Disputes Roundup: Panama Financial Services Appeal, Ukraine-Russia Row in Focus

5 November 2015

The past few weeks have seen a flurry of activity at the global trade arbiter, with the establishment of a WTO panel in Vietnam’s complaint against Indonesian safeguard measures on iron and steel; an appeal filed by Panama in its financial services dispute with Argentina; and the filing of a complaint by Ukraine against Russia on import measures regarding railway equipment.

Another area that has continued to spark discussion among WTO members over the past few weeks is how to improve the functioning of the dispute settlement system, which has been facing repeated delays in the process due to the growing caseload and complexity of cases.

Panama appeals financial services ruling

On 30 October, Panama circulated a notice of appeal in its dispute with Argentina over various financial services-related measures taken by the latter, in a case that dealt largely with complaints under the WTO’s General Agreement on Trade in Services (GATS) (DS453).

While a panel had ruled mostly in Panama’s favour in the case in late September, the country is citing certain “errors of law” in the panel’s report which it would like to see the Appellate Body address. (See Bridges Weekly, 8 October 2015)

These included, for example, questions regarding the panel’s interpretation and application of the term “treatment no less favourable” with regards to GATS Articles II:1 and XVII, which deal with most-favoured nation treatment and national treatment, respectively.

Another issue raised by Panama was how the panel applied the terms “necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this agreement” under GATS Article XIV(c).

That provision deals with the “general exception” that does not prohibit members from taking actions necessary to “secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement,” subject to certain conditions such as these not be disguised restrictions on trade.

According to Panama, the panel both failed to “apply properly the relevant legal standard,” while also focusing its analysis on whether the measures ensured compliance with the above-mentioned laws’ objectives, rather than with their specific provisions.

Panama has also questioned the panel’s interpretation of the paragraph on domestic regulation under the GATS Annex on Financial Services, arguing that the panel “failed to give effect to the term ‘domestic regulation’ in the title of the prudential exception, which determines the scope of this exception.”

The prudential exception allows WTO members to take certain members for reasons such as protecting investors or ensuring the integrity and stability of the financial system, regardless of other GATS provisions.

“The panel incorrectly concluded that the prudential exception covers all types of measures affecting the supply of financial services and not only those measures that can be characterised as ‘domestic regulations’,” Panama said.

At press time an appeal had not yet been filed by Argentina.

Ukraine, Russia to square off on railway equipment

Separately, a fight is brewing between Ukraine and Russia over whether certain import measures taken by Moscow on railway rolling stock, railroad switches, and other railroad equipment and parts have violated WTO rules.

According to the consultations request filed by Kiev in late October, the measures have essentially led to a ban on exports from Ukraine to its Eastern neighbour of these railway products.

The measures at issue involve a decision taken in July 2011 by the Commission of the Customs Union of Belarus, Kazakhstan, and Russia that established various technical and safety requirements that railway equipment would need to meet before these could be adopted, with such regulations to take force in August 2014.

Under the same decision, these products would need to pass “conformity assessments,” with the related certificates to be registered with the appropriate officials. Subsequent changes were made to this decision, such as a transitional period of application of these certificates – specifically to August 2016 – among others.

Kiev claims that in late 2013, Russian authorities began suspending conformity assessment certificates that had already been registered, on grounds such as “technical issues” – allegedly without “reasonable explanations.”

Similar difficulties in receiving such certificates are not seen in Belarus and Kazakhstan, Ukraine argues, with the former two countries being part of the same customs union as Russia. However, Moscow allegedly does not recognise the certificates granted by Minsk and Astana.

Ukraine claims that these measures and others violate both the WTO’s General Agreement on Tariffs and Trade (GATT) as well as the Technical Barriers to Trade (TBT) Agreement. Kiev has cited, along with various other concerns, questions regarding national treatment and most-favoured nation treatment under both of those agreement, to name a few.

“These violations appear to nullify or impair benefits accruing to Ukraine directly or indirectly under the covered agreements within the meaning of Article XXIII:1 of the GATT 1994,” Ukraine said in its consultations request.

Kiev argues that since the imposition of such measures, Ukrainian railway exports have plummeted. In 2013, for example, such exports hit US$1.7 billion, while a year later those amounted to US$60 million.

Under WTO rules, the two sides must hold consultations for a minimum of 60 days in an effort to find a mutually agreed solution. Should such talks fail to yield this result, Kiev will then have the option of requesting that a dispute panel hear the case.

Panel to hear Vietnam-Indonesia safeguard case

At last week’s meeting of the WTO Dispute Settlement Body (DSB), a panel was established to hear Vietnam’s dispute (DS496) with Indonesia over the latter’s safeguard measures on iron and steel products, following a second request from Hanoi.

A previous request had been blocked by Jakarta in September. At the time, a panel was established in a related dispute tabled by Chinese Taipei (DS490), also against Indonesia. The same panel will hear both complaints.

The concerns raised by both complainants regarding the safeguards fell under the GATT as well as the Agreement on Safeguards.

Among other issues raised by Vietnam, Indonesia did not provide “reasoned and adequate findings and conclusions regarding the alleged unforeseen developments and the effect of GATT obligations that led to the threat of serious injury (or threat thereof)” that were the reasoning behind the safeguard measures – which have been in place since mid-2014.

Hanoi has also questioned whether Jakarta has been able to properly explain the causal link between the increase in imports and alleged “serious injury (or threat thereof)” as well as whether the findings of such injury or threat have been properly substantiated.

Speaking to the DSB last week, Indonesia reportedly expressed its disappointment with the renewal of Vietnam’s panel request, citing the various efforts that Hanoi has made to clarify how the measures do indeed comply with WTO rules, according to sources familiar with the meeting.

Azevêdo weighs in on system delays

Director-General Roberto Azevêdo was on hand at last week’s DSB meeting to discuss possible ways to improve the functioning of the dispute settlement system, after Korea and various other members raised concerns over delays during an August DSB meeting. (See Bridges Weekly, 9 September 2015)

“Our dispute settlement system is highly efficient – and remains faster than other international adjudicatory systems the world over. Nevertheless, we can do better,” Azevêdo said.

The WTO is approaching a significant milestone in its history, being just one case short of the 500-dispute mark. According to the Director-General, 2015 has been “the busiest period on record,” with an average of 30 panels being active any given month.

Along with outlining a series of actions that he has implemented since the August DSB meeting – such as recruitment and reallocating posts and resources from other parts of the WTO secretariat to dispute settlement within the bounds of the “zero nominal budgetary growth principles,” limits on headcount, and caps on how much can be spent on personnel – Azevêdo also promised various additional improvements relating to transparency, such as more information on waiting times and caseload.

“Of course, what I can do is only part of the picture,” Azevêdo said. “You can do much more than I can to make the system work more expeditiously and more efficiently,” he said, welcoming comments on the moves taken so far and ideas on the way ahead.

The WTO chief also confirmed that he has appointed Deputy Director-General Karl Brauner to begin consultations on ways to continue addressing these concerns, “bearing in mind the budgetary constraints and headcount limitation imposed by members.”

Sources say that the measures outlined by Azevêdo were welcomed by members, who also pledged to contribute suggestions on how to address the delays and other difficulties facing the system in order to ensure its continued credibility.

ICTSD reporting.

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