By Catherine Saez
Inducing compliance, after a favourable ruling of the World Trade Organization (WTO) Dispute Settlement Body, from countries which breached international trade rules can prove difficult, especially for developing countries. For many of them, retaliation in a trade sector unrelated to the one affected by the violation of WTO rules may be the only viable option, although the major obstacles are not legal but political, according to speakers at a roundtable held on Friday in Geneva.

Under the WTO dispute settlement mechanism, cross-retaliation is permitted if approved. The roundtable organised by the International Centre for Trade and Sustainable Development examined options and challenges in the use of cross-retaliation, particularly by developing countries. The panel focussed on two WTO pacts: the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and the General Agreement on Trade and Services (GATS).

Cross-retaliation can be used against a WTO member found in violation of trade rules when the winning country could endure more harm by retaliating in the same sector as the violation, which is often the case when the retaliating country is a smaller economy.

Paradoxically, cross-retaliation was originally devised to allow developed country intellectual property rights holders to withdraw concessions in the field of goods and services in retaliation for violation of patents, trademarks and other rights, according to Frederick Abbott, a professor at Florida State University Law School, who authored an upcoming ICTSD study on the subject. “This idea that you will need to protect our intellectual property rights or we can hurt your exports was one of the fundamental reasons the whole (TRIPS) exercise took place,” he said.

However, cross-retaliation now is being used by developing countries as a mechanism to induce compliance from non-compliant developed countries. This mechanism has been approved twice by the WTO Dispute Settlement Body (DSU). Once in a case where Ecuador received the right to cross-retaliate against the European Union under TRIPS after a dispute involving the EU banana trading regime, the other one concerning a request from Antigua and Barbuda to cross-retaliate against the United States under TRIPS in a cross-border gambling issue. Neither Ecuador nor Antigua has actually used their right to retaliate under TRIPS so far, Abbott said.

Brazil has also requested to suspend concessions under the TRIPS and GATS agreements in a dispute against the US involving cotton trade issues. That request is pending the arbitrator’s decision, according to a Brazilian diplomat.

Although cross-retaliation is sometimes technically difficult to implement, legal issues appear not to be the major hindrance.

“The most significant obstacles to cross-retaliation are not legal issues,” said Abbott. “I think that as lawyers and diplomats and so forth, we can construct systems which will meet the standards of the WTO DSU and ultimately the appellate body. We can avoid problems with the World Intellectual Property Organization conventions, we can avoid problems with bilateral and regional arrangements.”

“The most difficult thing for a developing country government, particularly a smaller developing country government,” he added, “is to withstand the pressure brought there by the IP-dependent industries, whether it is the pharmaceutical industry or copyright industry, who in the international media accuse the suspending countries of being international pirates.”

The political pressure is difficult to escape. “You can’t control the propaganda campaign,” Abbott said. “The key thing for most trade diplomats and negotiators and people in the ministries is just to make sure that the chief executive of the country understands what will happen in the media once the cross-retaliation is initiated.”

Several avenues can be explored for a country to efficiently cross-retaliate, Abbott said, such as using existing legislative mechanisms like compulsory licensing, which allows governments to produce patented products without the patent-holder’s permission. Patents may provide the most accessible means of suspension of protection under TRIPS while trademarks would be problematic particularly because of the potential lack of quality control and the adverse effects on consumers of a product that might not have the same quality or utility as the original product. Plant variety protection was described as being a very good candidate because it permits the planting of otherwise protected seeds. TRIPS Article 39.3 on the protection of undisclosed information is “a prime candidate for suspension” as it could allow facilitated registration of generic drugs and should be adopted alongside pharmaceutical patent suspension, according to Abbott.

GATS

Cross-retaliation under GATS does not seem as promising as under TRIPS, said Arthur Appleton, an international trade lawyer who also authored an ICTSD study on the subject, as the adverse economic impact brought on by the suspension of concessions should be carefully measured.

“Developing countries are dependent upon service suppliers from developed countries,” he said. There also could be follow-on effects that endure beyond the date of the withdrawal of the WTO-inconsistent measure. For example, a suspension of transport service may mean it is harder to get spare parts.

Appleton advised to target GATS mode 3 (commercial presence) and mode 4 (movement of natural persons). However, cross-retaliation is very political; getting the political attention of the people involved is crucial. “In the financial services sector, you can certainly get the attention of the offending country. The problem is that in many developing countries you are going to want the capital, the foreign bank, the foreign service suppliers. So that might be a limitation,” he said.

Joost Pauwelyn from the Graduate Institute in Geneva said that in cross-retaliation the aim was to maximise the harm on the violator and minimise the cost on the complainant country. However, retaliation is not compensation so “of course it is going to cost something.”

By requesting to use cross-retaliation, Brazil was seeking to broaden the options to induce compliance. But the political stakes are very high, the Brazilian diplomat said in the meeting. “There is a lot of political support in the US for the agriculture subsidies,” he later told Intellectual Property Watch. According to him and the International Cotton Advisory Committee, the US approved a new farm bill this year, running until 2013, introducing few modifications to the US cotton programme, including the structure of subsidies. “That shows it is not easy to counter the power of US farmers,” he said.

Duly authorised cross-retaliation should be seen as legitimate and it would be fair to expect some support as well as some criticism, he said.

Very few examples of cross-retaliation under TRIPS or GATS are available for scrutiny, said Niall Meagher from the Advisory Centre on WTO law. “We don’t know how it would all work in practice. The fact that we don’t know suggests that it is difficult. If it was easier in practice it might have been done more frequently,” he said.

Catherine Saez may be reached at csaez@ip-watch.ch.