Introduction
The GATS (General Agreement on Trade in Services), like other WTO agreements, reflects a delicate balance of its signatories' conflicting interests. In certain cases, this balance of interests is obtained by vague language, meant to avoid tough decisions that could have prevented the adherence of certain countries to the agreement. Consequently, the effective balance of interests in such cases is finally made, in certain cases, by the WTO adjudicating bodies.
Two such crossroads of conflicting interests are:
• the interests of developing countries versus those of developed countries;
• domestic sovereignty versus international trade liberalization, as provided for by the GATS.
Both these crossroads were visited by two recent GATS cases (which also refer to GATT): US–Gambling Footnote 1 and China–Publications and AV Products.Footnote 2 A comparison of the two cases raises two interesting questions:
• Are developing countries, the difficulties of which are explicitly recognized by the GATS, enjoying the same level of legal assistance by the WTO adjudicating bodies whether they are in the position of complainants or defendants? This question will be addressed in the first section.
• To what extent is domestic sovereignty really respected by the WTO adjudicating bodies, once in collision with trade liberalization? This question will be addressed in the second section.
The third section concludes.
1. Legal assistance
1.1 Cases involving developing countries
The two recent GATS/GATT cases: US–Gambling Footnote 3 and China–Audiovisual Services Footnote 4 involved developed and developing countries.
The US–Gambling case was based on a complaint by Antigua and Barbuda (developing countries, addressed by the WTO adjudicating body decisions and hereinafter referred to as ‘Antigua’) regarding measures applied by central, regional, and local authorities in the US (a developed country), which affected the cross-border supply of gambling and betting services. Antigua considered that the cumulative impact of the United States' measures was the prevention of gambling and betting services' supply from other WTO Members to the US, on a cross-border basis, in violation of its obligations according to certain GATS provisions and to its relevant specific commitments.
The US was found to violate market access commitments (Article XVI:1, 2 of the GATS) by the Panel and Appellate Body.
The China – Audiovisual Services case was based on a complaint by the US (a developed country) against China (a developing country). The complaint referred to certain measures that reserved trading rights with respect to imported films for theatrical release, audiovisual home entertainment products (e.g. video cassettes and DVDs), sound recordings, and publications (e.g. books, magazines, newspapers and electronic publications) to certain Chinese enterprises, and measures which restricted market access for, or discriminated against, foreign suppliers of distribution services for publications and foreign suppliers of audiovisual services (including distribution services) for audiovisual home entertainment products. China was found by the Panel and Appellate Body to violate certain provisions of the GATT, the GATS, its Accession Protocol, and its Accession Working Party Report.Footnote 5
1.2 Legal assistance to developing countries: GATS provisions
In principle, the GATS does not exempt developing countries a-priori from any general obligation in the agreement, but rather views them as active participants in the international liberalization framework. They cannot enjoy liberalization as ‘free riders’.
The special difficulties and interests of developing and least developed countries are nevertheless explicitly recognized in GATS Preamble, as well as by certain GATS provisions, which turn this recognition in principle into detailed instructions, e.g. Articles IV, V:3, XII:1, XIX:2, 3, XXV of the GATS. Article IV specifies some ways to promote the interests of developing and least developed countries, including the strengthening of their domestic services capacity and its efficiency and competitiveness, inter alia through access to technology on a commercial basis; the improvement of their access to distribution channels and information networks; the liberalization of market access in sectors and modes of supply of export of interest to them; the establishment of national contact points where information concerning the destination market will be available for these countries.
These provisions further offer developing countries a combination of time delays and technical assistance that should encourage them to engage in the global services trade liberalization process, while supported by the developed Members as well as by the WTO Secretariat. Such technical assistance may facilitate the scheduling of specific commitments process, help these countries to improve domestic standards, implement the agreement, strengthen regulatory agencies etc.Footnote 6 In any case, the GATS does not explicitly provide for different treatment to developing countries by the WTO adjudicating bodies.
1.3 Legal assistance to developing members by the adjudicating bodies
In US–Gambling, the case put forward by the complainants, developing countries, was not complete in terms of legal argumentation. Nevertheless, it was not rejected on its face, on these grounds, by the WTO adjudicating bodies. On the contrary, the WTO adjudicating bodies, in particular the Panel, practically did a substantial part of the legal argumentation for Antigua. This approach resulted in a decision against United States' restrictive practices on imported gambling and betting services.
Thus, for example, Antigua did not specify the measures subject to the complaint. Antigua mentioned a long list of measures, arguing that they constitute a ‘total prohibition’ on cross-border supply of gambling and betting services, which was inconsistent with the United States' obligations according to the agreement.Footnote 7 The Panel was ready to reject the United States' claim that a ‘total prohibition’ is not a measure subject to a dispute, and accept this expression as a ‘description of an alleged effect’ of the measures at stake.Footnote 8 However, the Panel encountered a difficulty: Article 6.2 DSU requires that ‘measures’ be specifically identified, while ‘Antigua has listed 93 laws in its Panel request. Moreover, during the course of proceedings Antigua itself raised the question as to which of these laws and which provisions of these laws, if any, should be examined as part of the alleged “total prohibition”’.Footnote 9 The Panel explained the importance of precise identification of the measures subject to complaint,Footnote 10 but instead of dismissing the complaint altogether on these grounds, noted that: ‘we consider that we are bound to examine the measures that Antigua identified in its Panel request’.Footnote 11 The Panel thus engaged in a lengthy process of identifying the relevant measures out of the general list submitted by Antigua.Footnote 12 The Panel found that for many measures challenged by Antigua it did not establish a prima facie case.Footnote 13
The Panel thus did not develop all Antiguan legally unestablished claims, confining itself to the minimum findings which sufficed to allow the parties to settle the dispute.Footnote 14 Interpreting the United States' relevant commitments broadly, despite the United States' objection,Footnote 15 the Panel determined that since the US inscribed ‘none’ in the relevant entry in schedule of specific commitments, any restriction imposed on imported services contrary to this obligation formed a violation of Article XVI.Footnote 16
In the appeal, the US claimed that the Panel itself improperly made Antigua's prima facie case of inconsistency with Article XVI of the GATS.Footnote 17 The Appellate Body interpreted the legal obligation of putting forward a prima facie case very narrowly as implying that
‘a panel request:
… must plainly connect the challenged measure(s) with the provision(s) of the covered agreements claimed to have been infringed, so that the respondent party is aware of the basis for the alleged nullification or impairment of the complaining party's benefits’.Footnote 18
Addressing the case before it, the Appellate Body had to admit that Antigua did not fulfill even the requirements of this narrow definition regarding certain measures. On these grounds, the Appellate Body reversed the Panel decision concerning some of United States' measures,Footnote 19 nevertheless upholding the Panel decision concerning the violation by the US of certain obligations under the GATS by other measures.
The Appellate Body refrained from addressing an additional claim by the US, according to which the Panel failed to comply with its obligations under Article 11 DSU ‘not merely because it made an error in finding a prima facie case, but because of “the egregious nature of the departure by this Panel from its assigned role of objective arbitrator”’ [emphasis added]. The Appellate Body justified its position on grounds of judicial economy.Footnote 20
A much more moderate approach by the WTO adjudicating bodies is reflected in China–Audiovisual Services: generally speaking, these bodies abstained from completing the legal argument where China (the defendant, a developing country) was reluctant to do so, noting, in many instances, that China did not elaborate on the relevant subject, or did not rebut a United States’ claim.Footnote 21
The Panel interfered in China's submission, to define the exact measures for which China intended to invoke GATT Article XX defense, but this act of the Panel had a narrowing effect on the scope of application of this exception, thus implying for a potentially broader scope of application for the agreement's provisions enhancing international trade liberalization.Footnote 22
If the same position would have been held in US–Gambling, practically, the case should have been dismissed on its face. One may claim, that the cautious approach of the adjudicating bodies in China–Audiovisual Services is a direct result of the broad criticism that followed the US–Gambling approach, and that as a result of this criticism, the WTO adjudicating bodies will never repeat this practice. This is for the future to tell. Alternatively, it may be suggested that the WTO had an interest to decide the latter case, which was only the fourth GATS dispute settlement case that came before the WTO adjudicating bodies since 1995, despite the fact that the legal argument was improperly developed by the complainants, developing countries. It gave the WTO adjudicating bodies both the opportunity to further interpret the GATS, as well as an opportunity to encourage developing countries to participate in this process. A rejection on its face of Antigua's complaint might have deterred other developing countries, lacking resources and professional knowledge, from approaching the WTO dispute settlement mechanism in the future. This may be the reason why the WTO adjudicating bodies made a substantial effort to support the developing complainants in this case.Footnote 23
Following the same logic, it may be further suggested that neither of these interests of the WTO adjudicating bodies existed in China–Audiovisual Services. On the contrary, the developing country, China, was the defendant, and its position supported the domestic policy interest over the trade liberalization interest, which is preferred by the WTO adjudicating bodies. Therefore, it did not receive the same level of legal assistance. It may be argued, of course, that the different practices of the WTO adjudicating bodies in the two cases compared were affected by other differences between China and Antigua. Nevertheless, the interpretation suggested by this article is a possibility that cannot be ruled out on its face, and will have to be further examined in light of future cases.
2. International trade liberalization versus domestic regulation
2.1 The balance of conflicting interests by the GATS
The GATS, like its older companion, the GATT, is aimed at enhancing international trade liberalization. This aim is obtained by the establishment and enforcement of conditional and unconditional legal obligations. Conditional obligations, such as National Treatment (GATS Article XVI) and Market Access (GATS Article XVII), are subject to specific commitments undertaken by Members. The legal interpretation of these specific commitments is sometimes a source of disputes between the Member which undertook them and other WTO Members who interpret them differently. This was the case both in US–Gambling and in China–Audiovisual Services.
The delicate balance between international trade liberalization and domestic regulation is obtained by some GATS provisions. One major provision is Article XIV, including an exhaustive list of interests, which may prevail over the interest of international trade liberalization, subject to the conditions set forth by this provision. This Article is equivalent to GATT Article XX.Footnote 24 GATS Article VI, a complementary provision, establishes due administrative standards for the implementation of specific commitments.Footnote 25
The implementation of this balancing mechanism in the cases examined in this article may lead to some interesting conclusions.
2.2 Analysis of specific commitments
In both cases examined, the alleged commitments subject to dispute were not explicitly pronounced by the defendants in their schedule of specific commitments. They were rather drawn, by legal interpretation, from specific commitments phrased in general terms.
In US–Gambling, a US commitment to allow the free import of gambling services through the internet was drawn by legal analysis, suggested by the complainants and accepted by the WTO adjudicating bodies, of a general commitment undertaken by the US under ‘recreational, cultural and sporting services’.Footnote 26
Similarly, in China–Audiovisual Services, a Chinese commitment referring generally to ‘sound recording distribution services’ was interpreted to include ‘network music services’, despite China's argument that when this commitment was undertaken, network music services did not exist and therefore there was no Chinese intention to undertake any commitment concerning these services, but only concerning the distribution of sound recordings embedded in physical media.Footnote 27
Despite the careful and detailed analysis made by the WTO adjudicating bodies in both cases, it is clear that the alternative interpretation, suggested by the defendants in both cases, could also be borne by the language of the relevant specific commitments. The choice of the latter interpretative alternative would have implied, in both cases, the dismissal of complaint. In both cases, the WTO adjudicating bodies opted for a legal interpretation that would allow the establishment of a case, finally leading to the prevalence of international trade liberalization norms over the domestically preferred norms of the defendants. This practice has far-reaching implications in terms of the balance between domestic and international trade liberalization interests, because any commitment phrased in general terms could be interpreted, in the future, as including items or aspects that were not anticipated by the phrasing Member, thus retrospectively depriving Members of their sovereign judgment whether to subject certain domestic measures to GATS' disciplines.
2.3 The general exceptions provisions (GATS Article XIV, GATT Article XX)
In both cases, the defendants invoked GATS Article XIV or the equivalent GATT Article XX as a defense for the measures at stake, after the WTO adjudicating bodies, accepting the interpretation of the commitment at stake suggested by the complaining country, decided that the complainants put forward a prima facie case of violation. In US–Gambling, the US was alleged to be violating its market access commitments (Article XVI:1, 2 of the GATS), while in China–Audiovisual Services, China was alleged to be violating, inter alia, China's market access commitments under GATS Article XVI or its national treatment commitments under GATS Article XVII.
In both cases, the WTO adjudicating bodies rejected the attempts of the US and China, respectively, to use GATS Article XIV or the equivalent GATT Article XX,Footnote 28 respectively, to rebut the violation claims. A careful and comparative reading of both cases may reveal some interesting insights as to the balance of interests discussed in this article. In this reading, the following facts should be borne in mind:
1. Both cases involved developed and developing countries. Nevertheless, in US–Gambling, developing countries (Antigua and Barbuda) were the complainants, while a developed country (the US) was the defendant. In China–Audiovisual Services, a developed country (the US) was complaining against a developing country (China).
2. Both cases resulted in the prevalence of the international trade liberalization interest over the domestic interest (public morals) defended by the respondent.
2.3.1 The process of analysis
The WTO jurisprudence referring to GATS Article XIV and to the equivalent GATT Article XX developed an analysis process that is followed whenever these provisions are invoked. These provisions require, inter alia, proof of the measure's necessity in order to achieve the desired domestic policy goal acknowledged by these provisions. Necessity is concluded by a process of ‘weighing and balancing’ of the different optional measures that could have been taken to achieve such a policy goal. The Appellate Body in Brazil–Retreaded Tyres,Footnote 29 referring to GATT Article XX, viewed this test as weighing and balancing three factors: (a) the importance of the common interests or values protected by these measures; (b) the contribution made by the measure under review to the achievement of specified goals; (c) the accompanying (restrictive) impact of the measure on imports or exports.Footnote 30 The same analysis was adopted later for the equivalent GATS Article XIV, as reflected inter alia in the cases examined in this article.
2.3.2 ‘Weighing and balancing’ and results of the cases
Analysis of the ‘weighing and balancing process’ conducted by the WTO adjudicating bodies in the two cases examined supports the argument made by this article. To that extent, it is suggested to carefully distinguish between legal justification and reasoning, and the practical results of the cases examined. It is suggested that the carefully tailored legal reasoning, which on its face recognizes the importance of domestic sovereignty to regulate in both cases, effectively led, in both cases, to a result whereby the interest of international trade liberalization prevailed over the freedom of domestic regulation.
The Panel in US–Gambling explicitly drew a line between the two conflicting interests, reiterating that ‘Members' regulatory sovereignty is an essential pillar of the progressive liberalization of trade in services, but this sovereignty ends whenever rights of other Members under the GATS are impaired’.Footnote 31 Literally, the Panel recognized the importance of the domestic interest claimed to be defended, public morals, by saying:
‘We are well aware that there may be sensitivities associated with the interpretation of the terms ‘public morals’ and ‘public order’ in the context of Article XIV. In the Panel's view, the context of these concepts for Members can vary in time and space, depending upon a range of factors, including prevailing social, cultural, ethical and religious values. Further, the Appellate Body has stated on several occasions that Members, in applying similar societal concepts, have the right to determine the level of protection that they consider appropriate’. Footnote 32 [emphasis added].
Despite this acknowledgment, both the Panel and Appellate Body in this case practically dismissed the United States' defense according to this provision.Footnote 33
These semantics, combined with the fact that both the Panel and Appellate Body in that case avoided ruling directly on the legitimacy of US regulatory objectives, but rather concentrated on the deficiencies of the measures chosen to enhance the achievement of these objectives, led some commentators to conclude that the WTO adjudicating bodies were ‘displaying sensitivity’ to domestic regulatory concerns.Footnote 34
In practice, however, despite the fact that there was logic in the United States' position that ‘the remote supply of gambling poses threats related to organized crime, money laundering, fraud and other criminal activities; risks to children given the availability of remote supplied gambling and betting services to children; and particular health risks’,Footnote 35 the interest of trade liberalization finally prevailed. The Panel, analyzing the three elements determined by former Appellate Body jurisprudence: the importance of the interests or values that the domestic legislation at stake is intended to protect, the extent to which they contribute to the realization of this end and the respective trade impacts of the measures involved, determined, inter alia, that the same risks exist in the context of non-remote supply, and the US did not prohibit this manner of supply.Footnote 36
The Panel further established that the nature of the measure, a total prohibition of imports, has a significant restrictive trade impact,Footnote 37 that no evidence for organized crime were presented,Footnote 38 and that the US did not exhaust the process of considering available alternatives.Footnote 39 The activist approach of the Panel is also revealed in the overall conclusion concerning the Article XIV claim, which opens with the words ‘in light of the particular circumstances of this case’ and continues with an admission by the Panel that ‘[w]hile this conclusion [the inability of the US to justify its legislation according to Article XIV(a) and (c) – N.M.] did not require us to proceed further to an examination of the consistency of these measures with the requirements of the chapeau of Article XIV, we nonetheless did so to assist the parties in resolving the underlying dispute in this case’.Footnote 40 This approach of the Panel was appealed by Antigua but justified by the Appellate Body.Footnote 41
Even if this active approach of the WTO adjudicating bodies concerning Article XIV defense could have been acceptable in a case of the violation of a clear-cut commitment by the defendant, in this case it should be borne in mind that it refers to a commitment which emanates from an optional legal interpretation to vague wording, preferred by the WTO adjudicating bodies, since it supports international trade liberalization. This fact illuminates the active interference of WTO adjudicative bodies in domestic sovereignty decisions through the weighing-and-balancing phase of Article XIV analysis in a different, more extreme, light.
The same approach seems to have been underlying both the Panel and Appellate Body decisions in China–Audiovisual Services. In that case, Chinese measures were challenged under the GATS as well as under the GATT. China invoked the domestic interests' defense only in the GATT context, referring to Article XX(a) (public morals), which is equivalent to GATS Article XIV(a).Footnote 42 In terms of declaration, the Panel repeated time and again its recognition that ‘the protection of public morals is a highly important value or interest’, citing the US–Gambling declaration concerning Article XIV(a).Footnote 43 The Panel further added: ‘[w]e do not consider it simply accident that the exception relating to ‘public morals' is the first exception identified in the ten sub-paragraphs of Article XX’.Footnote 44 However, effectively, the Chinese defense according to this provision was rejected both by the PanelFootnote 45 and by the Appellate Body.Footnote 46 The reasons for this dismissal varied according to the measure at stake, from measures which were viewed as not contributing to the protection of public morals at all, to measures which, although recognized by the adjudicating bodies as affecting the protection of public morals, were viewed by them as having less restrictive alternatives. This latter argument will be examined below.
2.3.2.1 Analysis of available alternatives
In US–Gambling, Antigua claimed that the United States' failure to respond to its invitation, to engage in international cooperation and consultations as to how to deal with the concerns which formed the subject of that case, was inconsistent with its obligations according to the GATS. The US responded that nothing in the GATS required such action. The Panel, in an activist interpretation, connected Antigua's claim to the general good faith obligation emanating from the Vienna Convention on the Law of Treaties, 1969, holding that the US violated that obligation by not exhausting the consultation process with Antigua, thus ignoring the necessity to examine available alternatives according to the agreement.Footnote 47
Consequently, since it was determined that there was a reasonably available alternative to the United States' practice, its defense claim according to GATS Article XIV was rejected by the Panel.
This far-reaching finding was reversed by the Appellate Body, considering that such consultations could not qualify as a reasonably available alternative measure with which a challenged measure should be compared.Footnote 48 Nevertheless, the Article XIV defense invoked by the US was rejected by the Appellate Body on grounds of discrimination in application of the measures at stake between domestic and foreign services and service suppliers, contrary to the requirements of the chapeau of Article XIV.Footnote 49
In China–Audiovisual Services, some of the measures examined provided for a ‘content review’ of imported cultural goods as a pre-condition for their import. This review, which was claimed to be a trade-restrictive process, accordingly defended by China on public morals grounds (GATT Article XX(a)), was conducted by a state-owned entity. To rebut the Article XX(a) defense, the US suggested, inter alia, that a reasonably available alternative could have been the conduct of this review by the Chinese government. The Panel considered this proposal to be a significantly less restrictive alternative (at least in terms of its effect on importers),Footnote 50 which would make a contribution to the protection of public morals in China, that is at least equivalent to the contribution made by the measure at issue. The Panel then examined whether the proposed alternative is reasonably available to China. In both instances, China argued that this alternative should not be considered as ‘reasonably available’, because it is merely theoretical in nature and would impose an undue and excessive burden on China. Both instances seemed to recognize the problematic implications of this alternative for the Chinese government, but nevertheless were ready to accept it as a reasonably available alternative.Footnote 51 This is reflected in the Appellate Body decision, saying, inter alia:
In our view, the Panel did not ignore the fact that the proposal put forward by the United States would require changes to the current system, and that these could entail additional costs for China. To the contrary, the Panel noted China's argument that implementing the United States' proposal ‘would impose an undue burden’, create the risk of ‘undue delays’, and demand ‘substantial resources’ given the large quantities of imports involved and the time-sensitive nature of newspapers and periodicals. The Panel expressly recognized that the alternative might require China to allocate additional human and financial resources to content review authorities, in particular for content review of reading materials. This recognition was, however, tempered by additional observations that the Panel considered pertinent. Thus, the Panel observed that, for products other than reading materials (electronic publications, audiovisual products and films for theatrical release), the Chinese Government already makes the final content review decision under its current system. In addition, the Panel was not convinced that the cost to the Chinese Government would necessarily be higher under the alternative proposed by the United States. Given that, at present, all import entities are wholly owned by the State, it was ‘not apparent’ to the Panel that the cost to the Chinese Government of having non-incorporated offices of the Government of China conduct content review would necessarily be higher than the cost of having incorporated State-owned enterprises conduct such review. The Panel observed that, in any event, China had not provided any data or estimate that would suggest that the cost to the Chinese Government would be unreasonably high or even prohibitive, and that Article 44 of the Publication Regulation already authorizes the Government to charge fees for providing a content review service, which could lessen any financial burden associated with the proposed alternative measure’.Footnote 52 [emphasis added]
It was further stressed that China was not obliged, of course, to adopt this alternative, and was free to choose any other, WTO-consistent or less-inconsistent alternative.Footnote 53
In US–Gambling, the Panel's activist approach concerning the alternatives focused on the mutual nature of international trade relations, and could, in a way, be understood as a reproach to the US for ignoring a request for consultations from a (developing) Member. The alternative approach of the Appellate Body in that case, which concentrated on the application of the measures at stake only to imported services, thus allowing the supply of like domestic services, allegedly presents a more balanced approach. Indeed, this is a strong argumentation assuming that the US willingly and consciously undertook a national treatment or market access commitment. But this picture may change if one recognizes that this fact was denied by the US, and the alleged obligation was rather imposed on it by legal interpretation.
To some extent,Footnote 54 this jurisprudence resembles the GATT case Brazil–Retreaded Tyres, where Brazil tried to justify measures meant to prevent the import of retreaded tyres to Brazil, but which did not apply to domestic production. Brazil tried to defend this practice by invoking GATT Article XX(b) or (d), contending that these tyres formed an environmental nuisance, and, while it encouraged domestic production of retreaded tyres to get rid of this nuisance, it prevented the import of such tyres both to encourage the consumption of domestic products and to avoid the import of this source of nuisance from other countries. This defense was rejected by both instances,Footnote 55 but, in fact, must be seen as a substantial interference in domestic affairs, like that reflected by US–Gambling, particularly in light of WTO adjudicating bodies' explicit recognitionFootnote 56 of the importance of this practice to domestic interest.
The disregard of the substantial financial burden which may be imposed by the ‘alternative’ offered in China–Audiovisual Services recalls the position of the WTO adjudicating bodies in the GATT case Korea–Beef,Footnote 57 where an attempt by Korea to justify a practice of confining sales of imported beef to specialized stores (dual retail system), limiting the manner of its display, and otherwise constraining the opportunities for the sale of imported beef as ‘necessary to secure compliance with laws or regulations which are not inconsistent’ with the GATT according to GATT Article XX(d), was rejected by the WTO adjudicating bodies. Although the Appellate Body accepted the Korean argument that the challenged system contributed to the enforcement of anti-fraudulent regulation, it agreed with the Panel that a more WTO-consistent, namely a less discriminating practice, could have achieved the same result. Both adjudicating bodies rejected Korea's claim that it lacks the necessary resources to apply such alternative enforcement measures.Footnote 58
This analysis shows that viewing the two recent GATS decisions as reflecting a shift in the approach of WTO tribunals, opting for an approach which is more ‘sensitive’ to domestic regulation needs than in Korea–Beef and Brazil–Retreaded Tyres, as a result of the criticism that followed these latter decisions, seems to be misleading.
2.3.2.2 Practical implications
Judging the real importance of a domestic interest in the eyes of the WTO tribunals, weighed and balanced against the free trade interest, according to the dispute's result, both US–Gambling and China–Audiovisual Services assimilate the former GATT cases mentioned. In all cases, the WTO adjudicating bodies seem to have chosen a legal interpretation that led to a certain result, although a different legal interpretation, leading to a result more supportive of domestic policy choices made by the defendants, was feasible. These decisions practically implied far-reaching intervention in a domestic policy decision/practice of the respondent Members. The practical implication of this position in US–Gambling was the intervention of the WTO in the application of domestic measures that were seen appropriate by the US government, restricting the import of gambling and betting services into the US, although that government denied that it undertook any relevant commitment under the GATS, that could affect these measures. In China–Audiovisual Services, the practical result of the WTO adjudicating bodies' decision was the prevention of the Chinese government from effectively censuring imported ‘cultural goods’ by an entity wholly owned by the government, again – by interpretation of a vague commitment to create a legal obligation denied by the Chinese government, ignoring the Chinese government's claim as to lack of resources to apply the alternative suggested by the adjudicating bodies. In both cases, the WTO adjudicating bodies' decisions effectively provided for modification of the domestic practice of public morals' protection.
In both cases, the adjudicating bodies literally did not doubt the importance of the domestic policy objective presented by the respondent Member (and indeed, both policy objectives were important and strongly established).
Furthermore, it could be argued that in both cases the WTO adjudicating bodies' interference referred to the measure by which the domestic policy goal was achieved, thus not questioning the governments' basic right to achieve this desired goal. But one should first ask: did the defendant government have an intention to undertake the relevant commitment attributed to it by legal analysis? And if not: is it legitimate to attribute commitments to Members through active legal analysis? Furthermore, even assuming that a certain commitment was undertaken, the delicate balance between conflicting political economy interests in each Member may prevent the achievement of a domestic policy goal by alternative measures. It may be assumed that governments are more aware of these delicate domestic political sensitivities, and are thus more capable of choosing the most effective domestic measures to achieve the desired goal than the WTO adjudicating bodies might be. It seems that this consideration has not been given due weight by the WTO adjudicating bodies.
It should thus be further asked: did the governments involved practically have an alternative, as assumed by the adjudicating bodies, or rather did the adjudicating bodies' decisions only suggest theoretical alternatives, and by insisting that they are feasible in fact deprived the defendants of a practical solution?
In the GATT context it was assessed that the ‘weighing and balancing’ exercise, taken by the WTO adjudicating bodies as part of the interpretation process of this provision, depends on the relative weight of the interests involved. Interests, such as human life, are to prevail over other interests, thus potentially raising a higher degree of judicial deference and self-constraint,Footnote 59 while economic and environmental considerations are treated with less judicial self-constraint.
On these grounds, these decisions, particularly the Korea–Beef Footnote 60 decision, were criticizedFootnote 61 by commentators. It was felt that the WTO adjudicating bodies tend to prefer the international trade interest over the domestic interest, thus considerably interfering in the domestic balance of interests of the Members involved.
It is suggested, that the two recent GATS cases do not present, in practice, a different picture.
Conclusion
If this analysis of the two cases is correct, it implies for two insights: first, while the GATT and the GATS explicitly recognize the special status of developing countries, these countries may not always expect the same understanding approach from the WTO adjudicating bodies. Second, while the GATT and the GATS explicitly recognize the importance of domestic policy goals, as well as domestic sovereign right to regulate in order to promote the enhancement of these legitimate policy goals, in many cases the WTO adjudicating bodies seem to prefer the interest of international trade liberalization over these interests – although extra efforts are made to disguise this motive behind ‘politically correct’ reasoning.
These insights contain some good news. First, developing Members which find themselves in the complainant's position may expect intensive legal assistance of the WTO adjudicating bodies. This may be particularly encouraging for developing countries, because, despite their possible lack of professional and financial resources to engage in a long and costly dispute settlement process, this approach may imply a more available and effective process for them. Moreover, this fact may have a deterring effect on their trade partners, and the punishment finally applied is a result of the collective decision of all Members, which would make it potentially more effective.
As to the balance between domestic regulation and international trade liberalization, these two cases do not seem to offer a different conclusion than that reached by former GATT cases. It seems that the heavy criticism of GATT jurisprudence might have changed the reasoning of the WTO adjudicating bodies, making it softer, but not their substantive position. The good news is, thus, that at least these cases reflect consistency of WTO jurisprudence, which is important to enhance stability and predictability of the system, contributing to its reliability in the eyes of its Members.
But there is some bad news as well. If the insights presented in this article are correct, they may have far-reaching implications. First, they imply that despite the declaration by GATT jurisprudence that Articles XX GATT/XIV GATS should not be narrowly interpreted compared to the legal disciplines of the respective agreements, in fact these exceptions are narrowly applied.
Another implication refers to domestic policy goals: where a Member wishes to defend a domestic policy goal on the account of trade liberalization enhancement, generally speaking, it should not expect much support from the WTO adjudicating bodies, either in terms of the legal assistance, or in terms of final result.
In other words, the preference for international trade liberalization over domestic policy goals seems to be pursued by the WTO adjudicating bodies both by the passive way of refraining from massive legal assistance to defendants and by the active interpretation of GATS legal commitments.
Some may suggest that these consequences are perfectly fair, as countries should recognize that they have signed up to an agreement that favours international trade liberalization over domestic policy goals, and that if sovereign policy goals were always to be preferred over the mutual interest of international trade liberalization, this goal would never be obtained. However, this article suggests that the GATS was concluded in light of an agreement to respect domestic policy goals and sovereignty, and includes many provisions which reflect a legal attempt to balance between these conflicting interests. Continuous deviation from this delicate balance by the WTO adjudicating bodies may serve a short-term purpose of enhancing trade liberalization, but at the cost of undermining the long-term process anticipated by the parties to the agreement.
Although this strategy of the WTO adjudicating bodies seems to apply to all WTO Members, it may pose particular difficulties to developing and least developed countries, suffering from more fragile economies, budget shortage and less administrative sophistication and flexibility, which might affect their ability to abide by such decisions. Massive interference of the WTO adjudicating bodies in the ability of these governments to promote domestic policy goals, and to preserve their unique cultures, may affect their willingness to undertake deeper specific commitments under the GATS, to enhance this process.
These countries are more than two thirds of WTO Members. They have already demonstrated the effect of their joined powers in the Doha round. Thus, persistence with this line of jurisprudence may have decisive implications on the future development of the GATS, and should be carefully reconsidered.
As an alternative, softening of WTO adjudicating bodies' interpretative approach with regard to the aspects discussed in this article, where developing countries are involved in a dispute, may be considered. This approach may be based on the recognition of their unique difficulties and interests in the GATS Preamble, which is considered an interpretative instrument, reflecting GATS drafters' intention. An attempt by Mexico to use the chapeau of GATS Article IV:1,Footnote 62 and the fifth paragraph of the Preamble to justify, on these grounds, existing measures in the telecommunication sector that were proved to be discriminatory towards foreign competitors was rejected by the Panel in Mexico–Telecoms,Footnote 63 explaining:
these provisions describe the types of commitments that Members should make with respect to developing country Members; they do not provide an interpretation of commitments already made by those developing country Members. [emphasis added]
However, this interpretation may be seen as confined to the particular language of these provisions, thus not necessarily ruling out the application of such an interpretative approach to other GATS provisions.
Whatever legal technique is chosen, it seems that a more balanced approach towards the conflicting interests which form the basis for the GATS may thus prove more beneficial in the long run, encouraging the Member States to pursue with the process of international trade liberalization in services, envisioned by the GATS.
