether action under

these procedures would be fruitful. The aim of the dispute settlement mechanism is to secure

a positive solution to a dispute. A solution mutually acceptable to the parties to a dispute and

consistent with the covered agreements is clearly to be preferred. In the absence of a mutually

agreed solution, the first objective of the dispute settlement mechanism is usually to secure

the withdrawal of the measures concerned if these are found to be inconsistent with the

provisions of any of the covered agreements. The provision of compensation should be

resorted to only if the immediate withdrawal of the measure is impracticable and as a

temporary measure pending the withdrawal of the measure which is inconsistent with a

covered agreement. The last resort which this Understanding provides to the Member

invoking the dispute settlement procedures is the possibility of suspending the application of

concessions or other obligations under the covered agreements on a discriminatory basis vis-

à-vis the other Member, subject to authorization by the DSB of such measures.”65

When interpreting this article, the Appellate Body in EC-Bananas III asserted that:

“135. Accordingly, we believe that a Member has broad discretion in deciding whether to

bring a case against another Member under the DSU. The language of Article XXIII:1 of the

GATT 1994 and of Article 3.7 of the DSU suggests, furthermore, that a Member is expected

to be largely self-regulating in deciding whether any such action would be "fruitful".”66

In fact, the Appellate Body showed in that same case that the discretion is so broad that there

is no need to demonstrate a legal standing in order to present a claim before the DSB, since

                                                            65 Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994), Article 3.6 66 Appellate Body Report, European Communities - Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 9 September 1997, paragraph 135

  34

there is nothing in the DSU that contains that explicit requirement. In that sense, the Appellate

Body explained that:

“132. We agree with the Panel that "neither Article 3.3 nor 3.7 of the DSU nor any other

provision of the DSU contain any explicit requirement that a Member must have a ‘legal

interest’ as a prerequisite for requesting a panel". We do not accept that the need for a "legal

interest" is implied in the DSU or in any other provision of the WTO Agreement. It is true that

under Article 4.11 of the DSU, a Member wishing to join in multiple consultations must have

"a substantial trade interest", and that under Article 10.2 of the DSU, a third party must have

"a substantial interest" in the matter before a panel. But neither of these provisions in the

DSU, nor anything else in the WTO Agreement, provides a basis for asserting that parties to

the dispute have to meet any similar standard. Yet, we do not believe that this is dispositive

of whether, in this case, the United States has "standing" to bring claims under the GATT

1994.”67

Consequently, it seems very hard to demonstrate a legal impediment under Article 3.7 of the

GATT, since the complaining party has a discretion to present its claims that is so broad, that

it does not need to demonstrate a legal interest. However, the Appellate Body in Mexico –

Corn Syrup interpreted the first sentence of Article 3.7 of the DSU as “reflect a basic

principle that Members should have recourse to WTO dispute settlement in good faith, and

not frivolously set in motion the procedures contemplated in the DSU.”68 This interpretation

gave a narrower interpretation to the complainant´s discretion, since it must act in accordance

with the good faith principle. Note that this statement of the Appellate Body linked this legal

                                                            67 Ibidem, paragraph 132. 68 Appellate Body Report, Mexico - Anti-Dumping Investigation of High-Fructose Corn Syrup (HFCS) from the United States, WT/DS132/AB/RW, 22 October 2001, paragraph 73.

  35

impediment, with the one contained in Art. 3.10 of the DSU, which will be explained in the

following section of this paper.

Moreover, at the recent Peru – Agricultural Products issue, the Appellate Body recalled what

was stated in EC – Bananas III, explaining that:

“The "largely self-regulating" nature of a Member's decision to bring a dispute is "borne out

by Article 3.3, which provides that the prompt settlement of situations in which a Member, in

its own judgement, considers that a benefit accruing to it under the covered agreements is

being impaired by a measure taken by another Member is essential to the effective functioning

of the WTO".”69

At this point, one question may arise: If this discretion is broad, and it is also essential to the

effective functioning of the WTO, how it is possible that one legal impediment may arise

from it?

The Appellate Body in the aforementioned Peru – Agricultural Products issue answered this

question, by explaining the situation that occurred in the EC – Bananas III (Article 21.5 –

Ecuador II/ Article 21.5 – US) issue:

“5.19. In our view, although the language of the first sentence of Article 3.7 of the DSU states

that "a Member shall exercise its judgement", the considerable deference accorded to a

Member's exercise of its judgement in bringing a dispute is not entirely unbounded. For

example, in order to ascertain whether a Member has relinquished, by virtue of a mutually

agreed solution in a particular dispute, its right to have recourse to WTO dispute settlement

in respect of that dispute, greater scrutiny by a panel or the Appellate Body may be necessary.

                                                            69 Appellate Body Report, Peru - Additional Duty on Imports of Certain Agricultural Products, WT/DS457/AB/R, adopted 31 July 2015, paragraph 5.18

  36

This was the issue before the Appellate Body in EC – Bananas III (Article 21.5 – Ecuador II

/ Article 21.5 – US), where it ascertained whether a Member had relinquished its right to

have recourse to the WTO dispute settlement mechanism. In that case, the Appellate Body

had to determine whether that Member was precluded from initiating compliance

proceedings.”70

Therefore, it is possible to conclude that the relinquishment of the right to have recourse to

the WTO dispute settlement, in a particular dispute, constitutes a legal impediment that

inhibits the member to present its claims before a panel, which basically obliges the WTO

tribunal to decline to exercise its validly established jurisdiction.

However, the relinquishment of the right per se does not suffices to constitute a legal

impediment. Note that the panel in Peru – Agricultural Products affirmed that:

“In view of this broad discretion, the Appellate Body maintained that panels "must presume,

whenever a Member submits a request for establishment of a panel, that such Member does

so in good faith, having duly exercised its judgement as to whether recourse to that panel

would be 'fruitful'". The Appellate Body also pointed out that the first sentence of Article 3.7

of the DSU "neither requires nor authorizes a panel to look behind that Member's decision

and to question its exercise of judgement". Therefore, the Appellate Body considered that the

panel in that case was not obliged to consider this issue on its own motion. However, the

Appellate Body's ruling does not indicate whether the presumption that a Member is acting

in good faith and has duly exercised its judgement as to whether recourse to a panel would

be fruitful is a rebuttable presumption.”71

                                                            70 Ibidem, paragraph 5.19 71 Panel Report, Peru - Additional Duty on Imports of Certain Agricultural Products, WT/DS457/R, adopted 27 November 2014, paragraph 7.73

  37

From this extract, it is possible to conclude that panels must presume that one member has

duly exercised its judgment when presenting a case before the WTO dispute system.

Consequently, the WTO tribunal is not obliged to consider this legal impediment on its own

motion, and therefore, it is the burden of the respondent to demonstrate that the exercise of

the judgment was not duly performed because the complainant has validly relinquished its

right to have recourse to the DSB. Additionally, the issue on whether the presumption is

rebuttable was resolved in the appeal, when the Appellate Body stated that the right was not

entirely unbounded.

It is important to remark that, even if the respondent explicitly invokes the existence of the

legal impediment, due to the complainant’s relinquishment of the right, it would not face an

easy job when convincing the panel to decline to exercise its jurisdiction, since the threshold

to demonstrate a valid relinquishment is extremely high. In fact, the Appellate Body in EC –

Bananas III (2nd recourse to article 21.5 – Ecuador) expressed that:

“217. With this in mind, we turn to analyze of the Understandings on Bananas at issue. We

consider that the complainants could be precluded from initiating Article 21.5 proceedings

by means of these Understandings only if the parties to these Understandings had, either

explicitly or by necessary implication, agreed to waive their right to have recourse to Article

21.5. In our view, the relinquishment of rights granted by the DSU cannot be lightly assumed.

Rather, the language in the Understandings must reveal clearly that the parties intended to

relinquish their rights.”72

                                                            72 Appellate Body Report, European Communities - Regime for the Importation, Sale and Distribution of Bananas, Second Recourse to Article 21.5 of the DSU by Ecuador, WT/DS27/AB/RW2/ECU, WT/DS27/AB/RW/USA, adopted 26 November 2008, paragraph 217

  38

In this sense, to demonstrate a relinquishment, the respondent must show that the mutually

agreed solution was so clear, that the complainant explicitly relinquished its right to have

recourse to the DSB, or at least, by necessary implications. However, the Appellate Body in

Peru – Agricultural Products went further and described the requirements that must be

fulfilled in order to demonstrate a valid relinquishment of rights that could constitute a legal

impediment, and stated that the relinquishment may be in some instrument, rather than in a

mutually agreed solution, such as a FTA.

“Thus, while we do not exclude the possibility of articulating the relinquishment of the right

to initiate WTO dispute settlement proceedings in a form other than a waiver embodied in a

mutually agreed solution, as in EC – Bananas III (Article 21.5 – Ecuador II / Article 21.5 –

US), any such relinquishment must be made clearly. In any event, in our view, a Member's

compliance with its good faith obligations under Articles 3.7 and 3.10 of the DSU should be

ascertained on the basis of actions taken in relation to, or within the context of, the rules and

procedures of the DSU. Thus, we proceed to examine in this dispute whether the participants

clearly stipulated the relinquishment of their right to have recourse to WTO dispute settlement

by means of a "solution mutually acceptable to the parties" that is consistent with the covered

agreements.”73

Due to the mentioned quote, one can understand that the relinquishment of the right to initiate

WTO dispute settlement proceedings must: (i) be embodied in a waiver, such as a mutually

agreed solution; (ii) the text of the waiver must be clear; and (iii) the waiver must be

consistent with the covered agreements. If the relinquishment complies with those

                                                            73 Appellate Body Report, Peru - Additional Duty on Imports of Certain Agricultural Products, WT/DS457/AB/R, adopted 31 July 2015, paragraph 5.25

  39

requirements, the respondent may invoke the legal impediment to ask the panel to decline to

exercise its validly established jurisdiction.

In conclusion, the respondent may invoke an admissibility objection of the grounds of a legal

impediment under Article 3.7 of the DSU, when the complainant has relinquished its right to

have recourse to the DSB. However, the threshold to demonstrate this relinquishment is

extremely high, and therefore the respondent must show that the text of the waiver states and

express relinquishment, or at least it must be understood as a necessary implication.

c. Article 3.10 of the DSU

Having addressed the first legal impediment contained in Article 3.7 of the DSU, this paper

will turn its attention to the one contained in Article 3.10 of the DSU, which states:

“Article 3

General Provisions

10. It is understood that requests for conciliation and the use of the dispute settlement

procedures should not be intended or considered as contentious acts and that, if a dispute

arises, all Members will engage in these procedures in good faith in an effort to resolve the

dispute. It is also understood that complaints and counter-complaints in regard to distinct

matters should not be linked.”74

Before analyzing the legal impediment that could arise from a violation of Article 3.10 of the

DSU, its pertinent to study the concept of good faith. However, the issue of addressing this

                                                            74 Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994), Article 3.10

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concept relies on its definition itself. According to Andrew D. Mitchel: “Unfortunately, of

all the principles of international law, the principle of good faith is perhaps the hardest to

define.”75 Regardless, John O’Connor’s definition is useful to illustrate the concept:

“The principle of good faith in international law is a fundamental principle from which the

rule pacta sunt servanda and other legal rules distinctively and directly related to honesty,

fairness and reasonableness are derived, and the application of these rules is determined at

any particular time by the compelling standards of honesty, fairness and reasonableness

prevailing in the international community at that time.”76

Therefore, one state performs in good faith when it acts with honesty, fairness and

reasonableness. Moreover, in the frame of the WTO, the Appellate Body in US – FSC

explained the extent of the good faith principle contained in Article 3.10 of the DSU, by

stating that:

“166. Article 3.10 of the DSU commits Members of the WTO, if a dispute arises, to

engage in dispute settlement procedures "in good faith in an effort to resolve the

dispute". This is another specific manifestation of the principle of good faith which,

we have pointed out, is at once a general principle of law and a principle of general

international law. This pervasive principle requires both complaining and responding

Members to comply with the requirements of the DSU (and related requirements in

other covered agreements) in good faith. By good faith compliance, complaining

Members accord to the responding Members the full measure of protection and

opportunity to defend, contemplated by the letter and spirit of the procedural rules.

                                                            75 Andrew D. Mitchell, Goof Faith in WTO Dispute Settlement, Melbourne Journal of International Law 7 Melb. J. Int'l L., (2006), page 344. 76 John O'Connor, Good Faith in International Law, Dartmouth Publishing Co Ltd (1991), page 124.

  41

The same principle of good faith requires that responding Members seasonably and

promptly bring claimed procedural deficiencies to the attention of the complaining

Member, and to the DSB or the Panel, so that corrections, if needed, can be made to

resolve disputes. The procedural rules of WTO dispute settlement are designed to

promote, not the development of litigation techniques, but simply the fair, prompt and

effective resolution of trade disputes”77

Note that the fact that the Appellate Body described the good faith principle contained in the

DSU as a general principle of law and a principle of general international law is relevant,

because in the event of a legal vacuum, a door may be open to try and fill it by bringing legal

sources that have interpreted the principle in other forums.

Even though article 3.10 deals with engaging in the procedures in good faith, the Appellate

Body in EC – Export Subsidies on Sugar extended the scope of this obligation, by stating

that members “must engage in dispute settlement procedures in good faith, by virtue of

Article 3.10 of the DSU. This latter obligation covers, in our view, the entire spectrum of

dispute settlement, from the point of initiation of a case through implementation.”78

For these reasons, Marion Panizzon stated that Article 3.10 DSU also has other functions,

such as: “(i) a Member’s duty of cooperation with a panel, (ii) fundamental fairness, (iii)

promptness and due process, and (iv) effectiveness.”79

                                                            77 Appellate Body Report, United States – Tax Treatment for “Foreign Sales Corporations”, WT/DS180/AB/R, adopted 24 February 2000, paragraph 166 78 Appellate Body Report, European Communities - Export Subsidies on Sugar, WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 28 April 2005, paragraph 312. 79 Marion Panizzon, “Good Faith, Fairness and Due Process in WTO Dispute Settlement Practice: Overcoming the Positivism of International Trade Law”, in Julian Chaisse and Tiziano Balmelli (eds)

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Before continuing with the development of the application of the good faith principle in the

WTO, it is important to resolve one question: Is a panel or the Appellate Body entitled to

determine whether one member has acted in accordance or against the good faith principle?

If the answer were to be that a WTO tribunal cannot rule on that matter, it would be highly

improbable that one legal impediment could arise from Article 3.10 of the DSU. This

discussion was given in the frame of the US – Offset Act (Byrd Amendment) issue, were the

Appellate Body stated that:

“296. On appeal, the United States maintains that there is "no basis or justification in the

WTO Agreement for a WTO dispute settlement panel to conclude that a Member has not acted

in good faith, or to enforce a principle of good faith as a substantive obligation agreed to by

WTO Members." We observe that Article 31(1) of the Vienna Convention directs a treaty

interpreter to interpret a treaty in good faith in accordance with the ordinary meaning to be

given to the terms of the treaty in their context and in the light of the treaty's object and

purpose. The principle of good faith may therefore be said to inform a treaty interpreter's

task. Moreover, performance of treaties is also governed by good faith. Hence, Article 26 of

the Vienna Convention, entitled Pacta Sunt Servanda, to which several appellees referred in

their submissions, provides that "[e]very treaty in force is binding upon the parties to it and

must be performed by them in good faith." The United States itself affirmed "that WTO

Members must uphold their obligations under the covered agreements in good faith".

297. We have recognized the relevance of the principle of good faith in a number of cases.

Thus, in US – Shrimp, we stated that: The chapeau of Article XX is, in fact, but one expression

                                                            Essays on the Future of the World Trade Organization Volume II, The WTO Judicial System: Contributions and Challenges. Edited (2008 Éditions Interuniversitaires Suisses, pages 26-43.

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of the principle of good faith. This principle, at once a general principle of law and a general

principle of international law, controls the exercise of rights by states.

In US – Hot-Rolled Steel, we found that: … the principle of good faith … informs the

provisions of the Anti-Dumping Agreement, as well as the other covered agreements.

Clearly, therefore, there is a basis for a dispute settlement panel to determine, in an

appropriate case, whether a Member has not acted in good faith.”80

In that sense, the panels and the Appellate Body are entitled to determine whether one

member has acted in accordance or against the good faith principle. Consequently, if a

respondent presents an admissibility objection on the ground of a legal impediment under

Article 3.10 of the DSU, the WTO tribunal would have to analyze the complainant´s actions.

Having determined that a WTO tribunal is entitled to rule on the consistency of the action of

one member with the good faith principle, one distinction must be made. It is important to

remark that, despite the fact that the good faith principle is only one, its application differ

when it is contained in a substantive or in a procedural provision, and therefore, the criteria

to determine whether one member has acted in accordance with the principle must vary. This

distinction -which is recognized by the Appellate Body nowadays- had a late development in

the frame of the WTO, which did not help clarifying the application of the good faith

principle as a way to propose a legal impediment.

Regarding the substantive good faith, the Appellate Body in US – Offset Act (Byrd

Amendment), interpreted this notion of the good faith regarding the obligations contained in

                                                            80 Appellate Body Report, United States - Continued Dumping and Subsidy Offset Act of 2000, WT/DS217/AB/R, WT/DS234/AB/R, adopted 16 January 2003, paragraph 296 and 297

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Article 11.4 of the Agreement on Subsidies and Countervailing Measures and Article 5.4 of

the Anti-Dumping Agreement. Furthermore, the Appellate Body reversed the Panel’s

finding, in which it stated that the United States may be regarded as not having acted in good

faith by the sole fact of acting contrary to one substantive provision of the covered

agreements, since the 2nd instance tribunal believed that:

“298. Nothing, however, in the covered agreements supports the conclusion that simply

because a WTO Member is found to have violated 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.”81

Therefore, the party wanting to demonstrate that one member acted contrary to the

substantive good faith, shall prove that (i) it violated the substantive treaty provision; and (ii)

something more than a mere violation.

A couple of months later, the panel in Argentina – Poultry applied the test that was

established on the aforementioned case. In this issue, Argentina tried to demonstrate that

“Brazil failed to act in good faith by first challenging Argentina's antidumping measure

before a MERCOSUR Ad Hoc Tribunal and then, having lost that case, initiating WTO

dispute settlement proceedings against the same measure.”82 Therefore, the Panel was

dealing with a typical issue of admissibility, in which the question was whether Brazil failed

to act in procedural good faith. However, the Panel applied the substantive good faith

                                                            81 Ibidem, paragraph 298 82 Panel Report, Argentina - Poultry Anti-Dumping Duties, WT/DS241/R, adopted 22 April 2003, paragraph 7.36

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violation test, because at that time, the procedural good faith concept and test wasn’t

developed. In is decision, the Panel concluded that:

“7.36 On the basis of the abovementioned Appellate Body finding, we consider that two

conditions must be satisfied before a Member may be found to have failed to act in good faith.

First, the Member must have violated a substantive provision of the WTO agreements. Second,

there must be something "more than mere violation". With regard to the first condition,

Argentina has not alleged that Brazil violated any substantive provision of the WTO

agreements in bringing the present case. Thus, even without examining the second condition,

there is no basis for us to find that Brazil violated the principle of good faith in bringing the

present proceedings before the WTO.”83

Five years later, in 2008, the Panel in EC – Bananas III (2nd recourse to Art. 21.5 – Ecuador),

once again applied the substantive good faith principle test. In this case, the issue was whether

the Understandings on Bananas, agreed upon by the European Communities, the United

States and Ecuador, prevented the complainants from initiating compliance proceedings

under to Article 21.5 of the DSU. On appeal, the issue was raised by the European

Communities, who believed that:

“223. (…) the Panel erred in its interpretation and application of the principle of good faith

referred to in Article 3.10 of the DSU. According to the European Communities, the Panel

took the erroneous view that an objection based on the principle of good faith could be

successful only if the European Communities had made out a prima facie case for the alleged

violation of Article 3.10, and also for "something more than mere violation". The European

Communities alleges that the Panel erred in finding that the principle of good faith could only

                                                            83 Ibidem

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be invoked as an "add-on" to the violation of another WTO rule and could not by itself be the

source of rights and obligations of WTO Members.”84

On its ruling, the Appellate Body introduced the difference between the two types of good

faith by stating that:

“227. This finding, however, is not pertinent in the context of the present appeals, because

the legal question before the Panel in the present cases is different from the legal question

before the Appellate Body in US – Offset Act (Byrd Amendment). While, in that case, the

Appellate Body considered the principle of good faith as it relates to a substantive provision

of the WTO agreements, the Panel in the present cases was faced with the allegation of a lack

of good faith as a procedural impediment for a WTO Member to initiate Article 21.5

proceedings.”85

Consequently, the Appellate Body finally recognized that not every claim regarding a

violation of a good faith are the same, since the WTO tribunal must analyze if this principle

is contained on a substantive or in a procedural requirement. Having addressed the previous

difference, a new question arises: How can a member claim a violation of procedural good

faith? In that same case, the Appellate Body showed in which event the legal impediment

would be constituted. Note that it did not established a test per se, but only a situation in

which one member would be acting against the good faith principle. It considered that

“irrespective of the type of proceeding, if a WTO Member has not clearly stated that it would

                                                            84 Appellate Body Report, European Communities - Regime for the Importation, Sale and Distribution of Bananas, Second Recourse to Article 21.5 of the DSU by Ecuador, WT/DS27/AB/RW2/ECU, WT/DS27/AB/RW/USA, adopted 26 November 2008, paragraph 223. 85 Ibidem, paragraph 227.

  47

not take legal action with respect to a certain measure, it cannot be regarded as failing to

act in good faith if it challenges that measure.”86

Therefore, the legal impediment contained in Article 3.10 of the DSU, regarding the failure

to engage in WTO proceedings in good faith, is constituted when one member clearly states

that it would not take legal action with respect to a certain measure, and afterwards it presents

its claims before a WTO tribunal.

However, once again, the threshold to raise an admissibility objection under Article 3.10 of

the DSU is really high. According to the Appellate Body in Mexico – Corn Syrup, there is

no basis on which one panel can determine whether one member has or not acted in good

faith, therefore, the violation must be explicitly raised:

“47. (…) The requirements of good faith, due process and orderly procedure dictate that

objections, especially those of such potential significance, should be explicitly raised. Only

in this way will the panel, the other party to the dispute, and the third parties, understand that

a specific objection has been raised, and have an adequate opportunity to address and

respond to it.”87

Additionally, the party wanting to demonstrate the violation will have to rebuttal the

presumption of good faith, making at least a prima face case. This was stated by the Appellate

Body in EC – Sardines and by the Panel in Korea – Certain Paper (Article 21.5), as follows:

“6.97 (…) First, we have to assume that WTO Members engage in dispute settlement in good

faith, as required under Article 3.10 of the DSU. (…) Second, we do not consider it

                                                            86 Ibidem 87 Appellate Body Report, Mexico - Anti-Dumping Investigation of High-Fructose Corn Syrup (HFCS) from the United States, WT/DS132/AB/RW, 22 October 2001, paragraph 47.

  48

appropriate to ask the defendant to produce evidence to rebut a prima facie case that the

complaining party has not made. (…)”88

“278 (…) We must assume that Members of the WTO will abide by their treaty obligations in

good faith, as required by the principle of pacta sunt servanda articulated in Article 26 of the

Vienna Convention. And, always in dispute settlement, every Member of the WTO must

assume the good faith of every other Member. (…)”89

Therefore, since acting in good faith is presumed, the respondent has the burden of proof of

demonstrating that the complainant acted contrary to this principle. On this point, it is

important to review one specific issue regarding the application of the legal impediment

contained in Article 3.10 of the DSU, which has been widely debated by scholars and WTO

members. The principle of estoppel has been considered to apply in the frame of the good

faith as a legal impediment, but this assertion has been questioned by some members of the

WTO before WTO tribunals.

According to the panel in Guatemala – Cement II:

“Estoppel is premised on the view that where one party has been induced to act in reliance

on the assurances of another party, in such a way that it would be prejudiced were the other

party later to change its position, such a change in position is "estopped", that is

precluded.”90

                                                            88 Panel Report, Korea – Anti-Dumping Duties on Imports of Certain Paper from Indonesia Recourse to Article 21.5 of the DSU by Indonesia, WT/DS312/R, adopted 28 September 2007, paragraph 6.97 89 Appellate Body Report, European Communities — Trade Description of Sardines, WT/DS231/AB/RW, 26 September 2002, paragraph 278 90 Panel Report, Guatemala – Definitive Anti-Dumping Measure on Grey Portland Cement from Mexico, WT/DS156/R, adopted 17 November 2000, paragraph 8.23.

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Therefore, to demonstrate that a change in a state’s position is estopped, the respondent

member alleging the violation must demonstrate that: (i) that the complainant state did an

initial act; (ii) that this act induced the respondent to act in one specific way; (iii) that the

complainant change its position from the initial act; and (iv) that the change of the action of

the complainant ended prejudicing the respondent member. However, as noted above, the

application of this principle in the frame of the WTO has not been pacific. In order to

understand the different state´s positions on the application of this principle, the Appellate

Body ruling in EC – Export Subsidies on Sugar is really helpful. In that case, the WTO

tribunal summarized the positions by stating that:

“311. The European Communities argues that estoppel is a general principle of international

law, which follows from the broader principle of good faith. As such, estoppel is "one of the

principles which Members are bound to observe when engaging in dispute settlement

procedures, in accordance with Article 3.10 of the DSU." Regarding the content of estoppel,

the European Communities argues that "[e]stoppel may arise not only from express

statements, but also from various forms of conduct, including silence, where, upon a

reasonable construction, such conduct implies the recognition of a certain factual or juridical

situation." Australia, in contrast, submits that the principle of estoppel is not applicable in

WTO dispute settlement. With respect to the content of estoppel, Australia submits that

estoppel cannot "apply as to a statement of a legal situation". Brazil agrees with the Panel

that the European Communities' claims regarding estoppel were "without merit". Similarly,

Thailand maintains that the Panel was correct in concluding that the principle of "estoppel

is not mentioned in the WTO Agreement, or the DSU, and that it has never been applied by

any panel or the Appellate Body." The United States emphasizes that "[n]owhere in the DSU

or the other covered agreements is there a reference to 'estoppel'." Moreover, according to

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the United States, "'[e]stoppel' is not a defense that Members have agreed on, and it therefore

should not be considered by the Appellate Body."”91

Therefore, this is a very controversial issue, that must be solved by a WTO tribunal. Without

a doubt, this EC – Export Subsidies on Sugar issue is the landmark case regarding the

application on the estoppel principle. In this case, the Appellate Body was really cautious

when analyzing the appellant’s arguments about the panel’s findings on estoppel. As it

ultimately did not believe that the complainant was estopped, the Appellate Body did not

clarify whether the principles applies in the WTO, but it limited itself to make arguendo

statements, considering what would happened if the principle were to apply in the WTO.

However, the WTO tribunal linked the principle with Article 3.10 of the DSU:

“307. We consider in subsection C below the issue whether the principle of estoppel applies

in the context of WTO dispute settlement. Here, we observe that, to the extent that this concept

applies at all, it is reasonable for a panel to examine estoppel in the context of determining

whether a Member has engaged "in these procedures in good faith", as required under Article

3.10 of the DSU. Hence, not only do we believe that the Panel's examination did not fail to

address the European Communities' contention on Article 3.10 and good faith, but the Panel

made no error in addressing this issue together with the issue of estoppel.”92

However, the Appellate Body stated that “it is far from clear that the estoppel principle

applies in the context of WTO dispute settlement.”93 After making this “political statement”,

in order to avoid the debate that aroused among the parties to the dispute, it expressed the

                                                            91 Appellate Body Report, European Communities - Export Subsidies on Sugar, WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 28 April 2005, paragraph 311 92 Ibidem, 307 93 Ibidem, 310

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eventual boundaries that a respondent party must observe in subsequent cases, when bringing

admissibility objections on the grounds of estoppel:

“312. (…) We see little in the DSU that explicitly limits the rights of WTO Members to bring

an action; WTO Members must exercise their "judgement as to whether action under these

procedures would be fruitful", by virtue of Article 3.7 of the DSU, and they must engage in

dispute settlement procedures in good faith, by virtue of Article 3.10 of the DSU. This latter

obligation covers, in our view, the entire spectrum of dispute settlement, from the point of

initiation of a case through implementation. Thus, even assuming arguendo that the principle

of estoppel could apply in the WTO, its application would fall within these narrow parameters

set out in the DSU.”94

In that sense, to present an objection on the grounds of estoppel, the respondent must comply

with the aforementioned requirements to demonstrate legal impediments under articles 3.7

and 3.10 of the DSU. Despite the above, subsequent case law continued to give discussion

on the matter. For example, almost five years after the EC – Export Subsidies on Sugar issue,

the Panel in EC and certain member States – Large Civil Aircraft stated that that “the good

faith obligation contained in Article 3.10 of the DSU, can reasonably be analysed “in the

light of the general international law principle of estoppel.”95

Moreover, Argentina in Argentina – Poultry96 and the European Union in EC and certain

member States – Large Civil Aircraft97, tried to introduce a different test in other to apply the

                                                            94 Ibidem, 312 95 Panel Report, European Communities and certain member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 30 June 2010, paragraph 7.101 96 Panel Report, Argentina - Poultry Anti-Dumping Duties, WT/DS241/R, adopted 22 April 2003, paragraph 7.37 97 Panel Report, European Communities and certain member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 30 June 2010, paragraph 7.102.

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estoppel principle in the WTO. According to those countries, the necessary conditions to

demonstrate the application of estoppel in the context of Article 3.10 of the DSU are that:

“(i) there is a clear and unambiguous statement of fact; (ii) that statement was made

voluntarily, unconditionally and is authorized by one Member; (iii) and that statement is

relied on in good faith by the other Member.”98

After analyzing the case law on the matter, scholars have not taken a uniform decision on the

applicability of estoppel in the WTO. Taking into account the limitation stated by the

Appellate Body in EC – Export Subsidies on Sugar, scholars such as Bregt Natens and

Sidonie Descheemaeker, consider that:

“We see little use in doing so, as establishing a violation of either of the aforementioned

provisions in se suffices. The invocation of estoppel would be a detour, in which convincing

a panel of the applicability of the principle of estoppel before it would be a first hurdle, and

the determination of the conditions to establish estoppel a second.”99

However, other authors such as Andrew D. Mitchel and David Heaton state that this principle

could be applied by WTO tribunals as a manifestation of their inherent powers due to its

inherent jurisdiction, since it does comply with the aforementioned test proposed by these

authors:

“Applying our criteria above, it may be necessary for a WTO Tribunal to address estoppel to

safeguard the judicial process—to ensure that parties are not permitted to “blow hot and

cold,” which makes a mockery of judicial process and the administration of international

                                                            98 Ibidem 99 Bregt Natens and Sidonie Descheemaeker, Say it Loud, Say it Clear — Article 3.10 DSU’s Clear Statement Test as a Legal Impediment to Validly Established Jurisdiction, Forthcoming, Journal of World Trade 49:5., (2014), page 17

  53

justice. Estoppel has no autonomous substantive content. As Bartels observes (of equitable

doctrines in international law generally, including abuse of rights), it is a principle “under

which the ability of a party to rely on an express treaty right is conditioned on its own

conduct.” It operates to control the assertion of rights and obligations that otherwise exist by

parties. At least in general terms, estoppel appears to be consistent with the Covered

Agreements. Its effect is to hold a party to a representation where another party has relied on

that representation. Ensuring consistency in state relations, especially given that states act in

a considered and often strategic manner, will, if anything, “provid[e] security and

predictability to the multilateral trading system.””100

I consider that, Mitchel and Heatons’ theory should be taken into account by the WTO

tribunals. Without a doubt, the fact of recognizing the application of the estoppel principle

would be really controversial, but I believe it is perfectly applicable in the frame of the WTO.

As a specific manifestation of the good faith principle, estoppel has the ability to impede that

one member present a specific claim before a WTO panel, since that is the precise end of the

admissibility objections.

In conclusion, a responding party is entitled to present an admissibility objection on the

ground of a violation of Article 3.10 of the DSU. This objection has to be analyzed by the

WTO tribunal, which would have to determine whether the complaining party acted in

accordance with the good faith principle. However, if the responding party believes that the

test for demonstrating a violation of the procedural good faith is not perfectly applicable to

                                                            100 Andrew D. Mitchell, David Heaton, “The Inherent Jurisdiction of WTO Tribunals: The select application of Public International Law required by the judicial function”, Michigan Journal of International Law, Vol. 31:561 (2009), pages 580-581

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its case, it could allege that the complainant´s change of position is estopped, and that

therefore it contravened the good faith principle.

IV. The CHIMEHA FTA between Chilo, Meco and Haito

a. Presentation of the case

Having reviewed the different Appellate Body and panel’s decision on the admissibility

issue, the concepts of legal impediments are going to be developed on a fictional case, which

was written by Gabrielle Marceau -Ph.D, who works as a counselor in the Legal Affairs

Division of the WTO, advising panelists in WTO disputes, and worked at the Director-

General Office and at the Secretariat on WTO related matters.101 The case, named “The

CHIMEHA FTA between Chilo, Meco and Haito”, was written in the frame of the European

Law Students’ Association (ELSA) Moot Court Competition 2016-2017. The relevant case

facts are the following:

“1. Chilo, Meco and Haito are Members of the World Trade Organization (WTO), and they

all produce both agricultural and industrial products. Chilo and Meco are developing

countries, and Haito is a least developed country (LDC).

(…)

7. In 2015, Chilo, Meco and Haito concluded a trilateral trade agreement called the

"CHIMEHA Free Trade Agreement" (CHIMEHA FTA) which entered into force on 1 January

2016, and has been incorporated by each country into its domestic law. Chilo, Meco and

                                                            101 United Nations Audiovisual Library of International Law, (n.d) Retrieved from: http://legal.un.org/avl/pdf/ls/Marceau_bio.pdf

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Haito have reported to the press that the CHIMEHA FTA covers "substantially all the trade"

between them, and all WTO Members seem to agree with them.

(…)

“11. Chapter III contains general provisions and includes the following text in Article 303:

"Articles III, XI, XII, XVIII, XX and XXI of the GATT 1994 are applicable mutatis mutandis

as part of this FTA."”

(…)

16. The FTA contains a dispute settlement mechanism (DSM) for settling disputes between

FTA parties. This FTA DSM is fairly similar to that of the WTO (the DSU), but it contains

some different provisions. Notably, (i) there is a possibility for retroactive financial

compensation when parties agree, (ii) there is a requirement that the FTA panel assesses the

trade effects and the nullification of benefits caused by the measure found inconsistent with

the FTA, and (iii) there is no appeal procedure provided under the FTA DSM.

17. In addition, Chapter VIII regulates the settlement of disputes under the WTO and the

FTA. It states in Article 808:

"Relationship to Dispute Settlement under the WTO:

1. Subject to this Article, disputes regarding any matter arising under both this FTA and the

WTO Agreement, may be settled in either forum at the discretion of the complaining Party

only.

2. Before a Party initiates a dispute settlement proceeding in the WTO against another Party

on grounds that are substantially equivalent to those available to that Party under this FTA,

that Party shall notify the responding Party and any other FTA Party of its intention. If

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another FTA Party wishes to have recourse to dispute settlement procedures under this FTA

regarding the matter, it shall inform promptly the (initial) notifying Party and those other

Parties shall consult with a view to reaching consensus on the forum to be used. If the Parties

cannot agree, the dispute normally shall be settled under this FTA.

3. In any dispute concerning:

(a) measures taken in the context of balance-of-payment problems; or

(b) a measure adopted or maintained by a Party to protect its human, animal or plant life or

health, or to protect its environment, and

where the responding Party requests in writing that the matter be considered under this FTA,

the complaining Party must, in respect of that matter, thereafter have recourse to dispute

settlement procedures solely under this FTA."

(…)

19. Due to a serious BOP problem, Haito introduced a system of import quota restrictions

on 1 March 2016. According to this system, imports of all products are limited to the amount

exported to Haito in the preceding year (i.e. by March 2015). In its notification to the WTO

BOP Committee, Haito invoked Article XVIII:B of the GATT 1994 to justify its measure. All

exports from all WTO Members, including those from Meco and Chilo, are subject to Haito’s

BOP quota restriction scheme.

(…)

21. Chilo and Meco considered that their exports to Haito should be exempted from such a

BOP import restriction since they are entitled to preferential treatment pursuant to the FTA.

Chilo argued that if Haito failed to remove its BOP import restrictions – at least with respect

to imports from Chilo – it will have to initiate WTO dispute settlement proceedings. Haito

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asserted that only the FTA dispute settlement mechanism can be used for initiating a dispute

concerning a BOP measure implemented within the FTA.

(…)

22. Chilo responds by stating that an FTA cannot modify the fundamental right of WTO

Members to access the WTO dispute settlement system. Chilo also states that the MFN

application of Haito’s BOP scheme across all WTO Members, including the parties to the

CHIMEHA FTA, is WTO inconsistent. Unless the BOP-scheme is removed, Chilo will initiate

a dispute before the WTO Dispute Settlement Body (DSB).

(…)

23. Chilo decided to initiate WTO dispute settlement consultations against Haito. After the

confidential consultation meeting, the FTA parties rushed to the press and reported the

following points which were, by no means, exhaustive of the arguments that could be raised

with respect to Chilo's complaints and Haito' defences.

(…)

26. (…) Haito expressed its surprise that Chilo was challenging the WTO-consistency of the

FTA they had just concluded and accused Chilo of acting in bad faith in using the WTO

dispute settlement mechanism to mount such a challenge. (…)”102

b. Arguments for the Complainant:

The complaining party, which in this case is Chilo, needs that the Panel decides to exercise

its jurisdiction. Normally, as explained above, since the respondent party must explicitly raise

                                                            102 The CHIMEHA FTA between Chilo, Meco and Haito. (n.d) Retrieved from: https://elsa.org/wp-content/uploads/ELSA_files/MCC/15thEMC2case_amended.pdf

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the admissibility issue, the complaining party does not need to present an initial argument on

why the Panel shall address the dispute. However, if there is a big issue on the existence of

legal impediments, it is advisable that the complainant states why the factual aspects of the

case do not lead to the formation of legal impediments.

Chilo must start by stating that it has the right to have recourse to the DSB. This, by citing to

the Panel Articles 3.3 and 23.1 of the DSU, which entitle all WTO Members to initiate

procedures before the DSB to redress a violation under the covered agreements, or when a

measure diminishes their rights. Moreover, it has to emphasize on the fact that the jurisdiction

of the WTO is compulsory and exclusive, as the aforementioned case law establishes. This

argument may be the strongest one it has, if it is facing one Panel which is pro WTO. The

fact that panels and the Appellate Body stated in several opportunities that (i) the complaining

party must have recourse to the WTO DSB in the exclusion of any other system; and (ii) that

a respondent has no choice as a matter of law, but to accept the WTO tribunal jurisdiction;

may suffice to one panel to decide to exercise its jurisdiction, irrespective of the situation on

the FTA.

However, if Chilo wants to ensure that the Panel will address its complaints, it would be a

good idea to recognize that its right is not entirely unbounded, since the Appellate Body in

several cases, such as in the aforementioned EC – Export Subsidies on Sugar issue, stated

that there could be legal impediments that preclude the Panel from exercising its jurisdiction.

Regarding the first legal impediment contained in Article 3.10 of the DSU, which requires

all Members to engage in the DSB in procedural good faith, Chilo should start by stating that

the mandate of previous case law is that the Panel has to presume the good faith of the

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members when engaging in these types of procedures. Moreover, it should express why it

did not clearly state that it would not take legal action with respect to a certain measure, by

means of the FTA, which, as explained, has been the threshold imposed by the Appellate

Body to demonstrate the failure to act in good faith.

The first reason to explain why Chilo did not clearly state that it would not take legal action

with respect to a certain measure, is there is no thing such as a clear statement in the text of

the CHIMEHA FTA. A different situation will arise if the somewhere in the FTA the parties

state that they understand that the provisions of the FTA are in accordance with WTO law,

and therefore they would not present any claim regarding the inconsistency of any provision

of the FTA with the covered agreements, before a WTO panel. Moreover, Chilo can argue

that beyond the text of the FTA on its face, it has never made such statement, but conversely,

it has demonstrated its will to have recourse to the WTO dispute settlement system, by

exercising the choice of forum provision contained in Article 808 of the CHIMEHA FTA.

According to that provision, the complaining party may choose whether to present its claims,

in the CHIMEHA FTA’s DSM, or in the WTO’s DSB. Finally, it can also assert that if the

Panel were to believe that the clear statement may come from paragraphs 2 and 3 of Article

808 of the CHIMEHA FTA, it is subject to a condition. Note that those paragraphs entitle the

responding party to trigger the forum election of the complainant, by notifying that it wants

the dispute to be addressed by the DSM of the FTA, and if they cannot agree, the dispute

shall be settled solely under the FTA. In that sense, Chilo can demonstrate that the clear

statement is not done, since the notification requirement was not duly performed by Haito,

as the clarification questions solved by the case author state:

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“102. Did Haito notify Chilo and Meco and provided a request regarding its recourse

to the Dispute Settlement mechanism under the CHIMEHA FTA as required by paragraph 2

and 3, Chapter VIII of CHIMEHA FTA?

We don't know, but apparently not.”

“129. Did Haito request in writing that the dispute matter be considered under the FTA

and that hence the dispute shall be settled solely under FTA procedures pursuant to Art. 808:3

of the CHIMEHA FTA?

No, please limit yourself to the facts of the case.”103

On the other hand, regarding the second legal impediment contained in Article 3.7 of the

DSU, which requires Members to exercise their judgement as to whether action under the

procedures would be fruitful, Chilo’s argumentation would be a lot easier. First, it can state

that previous case law has recognized that members enjoy of enough discretion to decide, in

their own motion, whether to present its claims before the DSB. Also, that the Appellate

Body and the DSU itself state that this discretion is essential to the effective functioning of

the WTO. However, the key element to demonstrate the inexistence of that legal impediment

is to contend that the only possible way that the respondent may argue that the action would

not result on a fruitfulness result, is demonstrating that the complaining party relinquished

its right to have recourse to the DSB. Taking into account that the Appellate Body stated that

the relinquishment of rights cannot be lightly assumed, Chilo can state that if there was no

                                                            103 Clarification Questions and Requests (n.d). Retrieved from: https://emc2.elsa.org/participation/, pages 15 and 18

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clear statement on the legal text of the CHIMEHA FTA, neither on its subsequent actions,

much less there will be a relinquishment of the right to have recourse to a WTO tribunal.

So, it’s final statement will be really simple. Chilo has the right to have recourse to the DSB,

and since there are no legal impediments that preclude the panel from exercising its

jurisdiction, it shall address que present claims.

c. Arguments for the Respondent

Haito, as the responding party, will have the difficult task to convince the Panel that it must

decline to exercise its validly established jurisdiction, by presenting admissibility objections

on the grounds of the existence of legal impediments.

Knowing the high threshold that the responding would be facing, it is a smart move to divide

the two type of claims that Chilo is presenting, in order to raise different admissibility

objections against both types, waiting that at least one of them will flourish.

Regarding the first type of claims, which is the inconsistency of Haito’s balance of payment

import quota restrictions with WTO law, the respondent shall explicitly invoke a violation of

both legal impediments, i.e. Articles 3.7 and 3.10 of the DSU. The key element to

demonstrate the existence of legal impediments, is to rebuttal the fact that the clear statement

or relinquishment was subject to a condition that did not take place. Even though it seems to

be an impossible job, because of the case author’s clarification questions, there is an

interpretation that might convince the Panel. It is true that Article 808 state that if the

responding party wants the dispute to be solely addressed under the CHIMEHA FTA a

request in writing is strictly needed. But, this is not the only requirement provided for in the

Article. In fact, paragraph 2 states that the complaining party shall notify the responding party

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and any other FTA party of its intention to initiate a dispute settlement proceeding in the

WTO, and is in that precise moment that the respondent must raise its objection to the

complainant´s choice of forum. So, it is reasonable to argue that, if the complaining party did

not notify its intention to the respondent, the respondent had no chance to present its own

notification. In the present issue, there is no case fact that explicitly recognizes Chilo’s

notification. I believe that it is possible to contend that it did not happen, by reading the

following answer to one clarification question:

“130. Was there, in the end, any disagreement between the parties concerning the

choice of dispute settlement forum in the context of a formalized procedure laid out by Art.

808:2 of the CHIMEHA FTA?

Chilo did not give any choice to Haito. Haito, during the consultations mentioned how

surprised it was that Chilo had used the WTO dispute settlement mechanism to challenge

basic provisions of the CHIMEHA FTA.” 104

If the case author state that Chilo did not give any choice to Haito, and that the respondent

was surprised about the complainant´s claims, it seems plausible to conclude that Chilo did

not present its notification, and therefore that Haito was unable to respond with the objection.

So, if the complainant’s argument on why there is no clear statement nor relinquishment in

the text of the FTA is voided, now the respondent must argue why does the legal text or

Chilo’s subsequent attitude provide the clear statement. Going back to Article 808 of the

CHIMEHA FTA, it states that, after all the consultation between the parties on the forum to

be used, if they cannot agree, the dispute normally shall be settled under the FTA. In that

                                                            104 Ibidem, page 18

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sense, Haito can plead that Chilo’s judgment on whether the its action under the procedures

would be fruitful was not duly performed, and therefore it acted against the good faith

principle, because it relinquished its right to have recourse to the DSB, since it was clear that

there was no consensus among the parties on the applicable forum, and the measure clearly

stated that in that event, the dispute would be settled in the FTA’S DSM. Moreover, this

relinquishment complies with the requirements established by the Appellate Body in Peru –

Agricultural Products, since (i) it is contained in the agreement; (ii) the text of the agreement

is clear on the no-consensus event; and (iii) there is nothing in the covered agreements that

prohibits one member to have recourse to a DSM, in order to solve its differences with its

FTA parties.

Note that the respondent’s argument is mixing both legal impediments. It states that the text

of the agreement contains both a clear statement and a relinquishment of rights, causing that

the judgment was not duly performed, and that the complainant acted in bad faith. One could

believe that this argumentation confuses both legal impediments, but in fact, this way to

present the argument responds to a strategic reason. If Haito only has this argument to present

its admissibility objection, it is better to present it as the foundation of both legal

impediments. As it was previously explained, both legal impediments require that the

objection is explicitly raised. So, this argumentation will suffice to comply with the first

requirement, and then the Panel shall address the issue on whether it constitutes a

relinquishment of rights, or a clear statement. At that point, the respondent would have twice

the chances to convince the Panel, as it would have had if it only raised one objection.

On the other hand, regarding Chilo’s claims on the inconsistency of specific FTA’s

provisions with the covered agreements, Haito would need to propose a different argument,

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since Article 808 of the CHIMEHA FTA does not cover this type of claims. In order to

present its admissibility objection, Haito would need to use the legal impediment contained

in Article 3.10 of the DSU, regarding the engagement in good faith.

As explained above, the application of the principle of estoppel in the frame of WTO has

been a very debated issue. However, as the estoppel principle is a specific manifestation of

the good faith, I believe that a panel is entitled to apply this principle and determine whether

one state’s change of position is estopped, by means of its inherent jurisdiction, irrespective

of the fact that the covered agreements do not expressly recognize its application.

As stated before, the panel in the Guatemala – Cement II issue stated that “a change in a

state’s position is estopped when such behavior would prejudice another state, which has

been induced to act according to the assurances of the former state.”105 It is also important

to recall that the Appellate Body stated that if estoppel were to apply in the WTO dispute

settlement system, it would do so in the narrow parameters of Articles 3.7 and 3.10 of the

DSU. In that sense, I consider that a party wanting to present an admissibility issue on the

grounds of estoppel, must demonstrate that the complainant made a subsequent clear

statement, which is contrary to an initial clear statement, and that caused a prejudice to

another state.

In this case, the initial statement arises from the fact that Chilo agreed, signed and ratified

the CHIMEHA FTA. This fact shows that the complainant created the expectation on its FTA

parties, that it was going to comply with its recently agreed obligations. Then, Chilo made a

subsequent statement, by claiming the inconsistency of several provisions of the CHIMEHA

                                                            105 Panel Report, Guatemala – Definitive Anti-Dumping Measure on Grey Portland Cement from Mexico, WT/DS156/R, adopted 17 November 2000, paragraph 8.23.

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FTA. So, considering the aforementioned pacta sunt servanda principle, Haito believed that

Chilo was going to performed the treaty in good faith, without claiming against a treaty that

it just concluded, and therefore it organized its economy by taking into account the

competitive opportunities that it was going to have in foreign markets, and also the

advantages it was giving out in its very own market. At this point, the respondent would only

be missing the prejudice requirement. To demonstrate the prejudice, two answers to the

clarification questions are relevant:

“98. Please confirm that the obligations under Chapter V of the CHIMEHA FTA took

effect at the same time when the FTA entered into force.

All obligations under the CHIMEHA FTA took effect at the same time when the FTA entered

into force.”

“135. Before March 1st 2016 had Chilo and Meco effectively reduced the tariffs to

imports from Haito pursuant to the FTA?

Yes with the entry into force of the CHIMEHA on 1 January 2016”106

Notice that, if all obligations of the CHIMEHA FTA were applicable when Chilo submitted

its claims, specially the Special and Differential Treatment provision, in which Haito

benefitted from a zero-import tariff duty on all its exports to its FTA partners, Haito would

definitely suffer a potential prejudice. Imagine that those measures are found to be

inconsistent with the covered agreements, and therefore they must be taken into conformity

with the WTO law. At that point, Haito’s export rates will be highly compromised, since their

                                                            106 Clarification Questions and Requests (n.d). Retrieved from: https://emc2.elsa.org/participation/, pages 14 and 19

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trade would go from an excellent situation with a zero-tariff regime, to a most favored nation

tariff scheme, in which they will have to compete with products coming from developed and

developing countries, which obviously will have better competitive opportunities than a least

developed country.

In short, Haito would argue that there are of legal impediments in the present dispute, due to

the fact that the complainant relinquished its right to have recourse to the DSB and that

Chilo’s change of position is estopped, and therefore the Panel shall not exercise its validly

established jurisdiction.

V. Conclusions

It is undeniable the importance of the WTO dispute settlement forum, as an essential element

for the proper functioning of multilateralism. Its own characteristics, such as the compulsory

and exclusive jurisdiction, coupled with the facility to enforce decisions by the negative

consensus, make the dispute settlement forum the jewel of the crown of the WTO.

Moreover, the fact that the inherent jurisdiction of international tribunals has been recognized

by the International Court of Justice, enables them to take the required actions to provide for

the settlement of all the maters in the dispute, applying their inherent powers to resolve

preliminary issues. Even though panels and the appellate body were reluctant to acknowledge

the application of these concepts in the WTO framework, since the famous Mexico - Soft

Drinks case, they had begun to delve into this issue.

Furthermore, in order to understand the application of the inherent powers in disputes, the

concepts of admissibility and jurisdiction were differentiated, since it is of fundamental

importance to distinguish between the two possible objections that could be brought before

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a WTO tribunal. While objections to the jurisdiction seek to attack the competence of the

court to hear as regards the particular case or as to defects in the preliminary proceedings,

the objections to admissibility seek to demonstrate that there are external conditions to the

dispute that preclude the possibility of the complainant to present his case before the WTO

tribunal.

To determine what could be taken as a legal impediment that serves as an admissibility

objection to preclude the panel from exercising its jurisdiction, different panel’s and

Appellate Body’s decisions were reviewed. According to the Appellate Body, legal

impediments could arise from a violation of Articles 3.7 and 3.10 of the GATT, which state

that WTO members must exercise their judgement as to whether action under the procedures

would be fruitful; and that they must engage in dispute settlement procedures in good faith,

respectively. However, the threshold to demonstrate the existence of the legal impediment

will be extremely high, since the WTO tribunal has to presume the member’s good faith, as

well as that it has duly exercised its judgment. While to rebut the presumption of the exercise

of the judgment, the respondent must demonstrate that the claimant has relinquished its right

to have recourse to the DSB, to refute the engagement in good faith, the respondent has to

demonstrate that the complainant clearly stated that it would not take legal action with respect

to the object of its claim.

In that sense, the answer to the question raised by the title of this paper –DOES THE WTO’S

DISPUTE SETTLEMENT BODY´S JURISDICTION PREVAIL OVER THE FTA’S

DISPUTE SETTLEMENT MECHANISM? – will depend. As a general rule, the WTO’s

DSB address the issue, irrespective of prior relations between the members in the frame of

an FTA. However, if the respondent explicitly invokes a violation of the aforementioned

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articles, and successfully complies with the burden it bears to rebut the presumption, the

panel or even the Appellate Body will decline to exercise its validly established jurisdiction,

acknowledging the situations occurred in the frame on the FTA.

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