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According to the GATT preamble, the GATT members agreed to the formation of "reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce." The principles of reciprocity and non-discrimination are operationalized by means of the Most Favored Nation (MFN) and the National Treatment (NT) requirements of GATT Articles I and III. Substantial reductions in tariffs and other trade barriers are achieved through the periodic rounds of negotiation required by Article XXVIIIbis and are recorded in binding schedules under Article II. Finally, WTO Agreement Article II(1) provides a "common institutional framework" for the management of trade and commercial relations among the GATT members. Thus, the GATT created the structure necessary to facilitate and operate a liberalizing multilateral world trading regime.
Given these purposes of the GATT, the ECJ's critics have complained that denying direct effect to the GATT has both prevented the Community from obtaining the full economic welfare benefits possible under the agreement and denied individuals the protection of the fundamental rights provided by the agreement.[92] Kuilwijk extends this critique by arguing that the Court "for the sake of the sacred political balance, has failed to strike an acceptable balance between protection of individual rights and protection of the public interest" in the area of foreign trade policy while it has not done so with respect to the Community's internal market.[93] Thus, Kuilwijk concludes that direct effect is necessary "not only [as] a matter of sound economics but also, and first and foremost, [as] a matter of justice."[94]
One must carefully consider the nature of individual rights in the GATT before drawing comparisons with the Community internal market. First, whether the GATT protects individual rights depends on the extent to which national implementing legislation provides individuals with the ability to claim rights under the agreement.[95] Since the GATT does not provide for direct effect and most GATT members deny direct effect, it may be assuming what one wants to prove to claim that direct effect is necessary to protect individual rights. It is the very existence of direct effect itself which determines whether individual rights actually exist within the GATT. Thus, the proper inquiry is to determine whether the GATT itself is an agreement establishing mutual promises among states to respect the rules of GATT or whether it is an agreement creating rights for individuals as the EC Treaty does.
Second, it is not entirely clear that the GATT even embodies individual rights in the same form as they exist within the Community's internal market. For example, the Community right to non-discrimination requires the equal treatment of all traders unless discriminatory treatment is objectively justified.[96] Although GATT Article XIII prohibits discriminatory treatment of like products, the GATT allows several exceptions to this general principle. Most noticeable are the GATT anti-dumping and countervailing duty regimes.[97] Article XXIV also permits an exception to the MFN principle for regional trade blocs. Because these exceptions effectively allow GATT members to distinguish between traders, the GATT may sanction instances of discrimination which would not be permitted within the Community.
The principle of proportionality is used within the Community to analyze the efficiency and effects of Community regulations when determining their validity under the EC Treaties.[98] While the GATT generally imposes stricter limitations on the use of trade policy instruments as they become less economically efficient, it is not clear that this is based on as rigid a principle of proportionality as is observed in the Community. For example, although Article XI of the GATT outlaws the quota form of protectionism in favor of the less distorting and more transparent tariff form, the GATT provides several exceptions to this requirement.[99] Article XII permits quantitative restrictions in response to a serious balance of payment problem and Article XVIII allow LDC's to impose quantitative restrictions for infant industry reasons. Thus, it appears that the GATT permits inefficiencies which would not be allowed within the Community.
Finally, the Community and the GATT principles of undistorted competition may not be equivalent. While the Community is intended to create a single unified market, the GATT merely attempts to create a multilateral trading system based on the principle of reciprocity.[100] The GATT members do not have to adopt harmonized trade rules but merely must exchange what they view to be equal trade benefits. As noted above, there are several instances in which the GATT allows unilateral and discriminatory trade actions. And one of the largest problems with the GATT today is that there is no competition policy regime.[101] Thus, the GATT members retain a measure of national control which allows them to affect competitive conditions to a greater extent than the Community member states can.
The foregoing arguments are not meant to deny that the GATT has significant effects on individuals. They are merely intended to show that the nature of individual rights in the GATT may differ from that in the EC Treaty. After all, the ECJ has never held that the GATT "is more than an agreement which creates mutual obligations between the contracting states"[102] as it has for the EC Treaty. Thus, one should be careful about assuming that the Community concept of direct effect should automatically be extended to the GATT in order to protect individual rights. Instead, one should engage in a thorough analysis of the actual nature of the obligations contained within the GATT to determine the appropriateness of direct effect.
When considering the nature of the GATT obligations in relation to direct effect, it is important to make explicit the political economy view of international trade from which one is operating. Kuilwijk and the Court's other critics generally work from the classical trade theory view which emphasizes the benefits of unilateral trade liberalization.[103] Under this view, unilaterally granting direct effect to the GATT may indeed be beneficial and necessary because it would produce welfare benefits for individuals in the Community and help protect the individual rights of both Community consumers and traders.
The GATT, however, ultimately is an agreement regulating the rights and obligations of its members not individuals. The preamble to the GATT states that the members, as sovereign states, recognize "that their relations in the field of trade and economic endeavor should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, developing the full use of the resources of the world and expanding the production and exchange of goods." These are goals which can only be achieved and evaluated on a macroeconomic basis with respect to the members themselves and not on a microeconomic basis with respect to individuals.
The concluding remarks contained in the second GATT panel decision concerning the Community banana regime are revealing. The panel stated that it "wishes to point out, however, that the Contracting Parties have at their disposal other procedures under the General Agreement...that are designed to allow Contracting Parties to take into account, in the view of the Panel, economic and social considerations. The adoption of this report would not prevent the Contracting Parties from taking action under any of these Articles." Thus, the panel made its ruling on the GATT validity of the Community's regime without regard to the economic and social consequences on individuals.
This emphasis on the GATT members as opposed to individuals is inherent in several of the GATT's founding principles. For example, non-discrimination within the GATT means non-discrimination between members and not non-discrimination between individual traders in different members. In fact, it would be impossible to ensure that discrimination did not occur between individual traders across GATT members because natural differences in the factor endowments and technology of the different members automatically produce differences in the competitive positions of these traders. Without these differences in factor endowments and technology, international trade would not produce economic welfare gains at all.
The Uruguay Round of GATT negotiations confirmed that reciprocal and multilateral negotiations between sovereign members form the basis for all GATT agreements. This emphasis on reciprocity in the GATT has been severely criticized for the negative effects it may have on trade liberalization efforts.[104] One should realize, however, that the GATT does attempt to mitigate these effects with the MFN principle. That is, the combination of reciprocity and MFN provides an incentive for the exporters in any given member to lobby their government for further tariff reductions on imports. The exporters have an incentive to do this because they know that any reductions in their domestic import tariffs will be matched on a reciprocal basis by not just some, but all, the other GATT members. Thus, exporters are harnessed as a trade liberalizing lobbying force to counteract the protectionist lobbying of domestic import-competing firms.[105]
The reciprocal method of negotiation is used, even though non-reciprocal trade liberalization is in the self-interest of each member, because individual members may not be willing to liberalize trade on a non-reciprocal basis.[106] That is, it may be necessary for each member to provide some tangible benefit to the others in order for each member to accept the entire package of trade liberalization measures. The reciprocity principle helps ensure that these beneficial trades actually do occur by requiring each member to grant a trade concession in order to attain a concession. Given this design, direct effect might actually inhibit further worldwide trade liberalization by allowing an individual to require its member state to unilaterally liberalize its trade measures without forcing other GATT members to do the same. That is, direct effect may result in concessions which do not have to be matched by the other GATT members.
In fact, granting direct effect to the GATT may even allow individuals within a GATT member to directly harm others. The welfare gains which result from free trade occur on an aggregate level for a GATT member as a whole. However, distributive effects occur on an individual level due to labor dislocations resulting from free trade.[107] While it is theoretically possible to offset these effects with a portion of the overall welfare benefits resulting from a shift to free trade, this is a political decision. Since there is no guarantee that this decision will actually be made, it is possible that direct effect would allow individuals to use courts to force their government to adopt trade policies which harm other individuals without a consideration of the domestic distributive effects.[108]
Given these considerations, it is clear that one should be cautious about automatically assuming that the GATT is an agreement which should be viewed as a source of individual rights. Much of the language and structure of the agreement is designed with the intent of regulating trade relations between sovereign members which retain the freedom to control their domestic economies. Therefore, it may be appropriate for the Court to refuse to grant legal effect to the GATT unless the Community institutions have expressly declared a desire for such effect and/or until the Community's GATT obligations have been determined by the WTO. In the end, the Court has left the question of enforceability of the GATT to the institutions capable of dealing with their distributive effects and reconciling individual rights with the public interest. It is far from obvious that this a rejection of sound economics or principles of justice.
[92] See, e.g., Petersmann (1993), supra note 11, and, Petersmann (1991), supra note 11.
[93] As with his motive analysis, Kuilwijk argues that this occurs because the Court does not wish to inhibit the Community institutions' ability to conduct a protectionist foreign trade policy. Kuilwijk, supra note 2, at 257.
[94] Kuilwijk, supra note 2, at 258.
[95] See, e.g., Tumlir, supra note 11.
[96] See, e.g., Case C-177/90, Ralf-Herbert Kühn v. Landwirtschaftskammer Weser-Ems, 1992 I E.C.R. 35. The Court has stated that discrimination results from either "treating differently situations which are identical, or treating in the same way situations which are different." Case 8/82, Hans-Otto Wagner v. Bundesanstalt für landwirtschaftliche Marktordnung, 1983 E.C.R. 371, at 387.
[97] Not only do these regimes permit discretionary treatment, but they also cannot be justified on efficiency grounds. For example, the GATT allows the imposition of anti-dumping duties on imported products merely upon a showing of price discrimination. If anti-dumping duties were designed strictly on economic efficiency grounds, they would only be allowed upon a showing that imports were being priced at less than their average variable cost of production because this would indicate that foreign exporters were engaged in predation. The strongest rationale for the current anti-dumping duty regime is that it serves as a safety valve to vent protectionist pressures. Trebilcock and Howse, supra note 42, at 115-119. If the GATT contracting parties really want to deal with predation, then they should negotiate competition rules within the GATT. Michael Leidy, Antidumping: Solution or Problem in the 1990's, chapter 3 in IMF, INTERNATIONAL TRADE POLICIES: THE URUGUAY ROUND AND BEYOND (1994).
Likewise, a country imposing countervailing duties is not required to prove that a foreign government's subsidies cost more than the benefits they ultimately produce. Instead, duties may be imposed merely on a showing that the subsidized imports have caused material injury to similar situated domestic producers in the importing country. Thus, countervailing duties serve as an inefficient means of dealing with the distributive effects caused by liberalized trade. Trebilcock and Howse, supra note 42, at 152-153. Instead of countervailing duties, direct transfer programs such as labor adjustment assistance payments would be a more efficient means of dealing with these distributive effects.
[98] See, e.g., Case 114/76, Bela-Mühle Josef Bergmann v. Grows-Farm, 1977 E.C.R. 1211. The Court has used this principle to determine "in the first place, whether the means [a Community law] employs to achieve its aim correspond to the importance of the aim and, in the second place, whether they are necessary for its achievement." Case 66/82, Fromancais v. Fonds d'orientation et de regularisation des marches agricoles (FORMA), 1983 E.C.R. 395, at 404.
[99] It should be noted that the Article XI prohibition against quotas was historically incapable of preventing the rise of negotiated bilateral agreements such as VER's and OMA's which effectively imposed quota systems. Although these measures have been disciplined under the Uruguay Round Agreement on Safeguards, the settlement of the U.S.-Japan dispute over cars and car pars under the DSU by means of a bilateral agreement shows that negotiated solutions which result in quota-like regimes may still occur under the GATT.
[100] Kuilwijk claims that the Community is intended "directly or indirectly, at the creation of a level playing field." Kuilwijk, supra note 2, at 231. As anyone familiar with trade theory will recognize, this is a very problematic statement because a truly level playing field in the sense of equal conditions across all countries, results in a situation where trade is no longer beneficial to any country. Thus, it is not clear what to make of Kuilwijk's claim.
[101] See, Trebilcock and Howse, supra note 42, at 122-124.
[102] Case 26/62, Algemene Transport- en Expeditie Onderneming van Gend & Loos v. Nederlandse administratie der belastingen, 1963 E.C.R. 1, at 12.
[103] See, Trebilcock and Howse, supra note 42, at 1-6, for a concise yet thorough explanation of this theory.
[104] Kuilwijk states that reciprocal trade negotiations are a "costly farce" designed to "win domestic political support from important export industries." He concludes that "reciprocity never may be viewed as an exchange of economic gains, because this would suggest that liberalization entails economic costs" and that reciprocity is only an "exchange of domestic political support among governments." Kuilwijk, supra note 2, at 128-129.
Kuilwijk's "costly farce" characterization depends, however, on the assumption that the GATT members would actually unilaterally liberalize their trade policy. As the history of international trade suggests, this is not necessarily guaranteed. Because countries have historically acted in a self-interested and protectionist manner, the reciprocity requirement provides built in pressures for multilateral trade liberalization. Thus, reciprocity may serve a useful economic purpose by helping the GATT achieve further trade liberalization.
[105] Cf., Hauser, supra note 81, at 3-4, for an argument that importers are inherently better organized than exporters as a lobbying force because a government cannot secure the benefits which exporters desire, access to foreign markets, without the help of other foreign governments.
[106] In general, unilateral trade liberalization will produce welfare gains for the liberalizing country. Although there are two cases where unilateral trade liberalization is economically inefficient, the optimal tariff and infant industry arguments, these cases require the assumption of a large country with significant market power and are therefore probably unrealistic. Thus, they should not be used to claim that national interests should prevail over individual rights within trade policy.
There is a case where limited protectionism can lead to worldwide, not just national, welfare gains. This may occur when external scale production economies are present in a national economy which would allow a national producer to become the most efficient worldwide producer but which cannot be realized currently due to the fact that the producer's initial production level is inefficient compared to the current world production. In this case, limited protection may allow the national producer to achieve the economies of scale necessary to compete in the world market. Once the producer reaches the competitive scale, it will supply the world market at a price which is lower than the current world price. Thus, the world achieves a welfare gain.
This argument depends, however, on two limiting assumptions. First, the protected domestic market must be large enough for the producer to achieve the scale needed to compete on the world market. Otherwise, once protectionism is lifted, the producer will not be able to expand to achieve the scale of the most efficient worldwide producer. Second, protectionism must be limited in time and extent to the minimum necessary to allow the producer to achieve the required scale of production. Deciding when and how to end protectionism is much easier in theory than practice. Thus, once again this should not be used to argue that national interest are superior to individual rights.
[107] That is, workers trapped in import competing industries will be hurt by free trade because they cannot shift to the sectors which enjoy additional export opportunities. These trapped workers will suffer a decrease in their real wage and a decline in their standard of living.
[108] See, Trebilcock and Howse, supra note 42, at 178-183, for a discussion of possible labor adjustment policies and wealth transfer schemes designed to compensate those who lose under free trade.
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