Phoenix X.f. Cai, Making Wto Remedies Work for Developing Nations: the Need for Class Actions

• Citation: Vol. 25 No. 1
• Publication year: 2010

MAKING WTO REMEDIES WORK FOR DEVELOPING NATIONS: THE NEED FOR CLASS ACTIONS

Phoenix X.F. Cai*

INTRODUCTION 153

1. THE PROPOSAL IN A NUTSHELL 157

   1. The Need to Encourage Developing Nations to Participate More in Dispute Settlement 158

   2. A Note on Scope 159

2. BRIEF OVERVIEW OF THE WTO DISPUTE SETTLEMENT AND THE

   CHALLENGES DEVELOPING NATIONS FACE 159

   1. Consultations 160

   2. The Panel Process 163

   3. The Appeal 166

   4. Implementation and Enforcement Mechanism 167

3. EXISTING WTO REMEDIES 169

   1. Cessation 169

   2. Compensation 171

   3. Suspension of Concessions or Retaliation 173

4. NEW PROPOSAL: CLASS ACTION LAWSUITS 176

   1. The Strategy Is Supported by WTO Text 177

   2. The Strategy in Action 179

5. CRITERIA FOR EVALUATING PROPOSED CLASS ACTION STRATEGY .. 181

   1. Practicability 181

      1. Benefits 181

      2. Practical Challenges of the Proposal 184

         1. Burdens on the Lead Complainant 184

         2. Coordination Challenges 185

         3. Lack of Commonality 187

         4. Lack of Alignment on Outcomes 188

         5. Confidentiality, Privilege, and Other Information- Flow Concerns 188

   2. Systemic Contribution 189

      * Assistant Professor of Law, University of Denver College of Law; J.D., Order of the Coif, University of California at Berkeley College of Law: Boalt Hall (1999); B.A., Washington University in St. Louis (1996). Thanks to Krishma Parsad, Stephanie Wong, and Mary Katherine Zevalkink for their excellent research assistance. Thanks to Diane Burkhardt for her invaluable assistance. The Author is responsible for any errors.

   3. Impact on Negotiations 190

   4. Governmental Coordination Difficulties 191

   5. Legal Obstacles 192

   6. Public-Private Interaction 193

CONCLUSION 195

INTRODUCTION

Imagine that the chief executive officer of a large company has been convicted, after a fair trial, of embezzling millions of dollars. Imagine further that the criminal law regime where this takes place provides very limited remedies. The embezzler must return all the money that she has embezzled, but only up to any amount she actually has on hand, in cash. She may also refuse to pay, at her option. She does not get fired or even temporarily suspended from her job as CEO. Further, after conviction, she serves no prison sentence. She pays fines neither to her company nor to the shareholders whose trust she has betrayed. She pays no damages, punitive or otherwise. Her company may not garnish her wages to pay back the amount embezzled. The only remedy available is limited restitution of any cash left in hand.

This hypothetical is actually not that different from how remedies work in the World Trade Organization (“WTO”).1 At the heart of the WTO lies a set of rules and negotiated trade terms, such as tariffs, designed to promote trade liberalization or the removal of barriers to free trade. When a WTO member

nation violates a rule or trade term, the affected nation or nations may bring a complaint under the dispute settlement procedures of the WTO.2 When nations win cases at the WTO, the preferred remedy is that the losing nation withdraws the offending measure or rule.3 This action is akin to stopping the embezzlement going forward. The remedy is purely prospective. If withdrawal occurs, the suit ends. If withdrawal does not occur, then the parties negotiate for compensation—but only if the offender agrees to pay. Fines or punitive

damages are off the table. The remedy of last resort is the imposition of tariffs and import restrictions on the losing nation.4 However, this remedy is not helpful for developing nations that do not possess sufficient economic power to meaningfully use the remedy.5 For some WTO nations, the only real remedy is prospective withdrawal. It is as unsatisfactory of a remedy as that of limited restitution in the embezzling example.

1. Obviously, the WTO is not a criminal system and the embezzlement analogy is not a perfect one. However, it is worth making to highlight the limited nature of remedies. Regardless of one’s views on the object and purpose of remedies, one is unlikely to find the limited remedy of restitution satisfactory.

2. WORLD TRADE ORGANIZATION, A HANDBOOK ON THE WTO DISPUTE SETTLEMENT SYSTEM 3 (2004)

   [hereinafter WTO HANDBOOK].

3. Chi Carmody, Remedies and Conformity Under the WTO Agreement, 5 J. INT’L ECON. L. 307, 315 (2002).

4. Kym Anderson, Peculiarities of Retaliation in WTO Dispute Settlement System, 1 WORLD TRADE REV. 123, 126–27 (2002).

5. See infra Part III.C.

   Of the 153 nations that are members of the WTO, more than two-thirds are developing nations.6 Yet, despite their strength in numbers, developing nations as a group rarely participate in dispute settlement, a core aspect of the WTO.7 This is problematic because the WTO is essentially a self-enforcing system of reciprocal trade rights that relies on proactive monitoring by all members.8 Use of the self-enforcement mechanism—initiating cases under the Dispute Settlement Understanding (“DSU”)9—is critical. No WTO police or prosecutor

   
   

6. Understanding the WTO: Developing Countries—Overview, WORLD TRADE ORG., http://www.wto. org/english/thewto_e/whatis_e/tif_e/dev1_e.htm (last visited Mar. 12, 2011).

7. See The Sub-Committee on Least-Developed Countries, WORLD TRADE ORG., http://www.wto.org/

   english/tratop_e/devel_e/dev_sub_committee_ldc_e.htm (last visited Mar. 4, 2011) (explaining that the WTO recognizes as least-developed countries (“LDCs”) those countries that have been designated as such by the United Nations (“UN”); that there are at present fifty LDCs on the UN list; and that, with the accession of Cape Verde as a member on August 18, 2010, thirty-three of those LDCs are members of the WTO); see also

   U.N. Statistics Div., Standard Country and Area Codes Classifications (M49) (Feb. 17, 2011), http://unstats.un.org/unsd/methods/m49/m49regin.htm (“There is no established convention for the designation of ‘developed’ and ‘developing’ countries or areas in the UN system. In common practice, Japan in Asia, Canada and the United States in North America, Australia and New Zealand in Oceania, and Europe are considered ‘developed’ regions or areas. In international trade statistics, the Southern African Customs Union is also treated as developed region and Israel as a developed country; countries emerging from the former Yugoslavia are treated as developing countries; and countries of eastern Europe and [the former USSR countries] in Europe are not included under either developed or developing regions.”). But see U.N. Statistics Div., Millennium Development Goals Indicators: Goal 8. Develop a Global Partnership for Development: Net ODA as Percentage of OECD/DAC Donors GNI, http://unstats.un.org/unsd/mdg/Metadata.aspx?IndicatorID= 0&SeriesId=568 (last visited Apr. 1, 2011) (explaining that the UN, however, does have a system to designate a list of those countries considered to be LDCs, whereby on the recommendation of the Committee for Development Policy, the General Assembly decides on the countries to be included on the LDC list). In Africa, the UN-designated LDCs are: Angola, Benin, Burkina Faso, Burundi, Cape Verde, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Togo, Uganda, United Republic of Tanzania, and Zambia. Id. In Asia and the Pacific, they are: Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao People’s Democratic Republic, Maldives, Myanmar, Nepal, Samoa, Solomon Islands, Tuvalu, Vanuatu, and Yemen. Id. In Latin America and the Caribbean, Haiti is a UN-designated LDC. Id. While there are numerous significant differences among countries falling into these groups, in this Article, the Author refers generally to “developing nations” to include all the LDCs and all the developing economies, without necessarily differentiating between them. This is not to say the differences between them are not important—they certainly are. Instead, this reference reflects the fact that they share certain common concerns, particularly with respect to trade, such that they may be treated as one group for the purpose of this Article. Thus, the term “developing nations” is used merely as a convenient shorthand.

8. WTO HANDBOOK, supra note 2, at 7 (“WTO Members have agreed to use the multilateral system for

   settling their WTO trade disputes rather than resorting to unilateral action . . . . That means abiding by the agreed procedures and respecting the rulings once they are issued—and not taking the law into their own hands.”).

9. Understanding on Rules and Procedures Governing the Settlement of Disputes, Apr. 15, 1994,

   Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401 [hereinafter DSU]; see also Ernst-Ulrich Petersmann, The Dispute Settlement System of the World Trade Organization and

   seeks out and punishes those who violated WTO rules. Rather, each WTO member has to police its interests.

   
   

   When developing nations fail to initiate cases, the result is both under- enforcement of key WTO norms and skewed enforcement in favor of developed nations. First, under-enforcement occurs because the WTO is a self- policing system. When a developing nation forgoes participation in this system, it forgoes not only the opportunity to right a wrong that it suffered, but

   also the opportunity to set precedent10 for other developing nations. Therefore,

   the costs of under-enforcement are both individual (lack of redress for specific wrong) and systemic (lack of precedent-setting). Second, skewed enforcement occurs because issues of particular interests to developing nations—such as safeguards and market access for agricultural goods—are underrepresented. As a result, the WTO effectively affords less robust protection to developing nations than their developed counterparts.

   
   

   Numerous scholars have attempted to explain why developing nations do not actively invoke the DSU and the literature on this topic is quite extensive.11

   
   

   the Evolution of the GATT Dispute Settlement System Since 1948, 31...