Wto Gatt Dispute Settlment Mechanism

Institut fr Interkulturelle
und Internationale Studien

(InIIS)
Fachbereich 8
Sozialwissenschaften
BERNHARD ZANGL
COURTS MATTER!
A COMPARISON OF DISPUTE SETTLEMENT
UNDER GATT AND THE WTO
InIIS-Arbeitspapier Nr. 34
2006
BERNHARD ZANGL
COURTS MATTER!
A COMPARISON OF DISPUTE SETTLEMENT
UNDER GATT AND THE WTO
InIIS-Arbeitspapier Nr. 34/06
Institut fr Interkulturelle und Internationale Studien

(InIIS)
Universitt Bremen
Postfach 33 04 40
28334 Bremen
Contents
Abstract
Introduction
1.
The Institutionalist Hypothesis
2.
The Judicialization of Dispute Settlement Procedures under GATT/ WTO
10
3.
The Judicialization of US Dispute Settlement Behaviour under GATT/ WTO
12
3.1
3.2
3.3
3.4
Comparing the DISC and the FSC Cases

Comparing the Patents and the Steel Cases
Comparing the Hormones Cases
Comparing the Citrus and Bananas Cases
12
17
20
24
4.
Conclusion
29
References
33
Abstract
Analysing disputes between the US and the EU under GATT and the WTO respectively, the
paper demonstrates that the judicialization (or legalization) of international dispute settlement
procedures can contribute to states compliance with these dispute settlement mechanisms.
The paper compares four sets of pairwise similar disputes with US had with the EU: the socalled Domestic International Sales Corporations (DISC) case (which arose under GATT)
and the Foreign Sales Corporations case (which was settled through WTO procedures), the
Steel case (GATT) and the Patents case (WTO), the two Hormones cases under GATT and
the WTO respectively, and the Citrus case (GATT) and the Bananas case (WTO). In each of
the four comparisons the US acted more in accordance with the judicial WTO dispute
settlement procedures than with the diplomatic GATT procedures. We can therefore say that
contrary to realist assumptions, the judicialization of dispute settlement procedures can
contribute to their effectiveness. However, contrary to idealist assumptions the effectiveness
of international dispute settlement procedures does not automatically follow from their
judicialization. Yet, as assumed by institutionalists, judicialized dispute settlement procedures
are better than diplomatic dispute settlement mechanisms in sustaining states compliance
with these procedures precisely because of their normative and strategic effects.
Introduction1
The rule of law is one of the crucial dimensions of modern statehood. Yet, until recently even
OECD states were only internally bound by domestic law, while externally state sovereignty
implied that they were not equally bound by international law. While internally the judiciary
provides the institutional safeguard that urges state actors to comply with domestic legal
obligations, until recently there was no parallel international judiciary to ensure that state
actors complied with their external legal obligations. There are indications today, however,
that due to the emergence of issue area-specific international judiciaries the domestic rule of
law is increasingly complemented by an international rule of law.2
In fact, judicialized procedures designed to adjudicate whether state actors comply with their
international commitments are on the rise.3 Recently, an International Criminal Court was
created to pass sentence on war crimes. The authority of the European Court of Justice as
well as the European Court of Human Rights was strengthened. An International Tribunal for
the Law of Sea has been established. Many international environmental regimes, such as the
ozone regime and the climate regime, now dispose of quasi-judicial non-compliance
procedures. And last but not least, with the creation of the World Trade Organization (WTO)
the diplomatic dispute settlement procedures of the General Agreement on Tariffs and Trade
(GATT) have been replaced by a judicial dispute settlement system.4
The rise of judicial dispute settlement procedures might be seen as one indication of an
emerging international rule of law. At least, traditional idealists always claimed that the
judicialization of international dispute settlement procedures would lead almost automatically
to an international rule of law. In contrast to diplomatic dispute settlement mechanisms, they
argued, judicialized dispute settlement procedures would ensure both compliance with
international law and comparable treatment of comparable breaches of international law.5
Others, however, argued that international dispute settlement procedures would not ensure
an international rule of law. For these so-called realists, it was not a matter of the
judicialization of dispute settlement procedures whether states comply with international law
and whether comparable breaches of international law are given comparable treatment. They
maintained that irrespective of judicial or diplomatic dispute settlement procedures powerful
states can and will always act as they please, while less powerful states have to suffer what
they must.6
1
3
4
5
6
This paper draws heavily on research done in the project Judicialization of International Dispute
Settlement which is part of the Bremen Research Centre Transformations of the State (TranState)
funded by the German Research Foundation (DFG). Therefore my first thanks go to Achim
Helmedach, Aletta Mondr, and Gerald Neubauer who are part of the projects research team. I would
also like to thank Karen Alter, Ken Abbott, Klaus Dingwerth, Monika Heupel, Jrgen Neyer and Jonas
Tallberg for their most helpful comments on an earlier version of this paper. Thanks go also to the
participants of the 2004 Luncheon Seminar of the Robert Schuman Centre at the European University
Institute in Florence/Italy as well as the participants of the 2004 Luncheon Seminar of the Center for
European Studies at Harvard University in Cambridge/USA.
For a discussion on the international rule of law see Watts 2000, Watts 1993, Tamanaha 2004,
Brownlie 1998.
Romano 1999.
Keohane, Moravcsik and Slaughter 2000, Zangl and Zrn 2004a,b.
Clark and Sohn 1966.
Morgenthau 1948.
Today, however, the debate between idealists and realists has lost ground; institutionalists
now set the tone.7 Idealist positions were clearly undermined by the fact that the International
Court of Justice (ICJ), with its judicialized dispute settlement procedure, has hardly
transformed international dispute settlement practices. Since the ICJ has rarely been invoked
and its rulings often ignored, it could hardly be said to have institutionalized an international
rule of law. But realist assumptions were also weakened by the fact that the European Court
of Justice (ECJ), marked by a heavily judicialized procedure of dispute settlement, has
transformed European dispute settlement practice. The ECJ has regularly been invoked and
its rulings usually followed, thereby establishing an international rule of law in Europe.8 For
institutionalists, however, it remains an empirical question whether and if so where and
when the judicialization of international dispute settlement procedures leads to a
corresponding practice of judicialized dispute settlement. 9 Hence, from an institutionalist
point of view, the judicialization of the practice of international dispute settlement is neither
considered impossible nor is it seen as an automatism of the judicialization of dispute
settlement procedures. Most institutionalists, be they of a more rationalist or of a more
constructivist orientation, would nevertheless subscribe to the hypothesis that, ceteris
paribus at least under todays circumstances in the OECD world , the judicialization of
dispute settlement procedures sustains the judicialization of international dispute settlement
practice.10
Assuming that the judicialization of dispute settlement is one important aspect for the
emergence of an international rule of law, I aim to evaluate this institutionalist hypothesis and
trace the processes due to which judicial dispute settlement procedures have a more
pronounced impact on states dispute settlement behaviour that diplomatic dispute
settlement proceedings. To do so, I will compare US dispute settlement behaviour in the
context of the judicial WTO dispute settlement procedures with its behaviour in similar
disputes under the diplomatic dispute settlement system of GATT. In a first step I elaborate
on the institutionalist hypothesis by indicating why judicial dispute settlement procedures
might be better equipped to control states dispute settlement than diplomatic dispute
settlement mechanisms. In a second step I briefly describe the judicialization of GATT/WTO
dispute settlement procedures that has been taken place over the past two decades. In a
third step I then conduct the above mentioned comparison of US dispute settlement
behaviour under the GATT and WTO respectively. The comparison reveals that the US was
more willing to act according to the agreed WTO procedures than it was prepared to comply
with GATT proceedings. Against the background of alternative explanations, the paper
8
9
10
For an overview of institutionalism in International Relations see among others Hasenclever, Mayer
and Rittberger 1997, Rittberger, Hasenclever and Mayer 2000, Keohane 1989.
Alter 2001.
In this paper I distinguish the terms "judicialization" and "judicialized": Judicialization is used to
describe processes of institutional change through which a given dispute settlement procedure
becomes more judicialized. Judicialized, by contrast, describes the state of an institution that has
reached a certain threshold.
See for instance Stone Sweet 1996, Stone Sweet 2000, Yarbrough and Yarbrough 1997, Helfer and
Slaughter 1998, Weiler 1999, McCall Smith 2000, Keohane, Moravcsik and Slaughter 2000, Alter
2001, Alter 2006, Zrn and Joerges 2005, Zangl and Zrn 2004a,b, Zrn and Joerges 2005, Zrn
2005. For an empirical critique of the institutionalist hypothesis see Posner and Yoo 2005. For a
criticism of the critique see Helfer and Slaughter 2005.
6
concludes with an overall evaluation of the hypothesis and some general remarks on the
emergence of an international rule of law.
1. The Institutionalist Hypothesis
The hypothesis that the judicialization of international dispute settlement procedures

supports corresponding practices of judicialized dispute settlement rests on the institutionalist
assumption that, the effects of international institutions depend among other things on
their institutional design. Accordingly, in terms of design, institutions with a judicial DSP such
as the European human rights regime which tries through the European Court of Human
Rights to ensure an impartial treatment of alleged breaches of international law can be
distinguished from institutions with diplomatic DSPs such as the UN Human Rights Council
which cannot be seen as institutional attempts to ensure the comparable treatment of
comparable breaches of international law. The judicialization of a given DSP, hence, entails
that it moves in terms of its design on a gradual scale from the pole of a purely diplomatic
DSP towards the pole of a judicial DSP. In this view, judicialization can be assessed on the
basis of four criteria international DSPs might meet to varying degrees:11
(1) Political Independence: The political independence of international DSP is a criterion of
the utmost importance for an impartial treatment of breaches of international law. 12
Concentrating on the composition of the relevant dispute settlement bodies four grades of
independence can be distinguished: Bodies such as the old GATT working parties in which
representatives of the disputing states themselves are deciding on the dispute at hand are
the least independent. Somewhat more independent are bodies such as the UN security
council in which states that are (usually) not subject to the dispute deliver a decision. They
are, however, less independent than bodies such as some ILO committees composed of
experts acting in their individual capacities. However, only a standing body of judges such as
the International Court of Justice can be considered truly independent.
(2) Legal Mandate: Irrespective of its independence the mandate of an international DSP has
to be regarded as an important criteron of an impartial treatment of breaches of international
law. Considering whether the mandate is rather political or rather legal four grades can be
distinguished: If, as in the case of the UN Security Council for instance, the decision ensuing
from the DSP is allowed to be based on mainly political considerations rather than legal
reasoning the mandate can hardly be seen as legal. Decsions of a somewhat more
judicialized DSP draw on legal arguments while their rulings are not legally binding. Here one
can further distingusigh between those based un legally binding procedures such as the ICJ
when giving advisory opinions and those where the procedures themselves have no legally
binding force, which is the case under CITES. But only procedures that feature binding rules
of due process and are authorized to take legally binding decisions can be considered to
11
12
For a set of criteria to describe processes of judicialization see Yarbrough and Yarbrough 1997, Helfer
and Slaughter 1998, Helmedach et al. 2006, McCall Smith 2000, Keohane, Moravcsik and Slaughter
2000, Zangl 2001, Zangl and Zrn 2004a, b.
Keohane et al. 2000: 459-462, Helfer, Slaughter 1997: 353-355
7
have a fully judicialized mandate, as for instance is the case with the European Court of
Human Rights.
(3) Authority to decide: The authority of the relevant DSP to make decisions is another,
important criterion for a comparable treatment of comparable breaches of international law.13
Considering the disputing parties ability to block the proceedings of an international DSP four
grades are to be distinguished: As in the old GATT, the DSPs authority to decide remains
very restricted when the states involved in a dispute can block both the initiation of the
procedures as well as the adpoption of decisions made within these procedures. The
decision making authority of a DSP also remains quite restricted when disputing states can
block either the initiation of the relevant procedure or their rulings as is, for instance, the case
with the International Court of Justice. Where, as in ILO, the decisions of DSPs can only be
blocked by a collective of states, rather than by the states involved in a dispute, the authority
to decide can be described as quasi-compulsory. True compulsory decicion making
authority, however, requires that rulings such as those of the European Court of Human
Rights may not be blocked either by individual states or by a collective of states.
(4) Sanctions: The authority to decide on sanctions in cases where states do not comply with
rulings made within international DSP can be regarded as another relevant criterion for the
comparable treatment of comparable breaches of international law.14 Four grades are to be
distinguished: The authority to sanction does not exist if the DSP does not regulate sanctions
at all, as in the case of the ILO, for example. Their authority to sanction is, however, also
quite limited when complaining states that are willing to employ sanctions against non
compliant defendant states need, as in the old GATT system, the authorization of the
respective DSP, but such authorization can be blocked by the affected state. If, as in the
WTO, such an option to block the authorization of sanctions does not exist, the authority to
sanctions is substantively stronger. However,a fully developed authority to sanction requires
the DSPs rights to mandate sanctions, as is the case with the UN Security Council.
Given that the four criteria allow assessing on the basis of their respective grades the
judicialization of any international DSP, it should be able to evaluate the institutionalist
hypothesis. The hypothesis rests on the institutionalist assumption that, depending on their
institutional design, international institutions and by implication their dispute settlement
procedures can have multiple effects. 15 Despite the fact that institutionalists of a more
rational16 and a more constructivist17 orientation focus on different effects, they agree that
institutions in general and their dispute settlement procedures more specifically can have
normative and strategic effects which can operate either enabling or constraining.
Accordingly, four major effects of international institutions can be distinguished that might, in
principle, be supported by the judicialization of their dispute settlement procedures:
13
14
15
16
17
Morgenthau 1948, McCall 2000: 139-140

Morgenthau 1948, Zangl/Zrn 2004
For the impact the design of international institutions might have on their effectiveness see among
others Haas, Keohane and Levy (eds.) 1993, Mitchell 1994, Chayes and Chayes 1995, Underdal
1998, Victor, Raustiala and Skolnikoff 1998, Wettestad 1999, Young 1999, Brown Weiss and
Jacobson 1998, Miles, Underdal and Carlin 2001, Koremenos, Lipson and Snidal 2001, Tallberg 2002.
See, for instance, Helmedach et al. 2006, Keohane 1984, 1989, Zangl and Zrn 2004: 25-26, Zrn
1992, Martin 1992 and Scharpf 1997.
See among others Wendt 1992, Wendt 1999, Hurrell 1993, Katzenstein 1996, Risse 2000, Finnemore
1996, Klotz 1995, Mller 1994, Checkel 2001.
8
Table 1: Effects of International Institutions
Constraining Effect
Enabling Effect
Normative
Effect
States are constrained by their own

normative commitment to the
institution
Institutions can help states to

undermine the reputation of noncompliant states through shaming
Strategic
Effect
States are constrained by their own

interest in the institutions credibility
Institutions can help states to

increase the costs of other states
non-compliance by authorizing
sanctions
International institutions and their dispute settlement procedures can have an effect
because states feel normatively compelled to respect them. Thus, international dispute
settlement procedures can rely on a normative compliance pull of their own.18 They might be
internalized by states to the degree that following them becomes an aim in itself. Hence,
disregarding or manipulating them is not even taken into consideration; following the
procedures is then taken for granted.19
International institutions and their dispute settlement procedures might be effective
because disregarding them can, through shaming, undermine a states reputation as a
reliable member of the international community. A bad reputation may not only inhibit any
future cooperation with that state within the same institution20; it may even undermine its
recognition as an equal member of the international community. Hence, states are prepared
to follow international dispute settlement procedures to prevent losing their status as an
equal member of the international community.21
International institutions and their dispute settlement procedures might have an impact
because states are interested in their credibility. Especially when states consider the
institution to be serving their interests they may be willing to follow its dispute settlement
procedures. They will understand that disregarding these procedures can undermine the
institutions credibility. This in turn, might lead to the breakdown of the dispute settlement
procedures that support an institution in whose effectiveness they are interested. Hence,
states follow agreed dispute settlement procedures because they shy away from the
consequences of disregarding behaviour for the institution as such.22
The influence of international institutions and their dispute settlement procedures may
also stem from their authority to impose sanctions against those states found to be violating
their international commitments.23 By authorizing sanctions international institutions and their
dispute settlement procedures might coordinate the sanctions of affected states, thereby
making them more effective. 24 Moreover, authorized sanctions might be more effective
because, as opposed to non-authorized sanctions, states that incur these sanctions can
18
19
20
21
22
23
24
Franck 1990.
Koh 1997.
Keohane 1984.
Hurrell 1993, Chayes and Chayes 1995.
Zrn 2005, Cronin 2001.
Underdal 1998.
Downs, Rocke and Barsoom 1996, Keohane 1984, Axelrod and Keohane 1986.
9
hardly justify any retaliation against sanctioning states. Hence, they cannot deter others from
applying sanctions against their non-compliant behaviour.25
Building on these effects, the institutionalist hypothesis claims that judicialized DSPs are
better in sustaining states compliance with these DSPs than diplomatic DSPs precisely
because they are better at activating their normative and strategic, their constraining and
enabling effects. But why should, according to institutionalist thinking, judicial DSPs be better
in activating these effects than diplomatic DSPs? Institutionalists of a more constructivist
orientation and institutionalists of a more rationalist orientation may point at two reasons:
(1) Institutionalists of a more constructivist orientation may argue that judicial DSPs may be
perceived as being more legitimate than diplomatic DSPs, because they institutionalize the
principle of an impartial treatment of alleged breaches of international law to a larger degree.
This can, according to constructivist institutionalism support the normative effects
international DSP may have: on the one hand the perceived legitimacy of DSPs may support
the feeling of states and societies to be normatively commitment to respect these
procedures, because disregarding them cannot be justified by pointing at a lack of their
legitimacy; and on the other hand the perceived legitimacy of DSPs may also drive the
feeling of states and societies that any breach of the respective procedures will undermine
their reputation as law abiding members of the international community, because it provokes
more normative insurrection than disregarding a DSP that is considered to be less legitimate.
(2) Institutionalist of a rationalist orientation can argue that judicial DSPs are generally
perceived to be more reliable than diplomatic DSPs, because they are better equipped to
treat breaches of international law in an effective way. This can, according to rational
institutionalism support the strategic effects international DSP may have: on the one hand
the perceived reliability of international DSPs may support the feeling of states and societies
that following these procedures is in their own interest in order to preserve the DSPs
credibility; on the other hand the perceived reliability of international DSPs may drive the
feeling that threats of binding convictions and of authorized sanctions are credible. This can
enhance the incentive to follow the procedures to deal with alleged breaches of international
law by other states while at the same time enhancing incentives to comply with these
procedures when accused by others to violate international law.
To evaluate the institutionalist hypothesis that due to these reasons judicial DSPs are better
able to activate the normative and strategic effects of international institutions than diplomatic
DSPs, four types of behaviour states may apply in their attempts to settle disputes are to be
distinguished. Each type of behaviour can be displayed in each of the four phases any
dispute might pass through, i.e. the complaints, adjudication, implementation, and the
enforcement phase: (1) States may strictly follow the relevant procedures and show
willingness to settle disputes as envisaged by the relevant dispute settlement procedure. (2)
States may avoid the application of the relevant dispute settlement procedures and seek a
negotiated settlement, but without violating the provisions of the procedures. (3) States may
choose to use the relevant dispute settlement procedures but at the same time seek to
25
Zangl 2006.
10
manipulate their operation by questionable means. (4) States may also choose to disregard
the relevant DSP by violating agreed dispute settlement provisions.
The institutionalist hypothesis is supported if it can be demonstrated that due to the reasons
given above the judicialization of international DSPs dispute settlement behaviour
disregarding or manipulating the procedures becomes less and less diffused while following
the procedures to settle disputes is becoming more common.26
2. The Judicialization of Dispute Settlement Procedures under GATT/ WTO
To evaluate the institutionalist hypothesis, and the four effects it builds on, I have chosen the
GATT/WTO dispute settlement system, because it has undergone a remarkable process of
judicialization over the past two decades, thus allowing a comparison of states actual
dispute settlement behaviour under the judicialized WTO dispute settlement system and the
diplomatic dispute settlement mechanism of GATT within the same issue area thereby
facilitating to control for potentially confounding variables.27
In terms of political independence, the process of judicialization of the GATT/WTO dispute
settlement procedures is quite manifest.28 The political independence of dispute settlement
procedures under GATT was rather restricted.29 During the 1980s and early 1990s so-called
panels made up of three or five panelists were assigned the task of deciding in so-called
reports whether states had violated their GATT obligations. Although the panelists acted in
their individual capacities, the fact that the disputing states had to agree on the panelists on a
case-by-case basis militated against their independence, as did the fact that they mostly
chose state representatives rather than independent legal experts. 30 During the 1990s,
however, after the WTO was established, the political independence of the dispute
settlement procedure was consolidated. While the composition of the panels did not change,
a remarkably independent Appellate Body was established to revise panel reports in appeal
cases, and thereby diffused its independence across the entire dispute settlement system.
Unlike the panels, the Appellate Body is composed of independent legal experts, i.e. judges,
acting in their individual capacities. Moreover, rather than being selected by the disputing
states, the seven judges of the Appellate Body are now elected to deal with all disputes that
arise during their four-year term.31
26
27
28
29
30
31
Helmedach et al. 2006, Zangl 2006.

The effects of the judicialization of GATT/WTO dispute settlement procedures have become the
subject of intensive debate. See, for instance, Busch and Reinhardt 2002, Busch and Reinhardt
2003a, Busch and Reinhardt 2003b, Busch, Raciborski and Reinhardt 2005, Iida 2004, Zangl 2001,
Zangl 2006, Zrn 2005.
For criteria to distinguish different degrees of political independence of dispute settlement procedures
see Helmedach et al. 2006, Keohane, Moravcsik and Slaughter 2000, Helfer and Slaughter 1998: 353355, Zangl and Zrn 2004a: 25-26.
Jackson 2004, Petersmann 1997.
Jackson 2004.
Petersmann 1997: 177-198, Stone Sweet 1997.
11
The GATT/WTO dispute settlement procedures judicialization is also characterized by an
increasingly legal mandate.32 Through the early 1980s the task of GATT panels was mainly
to stipulate in their panel reports solutions the disputing parties could agree on. Hence, panel
reports were the result of political negotiations and mediation rather than of legal reasoning.
This was only changed with the WTO dispute settlement procedures. Under the WTO
procedures panels are forced to base their reports on legal reasoning, because reports that
rather followed political considerations run the risk of being modified by the Appellate Body
which had the task of reviewing panel reports in appeal cases.
The GATT/WTO dispute settlement procedures judicialization is also indicated by their
increasing authority to decide.33 Through the early 1980s, the establishment of a panel to
adjudicate in a dispute required a consensual GATT Council decision.34 It was thus even
possible for the defendant state to block the establishment of a panel. This changed in the
late 1980s, however, when complainants were given the right to have their allegations heard
by a panel.35 Yet, the adoption of panel reports still required the consensus of the GATT
Council. Hence, defendants could still block any decision made against them.36 This changed
in the mid-1990s when the WTO came into existence. The newly established Dispute
Settlement Body (DSB), which was given the dispute settlement tasks of the old GATT
Council, almost automatically approves the establishment of panels as required, as well as
panel and Appellate Body reports. It may block panel reports and Appellate Body rulings only
by consensus. Thus, since defendants can no longer block the procedure, the DSB can now
exercise compulsory jurisdiction.37
Another aspect of the judicialization of the GATT/WTO dispute settlement system is their
growing authority to sanction.38 Under GATT, decisions to authorize sanctions required the
consensus of the GATT Council. They could therefore even be blocked by defendants whose
non-compliance was criticized by an adopted panel report. 39 Under the WTO dispute
settlement procedures, by contrast, decisions to authorize aggrieved states to employ
sanctions can be made without the consent of the defendant state. If a defendant does not
comply with a WTO ruling and is not prepared to offer adequate compensation the
complainant can request the Dispute Settlement Body to authorize sanctions. This
authorization is then automatically granted, unless the DSB unanimously decides otherwise.
The defendant can no longer block the sanctions, and merely has the right to invoke the
original dispute settlement panel to decide on the amount of sanctions.
In sum, the degree of judicialization of the dispute settlement procedures under the
GATT/WTO trade regime has been remarkably enhanced.
32
33
34
35
36
37
38
39
Hudec 1998, Jackson 2004, Waincymer 2002:75

For a discussion of criteria to distinguish different degrees of compulsory jurisdiction of dispute
settlement procedures see Helmedach et al. 2006, McCall Smith 2000: 139-140, Zangl and Zrn
2004a: 27.
Hudec 1993.
Petersmann 1997: 66-91.
Jackson 2004, Hudec 1993.
Jackson 1997: 107-137, Stone Sweet 1997, Petersmann 1997: 177-198.
For criteria to differentiate between different degrees of authority to sanction different dispute
settlement procedures might have, see for instance Helmedach et al. 2006, Morgenthau 1948,
Yarbrough and Yarbrough 1997, Zangl and Zrn 2004a: 28-32.
Jackson 2004.
12
3. The Judicialization of US Dispute Settlement Behaviour under GATT/ WTO
To evaluate the institutionalist hypothesis I will investigate US dispute settlement behaviour

in pairwise similar disputes it had with the EU/EC under the GATT and WTO dispute
settlement systems respectively. I will compare US behaviour in the so-called DISC and FSC
case, the Patent and Steel case, the first and the second Hormones case, and finally the
Citrus and Bananas case. The reasons for this particular choice are as follows. First, the
focus on the US was chosen because if the judicialization of GATT/WTO dispute settlement
procedures can impact the behaviour of the most powerful state one can assume that it will
have similar effects on the behaviour of less powerful states too (hard case design). Second,
the focus on disputes with the EU was chosen to rule out the possibility that differences in
US behaviour under the WTO and GATT dispute settlement systems are due to differences
pertaining to the party with which it had the dispute (similar case design). Third, pairwise
similar disputes were selected to keep the matter of dispute constant. This helps to rule out
the possibility that differences in behaviour were caused by differences in the matter of the
disputes (most similar case design). Fourth, I selected not only disputes in which the EU
complained under GATT/WTO law about US non-compliance, but also disputes in which the
US itself complained about EU non-compliance with GATT/WTO law. This was imperative in
order to get an adequate picture of US dispute settlement behaviour, because both as
complainant and as defendant it may chose to comply with the law or to take the law into its
own hands.
3.1 Comparing the DISC and the FSC Cases

For the purposes of most similar case design the so-called DISC and FSC cases can be
considered ideal for evaluating the institutionalist hypothesis. While settled under the GATT
and WTO dispute settlement procedures respectively, they were most similar because both
cases concerned EU/EC allegations that the US government provided US companies with
export subsidies through tax preferences for so-called Domestic International Sales
Corporations (DISCs) and Foreign Sales Corporations (FSC) respectively.
The DISC Case

The DISC case between the US and the EU (then the EC) first emerged in 1971, when the
US administration announced preferential tax treatment for DISCs. 40 DISCs were
subsidiaries of American companies that, on paper, managed the export business for their
parent company.41 The US claimed that preferential treatment for DISCs was compatible with
GATT, because it was meant to offset the competitive disadvantage American export
companies suffered due to the fundamental differences between the American tax systems
principle of global taxation, and the principle of territorial taxation of most European tax
systems. 42 The EU, however, complained that the preferential tax treatment for DISCs
40
41
42
Parent 1989: 93-101, Hufbauer 2002: 1-3.

Parent 1989: 39-44.
Hudec 1993: 59-62.
13
constituted an export subsidy that was illegal under GATT because it provided exportspecific tax exemptions.43
From early on in the complaints phase the US tried to avoid the GATT dispute settlement
procedures being invoked by the EU. 44 The Nixon administration considered the GATT
regulations too unspecific for any decision to be made under GATT. The US saw the dispute
as a political, rather than a legal issue and it was therefore only prepared to seek a
negotiated settlement. To force the EU to accept negotiations the US announced that if it
insisted on dispute settlement under GATT, it would initiate GATT proceedings against the
tax laws of various EU countries. 45 Indeed, when the EU requested consultations under
GATT, the US, in a retaliatory move, demanded consultations over the tax regulations of
France, Belgium and the Netherlands.46
As the consultations failed, the DISC case, in May 1973, entered the adjudication phase.47
Now strictly following the dispute settlement procedures, both the EU and the US requested
GATT panels and abstained from blocking their establishment.48 Therefore, by July 1973 the
GATT Council was able to agree on four panels to deal with the American and the three
European tax systems. Due to procedural conflicts between the US and the EU, however,
the actual establishment of the panels was deferred until February 1976, but after their
establishment they were able to work without being bothered by the either dispute party.49 In
their reports of November 1976 the panels not only criticized the DISC scheme as
incompatible with US commitments under GATT, but also various tax provisions of the three
EU states (GATT L/4422).
To avoid the report becoming binding the US announced in December 1976 that it would
block the panel report criticizing its DISC scheme unless the EU was prepared to accept the
panel reports criticizing their tax systems. (New York Times 06.11.1976, The Economist
20.11.1976). However, almost all GATT states were in favour of rejecting the panel report
criticizing the EU while at the same time supporting the adoption of the panel report criticizing
the US. While the former was considered to be legally wrong, the latter was held to be legally
correct. Nevertheless, in the face of an overwhelming majority of GATT Council members the
Carter administration blocked the adoption of the panel report for more than five years.50
Only in December 1981, after realizing that the blockage of the report had damaged its
reputation and in this way impeded its struggle against subsidies under GATT, the US was
finally prepared to follow the agreed dispute settlement procedures (Wall Street Journal
10.12.1981). The Reagan administration had to acknowledge that when confronted with their
complaints about subsidies, the accused states could always justify their defiance by pointing
at the US blockage of the panel report in the DISC case. To overcome the humiliation of
being so discredited, the Reagan administration finally accepted the Councils adoption of the
43
44
45
46
47
48
49
50
Jackson 1978: 766, Parent 1989: 53-53.

Hudec 1993: 66-68, Jackson 1978: 761.
Hudec 1993: 68.
New York Times 27.02.1973.
Parent 1989: 51-52.
Parent 1989: 762-763, Hudec 1993: 69-71.
Hudec 1993: 82-88.
14
four aforementioned reports on the understanding that the European tax systems but not
the American tax system would be rehabilitated as compatible with the GATT (Parent
1989: 122-123, Hudec 1993: 92).
After the adoption of the panel reports the dispute moved on to the implementation phase. In
December 1981, the Reagan administration openly refused to comply with the panel report
that criticized the US (New York Times 22.07.1982). Manipulating the understanding among
almost all GATT members, the US claimed that the aforementioned GATT Council resolution
not only rehabilitated the European but also the American tax system.51 In response to this
attempt to justify US non-compliance, almost all GATT members supported council
resolutions that shamed the US for its open defiance of an adopted panel report (Financial
Times 11.05.1982). Moreover, this defiance proved to damage the US reputation anew, and
considerably impeded the Reagan administrations struggle against GATT-defiant subsidies
of other states .52 In July 1982 it therefore announced that it was now willing to follow the
panel report.53 In 1983, after extensive deliberations between the Reagan administration and
Congress, the US finally abandoned the DISC scheme, and substituted it with preferential tax
status for so-called Foreign Sales Corporations, or FSCs. Since FSCs, in contrast to DISCs,
had to be located abroad in tax havens like the Virgin Islands in order to enjoy the said
preferential tax treatment, they were considered to be compatible with GATT obligations.54
For the time being, the decade-long DISC dispute came to an end.55
The FSC Case

Although it accepted the US preferential tax treatment of FSCs for more than a decade, the
EU then complained in 1997 that it was not compatible with WTO law.56 The FSC scheme
was considered illegal under WTO law because it grants for exports certain exemptions from
otherwise due tax payments.57 The EU especially criticized that the exemptions were granted
only for the export of commodities produced in the US, and not for all commodities of the
respective company regardless of where they were produced.58 The US, however, defended
the FSC scheme on the grounds that it was merely rebalancing the advantages European
companies reaped from the European tax systems, which were based on the principle of
territorial rather than global taxation.59
Throughout the complaints phase the US tried to avoid the invocation of the WTO dispute
settlement procedure by the EU. Admittedly, it accepted its duty to consultations. In fact, in
51
52
53
54
55
56
57
58
59
Hudec 1993: 92-94, Parent 1989: 123.

Financial Times 28.07.1982. Secretary of Finance Donald T. Regan declared: A general consensus
has developed among GATT member countries that the DISC is inconsistent with the GATT and that
the US should bring its tax practices into compliance with these rules. The administration believes that
the US should respect the GATT consensus and attempt to comply with it (Washington Post
09.12.1982).
Hufbauer 2002.
Parent 1989: 124-125.
Langbein 2000: 547, Hufbauer 2002.
WT/DS108/1, WT/DS108/2.
Murphy 2000: 531-533.
WT/DS108/5.
15
1997 and 1998 EU and US delegations met three times for consultations.60 To prevent the
EU from requesting a panel, however, the Clinton administration threatened to retaliate with
similar demands for panels to deal with the allegedly deviant tax systems of some EU states.
The US wanted to solve the dispute by negotiation with the EU rather than under the WTO
dispute settlement system.61
Nevertheless, the EU insisted on a WTO panel. 62 The FSC case moved on to the
adjudication phase, in which the US strictly followed the designated procedures.63 The US
and the EU agreed on the composition of a panel, which was then established in November
1998. The panel report of October 1999 stated that the preferential tax treatment for FSCs
provided export subsidies that were illegal under WTO law. 64 The US appealed, but the
Appellate Body upheld the main conclusion of the panel and requested the US in its report of
February 2000 to bring its tax laws in conformity with WTO law.65
The US nevertheless continued to follow the WTO dispute settlement procedures in the
implementation phase. Though critical of the report, the US declared that it would revise the
FSC scheme accordingly. 66 In fact, obviously feeling normatively committed to WTO
procedures, the Clinton administration did not even consider defying the WTO reports, and
accepted without hesitation that the FSC scheme must be repealed. It explained, however,
that it had the intention of adjusting US tax law to its WTO obligations in a way that the tax
burden would not increase for companies that had hitherto enjoyed the advantages of the
FSC scheme.67 Underlining the (normative) commitment of the US to the WTO procedures,
Deputy Secretary of Finance Stuart Eizenstaat explained:68
In general it is the intention of the US to implement the recommendations and rulings of the
WTO in a manner that respects our WTO obligations while protecting the interests of US
companies and workers.
In fact, in November 2000, under pressure from the Clinton administration,69 US Congress
replaced the FSC scheme with a so-called Extraterritorial Income (ETI) scheme, which
provided preferential tax rates for both export and non-export earnings from the foreign
activities of US companies. 70 However, the EU objected that the ETI scheme failed to
adequately implement the WTO decision,71 but the US, having repealed its FSC scheme in
good faith, maintained that the ETI regime complied with its WTO obligations.72 To deal with
the dispute the WTO panel and the Appellate Body convened again, and concluded in their
60
Journal of Commerce 08.04.1998.

Journal of Commerce 08.01.1999, 05.08.1999.
62
WT/DS108/2.
63
Brumbaugh 2002: 3, Langbein 2000: 548.
64
WT/DS108/R.
65
WT/DS108/AB/R.
66
Financial Times 25.02.2000.
67
Washington Post 25.02.2000, New York Times 03.05.2000.
68
quoted in Murphy 2000: 533.
69
Deputy Finance Secretary Stuart Eizenstaat underlined: We cannot emphasize strongly enough how
critical it is that Congress (acts) as expeditiously as possible (Financial Times 02.10.2000).
70
Charnovitz 2002: 619, Hufbauer 2002: 6, Brumbaugh 2002: 4-5.
71
72
Murphy 2000: 533-534, Brumbaugh 2002: 3.
61
16
reports of August 2001, and January 2002 that the ETI scheme violated WTO law.73 The US
was obliged to revise its tax legislation again.74
As the US could hardly change its ETI legislation immediately, the dispute entered the
enforcement phase. As compensation for the damage it suffered from the illegal ETI scheme,
the EU requested that the WTO approve sanctions of approximately 4 billion US Dollars.75
Nevertheless, the US continued to follow the WTO dispute settlement provisions. Partly due
to its normative commitment towards WTO dispute settlement provisions, but also due to the
credible threat of authorized sanctions, the Bush administration consented to ask Congress
again to revise the US tax legislation.76 Speaking out in favour of a repeal of the ETI scheme,
the administration emphasized that the US should not undermine the credibility of WTO,
which generally served American long-term interests, for the sake of short-term objectives.77
Under the pressure of gradually increasing EU sanctions, the Bush administration vigorously
tried to push a WTO-compliant solution through Congress.78 This was only deferred over and
over again because Congress could not agree on how best to repeal the ETI scheme.79
Eventually, in October 2004, Congress finally adopted a repealed ETI scheme, thus bringing
the US back into compliance with its WTO obligations and bringing the dispute with the EU to
an end.80
Comparing the DISC and FSC Cases

Overall, the comparison of US dispute settlement behaviour in the DISC and FSC cases
backs the institutionalist hypothesis. While switching back and forth between avoiding,
following and manipulating the diplomatic GATT dispute settlement procedures in the DISC
case, the US proved to be prepared, after initial attempts to avoid the invocation of the WTO
had failed, to strictly follow the judicialized WTO dispute settlement system. Moreover, as the
DISC case shows, the GATT procedures only took effect because the US had learned that
blocking and disregarding the panel report undermined its reputation, thereby impeding its
attempts to negotiate for stricter GATT rules on subsidies. In the FSC case, by comparison,
the WTO procedures also had an impact because, firstly, both the Clinton and the Bush
administration felt normatively committed to comply with WTO dispute settlement provisions,
and secondly they were concerned about the credibility of the WTO dispute settlement
system. Moreover, the threat of sanctions authorized by the WTO obviously contributed to its
compliance with WTO rulings.
What is more, not only US behaviour differed in both cases, but EU behaviour too, so that
the way in which the two superpowers of international trade handled the disputes differed
73
74
75
76
77
78
79
80
WT/DS108/ RW; WT/DS108/AB/RW.

Brumbaugh 2002.
WT/DS108/ARB.
Financial Times 26.01.2002. In the face of the WTOs approval of sanctions USTR Robert Zoellick
declared: I believe todays findings will ultimately be rendered moot by US compliance with the WTOs
recommendations and rulings in this dispute (Washington Post 31.08.2002).
USTR Robert Zoellick underlined: The United States respects its WTO obligations, which serve
Americas interests, and we intend to continue to seek to cooperate with the EU in order to manage
and resolve this dispute (Washington Post 15.01.2002).
Washington Post 31.08.2002, 06.07.2003.
Financial Times 05.10.2004, 16.12.2004.
17
considerably. While the DISC case was mainly dealt with outside of the GATT procedures,
the FSC case was mainly handled within the WTO dispute settlement system.
3.2 Comparing the Patents and the Steel Cases

To the extent that in both the Patents and the Steel case the EU accused the US of illegal
retaliation against allegedly unfair trading practices of their GATT/WTO partners, these cases
lend themselves well to a pairwise comparison in the context of a most similar case design
for judging the institutionalist hypothesis.
The Patents Case

The Patents case emerged in 1986 as a result of US provisions that allowed American
companies suffering from patent infringements on products of non-American origin to invoke
not only ordinary courts, as was permissible with products of American origin, but also a socalled International Trade Commission (ITC), which was accountable to the US
administration. 81 The EU complained that the ITC procedure was illegal under GATT
because it discriminated against non-American companies that were accused of violating
American patents.82 The US, however, held that the ITC procedures differed from ordinary
court procedures, but did not discriminate against non-American companies which allegedly
violated American patents.83
Faced with the accusations of the EU the US, during the complaints phase, strictly followed
GATT dispute settlement provisions. The US accepted the EUs request for formal
consultations. In fact, the Reagan administration was in favour of consultations because it
thought that these would further the GATT Uruguay Round negotiations over the protection
of intellectual property rights which it so strongly supported. The US hoped that by offering to
repeal the ITC procedures during the negotiations it might get something in return from the
EU. The EU, however, insisted that the US adjust its ITC procedures not as a result of
ongoing GATT negotiations, but as a precondition for successful negotiations over
intellectual property rights.84
As there was obviously no common ground on which the two sides could meet the dispute
entered the adjudication phase, and in March 1987 the EU requested a GATT panel to
decide on the legality of the ITC procedure. 85 Strictly following GATT dispute settlement
provisions, the US accepted the request and refrained at this point from obstructing it in the
GATT Council.86 In line with the EUs criticism , the panel, which was then established in
October 1987, concluded that the US provisions unduly discriminated between violations of
US patents by products of American and non-American origin.87 Its report requested:
81
82
83
84
85
86
87
Hudec 1993: 220, Dinan 1991.

L/6439, 36S/ 345.
Duvall 1990, Abbott 1990.
L/6439, 36S/ 345.
Hudec 1993: 547.
Duvall 1990.
18
the United States to bring its procedures applied in patent infringement cases bearing on
imported products into conformity with its obligations under the General Agreement.88
In an effort to avoid the report becoming binding, the US blocked its adoption at eight
consecutive GATT Council meetings. 89 Like the Reagan administration, the new Bush
administration hoped that the ITC procedure could be used as a bargaining tool in the
intellectual property rights negotiations of the GATT Uruguay Round. 90 Deputy US Trade
Representative Rufus Xerxa underlined that only with an effective international procedure in
place was the US prepared to renounce its ITC procedures and accept the panel report.91
However, blocking the report turned out to be self-defeating.92 Later, even USTR Clara Hills
had to admit that the obstruction of the panel report and consequent loss of reputation for the
US had become a liability rather than a bargaining tool, as intended, for the GATT Uruguay
Round negotiations on intellectual property rights.93 Indeed, the EU was not alone in shaming
the US and declaring that US compliance with the panel report was a necessary precondition
for successful GATT negotiations on intellectual property rights.94 Finally, in November 1989,
to save these negotiations the US conceded to accept the panel report.95 Former USTR F.
Holmer explained why his successors were now willing to follow GATT procedures:
They never were going to be successful in the Uruguay Round, particularly in the intellectual
property negotiations, if they continued to block that panel report. It was having a very
negative impact on the negotiations.96
Yet, during the implementation phase the US began to openly disregard the GATT dispute
settlement system.97 The Bush administration declared that any US statute changes would
have to wait until the GATT Uruguay Round was successfully concluded.98 The US even
continued to ignore the panel report in the light of further delays in the conclusion of the
Uruguay Round beyond 1990, and in the meantime even refused to apply existing ITC
provisions in line with GATT provisions. 99 This time, attempts to shame the US and to
undermine its reputation as a reliable GATT partner failed. Only five years later, with the
conclusion of the Uruguay Round, was the US finally prepared to adjust its ITC procedures to
meet its obligations under GATT. The patents case finally came to an end.
The Steel Case

The origins of the Steel case went back to steel tariffs introduced by the US in March 2002 in
response to a sudden surge of steel imports due to the Asian Crisis in 1997 and 1998, which
88
89
90
91
92
93
94
95
96
97
98
99
L/6439, 36S/ 345.

Hudec 1993: 221, 548.
Financial Times 12.10.1989, Journal of Commerce 08.11.1989.
Hudec 1993: 221.
Members of the US delegation for the GATT negotiations on intellectual property rights objected: How
do we go on the offensive when we wont own up on the panel reports? Do we want to use the GATT
as a sword or as a shield? If we use it as a shield, we gum up the whole works (Journal of Commerce
16.10.1989).
The Economist 20.05.1989, Financial Times 08.11.1989.
Hudec 1993: 548, Dinan 1991.
Journal of Commerce 08.11.1989, The Economist 21.04.1990, Financial Times 08.11.1989.
19
affected and continued to affect the American Steel industry.100 The US considered these
tariffs to be WTO-compatible, because, according to the Bush administration, they were to
provide temporary relief from international competition, so that the steel industry could
undergo a restructuring program.101 The EU, however, criticized the steel tariffs as an open
violation of WTO law,102 and underlined that steel imports into the US increased after the
Asian Crisis in 1997 and 1998 only and have declined ever since. 103 Therefore, the EU
argued, the steel tariffs could not be justified under WTO law.104
The complaints phase began in March 2002, immediately after the increase of the tariffs had
been declared, when the EU invoked the WTO dispute settlement procedure.105 Although it
was determined to implement the intended tariffs, the US followed the WTO dispute
settlement provisions and accepted the EU request for consultations, which were held in
April 2002.106
As the consultations failed, the dispute entered the adjudication phase during which the US
continued to follow the WTO dispute settlement procedures,107 neither disregarding nor trying
to manipulate them. While granting exemptions from the steel tariffs for a variety of specific
steel products, the Bush administration continued to argue in favour the tariffs. Yet the panel,
which was requested by the EU, in its report of July 2003, as well as the Appellate Body,
which was invoked by the US, in its report of November 2003, agreed that the American steel
tariffs were illegal under WTO law. Both reports criticized that among other things, the US
had failed to demonstrate a causal link between rising steel imports and the crisis of the
American steel industry, and both reports demanded that the US repeal its illegal steel
tariffs.108
Although it criticized the reports, the Bush administration announced that the US was willing
to follow the WTO reports, and to withdraw its steel tariffs, and the implementation phase
began. 109 While, admittedly, it neither mentioned the WTO reports nor the sanctions
threatened by the EU, but pointed instead at the successful restructuring of the American
steel industry, 110 it was nevertheless obvious that the administration complied because it
feared authorized sanctions. It was hardly by chance that it announced its decision, in
December 2003, less than a week before the EU was able to apply sanctions of about 2.2
billion US dollars. Within both the administration and Congress the prospect of sanctions
authorized by the WTO weakened those who had argued in favour of steel tariffs, while
100
101
102
103
104
105
106
107
108
109
110
Financial Times 06.03.2002, The Economist 09.03.2002.

WT/DS258/R.
WT/DS248/1.
WT/DS248/12.
WT/DS248/12.
WT/DS248/11.
WT/DS248/12.
WT/DS248/R, WT/DS248/AB/R
The President explained: I took action to give the industry a chance to adjust to the surge in foreign
imports and to give relief to the workers and communities that depend on steel for their jobs and
livelihoods. These safeguard measures have now achieved their purpose, and as result of changed
economic circumstances it is time to lift them (Washington Post 05.12.2003, New York Times
05.12.2003).
20
strengthening those who had always been against them. 111 For example, Senator Lamar
Alexander from Tennessee declared, in face of the sanctions:
Because of the WTO ruling continuing the tariff will destroy thousands more of our textile
and agricultural jobs. President Bushs honest effort to save steel jobs is now backfiring and
hurting American workers.112
In addition, concerns about US reputation and about the WTOs credibility had also won the
administration as well as Congress over in favour of complying with the WTO reports.113
Senator Charles E. Grassley, for instance, maintained:
Although I may not agree with every decision at the WTO, its important that we comply
when decisions go against us. Complying with our WTO obligations is an important sign of
American leadership.114
Comparing the Patent and Steel Cases

Overall, the comparison of US dispute settlement behaviour in the Patents and the Steel
case supports the institutionalist hypothesis. While in the Steel case it strictly followed the
judicial WTO procedures, in the Patent case its strategy fluctuated between following,
avoiding and disregarding the diplomatic GATT dispute settlement mechanism. Moreover, as
the Patent case confirms, the GATT procedures only had an impact on the US when its
deviant behaviour discredited its reputation to such a degree that it jeopardized its efforts to
negotiate over intellectual property rights protection within the GATT Uruguay Round
negotiations. The Steel case shows us that the WTO procedures also had an impact
because the Bush administration as well as Congress feared authorized sanctions and they
held concerns about the US reputation and the credibility of the WTO.
In addition, not only the US but also the EU acted differently in the Patent and the Steel case.
The way in which the two disputants dealt with these cases thus differed considerably. While
the Patent case, after a good start, was then mainly dealt with and finally solved outside of
GATT dispute settlement procedures, the Steel case was settled entirely within the WTO
dispute settlement system. Both parties to the dispute evidently likened GATT panel reports
to political bargaining chips, while they accepted that the WTO reports have to be treated as
binding rulings.
3.3 Comparing the Hormones Cases

The so-called Hormones cases under GATT and WTO are singularly appropriate for
investigating the institutionalist hypothesis within a most similar case design. The cases are
similar because in both of them the US objected to the EU ban on beef treated with certain
growth hormones. Moreover, in both cases the US had considerable incentives to take the
111
112
113
114
Washington Post 05.12.2003, The Economist 06.12.2003.

New York Times 11.11.2003, Financial Times 05.12.2003. An adviser of President George W. Bush
explained the US decision: Defiance had real costs. (). It was going to cost us credibility around the
world (New York Times 05.12.2003).
Washington Post 11.11.2003.
21
law into its own hands, because the EU refused to lift its ban although it defied GATT/WTO
regulations.
The First Hormones Case

When the Hormones case was sparked off in 1985 the EU claimed that its ban was justified
because the growth hormones in question were suspected of enhancing the risk of cancer.
The US, however, criticized the ban as illegal under GATT because there was no evidence,
they claimed, that meat produced with the said hormones increased the risk of cancer.115 The
US complained that the ban was an arbitrary measure to protect European beef producers
from American meat production.116
From early on in the complaints phase the US disregarded the GATT dispute settlement
mechanism.117 Then in March 1987 the US requested consultations with the EU under the
GATT agreement on Technical Barriers to Trade.118 Even before consultations took place,
however, and without any GATT authorization, the US threatened to employ sanctions if the
EU went ahead with its ban.119 In fact, under heavy pressure from Congress the Reagan
administration even prepared a list of EU products the US was willing to sanction.120
At all events the GATT consultations failed, and in June 1987 the Hormones case entered
the adjudication phase. The US now requested a dispute settlement panel to be established
under the TBT agreement rather than GATT, because the former provided panels of
independent experts, while the latter appointed panels of state representatives.121 The EU
was not prepared to accept a panel of experts, however; from the European point of view the
TBT agreement was not applicable to the Hormones case.122 Yet, the EU did offer to accept
a GATT panel to decide on the applicability of the TBT agreement. 123 Although this was
explicitly provided under the TBT agreement, the US rejected the GATT panel and insisted
instead on an expert panel under the TBT agreement. 124 In September 1987, in open
disregard of GATT dispute settlement procedures, the Reagan administration thus began
preparing concrete sanctions.125
The Hormones dispute now moved on to the implementation phase. Finally, in December
1987, in disregard of the GATT dispute settlement system, the Reagan administration
decided to employ sanctions.126 It prepared a list of products against which sanctions were to
be employed if and when the EU ban went into force.127 As attempts to come to an amicable
115
116
117
118
119
120
121
122
123
124
125
126
127

Decker 2002: 150.
Hudec 1993: 545; Meng 1990: 824.
TBT/Spec/18.
Financial Times 31.12.1985, Financial Times 23.11.1987.
Hudec 1993: 545; Meng 1990: 824.
Financial Times 23.09.1987, 14.10.1987.
Hudec 1993: 225-226; Decker 2002: 150.
Hudec 1993: 225-226; Meng 1990: 824-825.
Decker 2002: 150. The Reagan administration underlined: Were prepared with a retaliatory package
if () U.S. beef imports into the E.C. are being interrupted (New York Times 25.12.1987).
22
solution repeated failed, the dispute threatened to escalate.128 The EU announced that it was
prepared to retaliate against US sanctions, to which the Reagan administration threatened
with counter-retaliation.129
The Hormones case entered the enforcement phase when the EU ban went into force in
January 1989. Still disregarding GATT provisions the US immediately responded with
unauthorized sanctions.130 Moreover, the US blocked the EU request for a GATT panel to
deal with American sanctions.131 The US claimed that non-authorized sanctions were justified
because of the inadequate dispute settlement procedures under GATT, which in their view
gave the EU the opportunity to arbitrarily block its request for a panel.132 In actual fact, the
US had never requested a GATT panel. 133 In any case, US sanctions that defied the
regulations of the GATT were not conducive to an amicable solution of the dispute.134 The
US and the EU merely managed to agree on partial solutions which led to a gradual
reduction of US sanctions.135
The Second Hormones Case

In 1995, with the new dispute settlement procedures in place, the US again started to
complain about the EU ban on hormones-treated beef. This time, however, from early on in
the complaints phase, the US was prepared to strictly follow the WTO dispute settlement
procedure. In contrast to the earlier Hormones case under GATT, the US refrained from
threats of imposing non-authorized sanctions. Instead, it announced that it would invoke the
WTO dispute settlement procedures if the EU did not give up its illegal ban immediately. In
fact, in January 1996, after attempts to come to an amicable solution with the EU again
failed, the US requested consultations under the WTO.136
After the failure of WTO consultations the dispute entered the adjudication phase.137 In April
1996 the US, still following the dispute settlement procedures to the letter, requested the
establishment of a WTO panel.138 The Clinton administration even withdrew the sanctions the
US had been employing since the first Hormones dispute.139 The administration underlined
that it was seeking to get sanctions authorized by the WTO in order to force the EU to give
up its ban which it claimed infringed WTO law. USTR Charlene Barshefsky even declared
that she considered authorized sanctions as the only effective means of asserting US rights
in the face of EU non-compliance.140 To ensure that the EU could not turn the tables she
even decided that the US would give up on its previous sanctions. She explained:
128
129
130
131
132
133
134
135
136
137
138
139
140
Decker 2002: 150.

Financial Times 21.11.1988, Washington Post 13.12.1988.
Hudec 1993: 225-226; USTR 2002: 13.
USTR Clayton Yeutter claimed: We have tried repeatedly to bring this issue to a scientific disputes
settlement, under the GATT, in order to have it resolved. Our European counterparts have consistently
blocked our efforts (Financial Times 28.12.1988).
Hudec 1993: 574, 249; Meng 1990: 833-835.
Hudec 1993: 229.
WT/DS26/1.
Ahearn 2002: 27.
WT/DS26/6.
New York Times 06.07.1996, Journal of Commerce 16.07.1996.
23
As the United States now had effective multilateral procedures to address the matter of the
ECs restrictions on imports of U.S. meat () the USTR () determined that it was in the
interest of the United States to terminate () the increased duties.141
In their reports of August 1997 and February 1998 the panel as well as the Appellate Body
agreed that the ban was illegal, because the EU had failed to provide scientific evidence that
beef treated with the hormones in question posed any risk for consumers. 142 And USTR
Charlene Barshefsky claimed victory:
This is a sign that the WTO dispute settlement system can handle complex and difficult
disputes where a WTO member attempts to justify trade barriers by thinly disguising them as
health measures.143
The Hormones dispute now entered the implementation phase. Disagreement arose again
over the period for the implementation of the WTO reports. The US insisted that the EU end
its ban immediately.144 The EU however, argued that the WTO reports had not criticized the
ban itself, but merely the lack of scientific evidence. The EU demanded the right to uphold its
ban for 15 months while seeking scientific evidence to justify the ban.145 In fact, a panel,
invoked by the US, gave the EU 15 months until May 1999 to come into compliance with the
WTO reports.146 Unlike the first Hormones case under GATT, the US continued to follow the
WTO procedures despite this decision. It did not resort to unilateral sanctions the very
moment that WTO procedures did not bring forth the desired results. The fact that the
administration as well as Congress did not even consider unilateral sanctions might even be
seen as an indication of their normative commitment towards the WTO procedures.147
As the EU decided in May 1999 that it would uphold its ban on hormones-treated beef, the
dispute with the US entered the enforcement phase. The EU argued that scientific evidence
was in preparation which indicated that the said hormones posed a risk for human
consumption. 148 The US, however, accusing the EU of undermining the credibility of the
WTO system, was no longer willing to wait for the EU to produce sound scientific
evidence. 149 May 1999, in accordance with the dispute settlement provisions, the Clinton
administration requested the WTO to authorize sanctions.150 This was, however, deferred
when the EU requested a further WTO panel to decide on the amount of sanctions.151 Again,
the US assented, and when the decision was made was even prepared to reduce sanctions,
as required, from 220 to 116 million US dollars.152 The US was anxious to ensure that the EU
141
142
143
144
145
146
147
148
149
150
151
152
USTR 2002: 13.

WT/DS26/R/USA; WT/DS26/AB/R.
New York Times 14.03.1998, Financial Times 13.02.1998.
Financial Times 13.02.1998, New York Times 14.03.1998.
WT/DS26/15.
Wall Street Journal 23.03.1999.
Financial Times 04.05.1999, 05.05.1999, 20.05.1999.
Financial Times 15.05.1999, New York Times 23.03.1999.
WT/DS26/19. The US administration nevertheless emphasized that employing sanctions was not its
preferred option: We would still prefer to resolve this long-standing trade dispute in a way that
provides access for US meat in the European market (Financial Times 15.5.1999).
WT/DS26/20.
Decker 2002: 152. The US representative at the WTO Rita Hayes declared: The final list of sanctions
will not be drawn up until we have WTO authorization (New York Times 04.06.1999).
24
could not turn the tables and shame it for violating WTO procedures.153 Moreover, the US
urged the EU to comply with the reports to preserve the WTOs credibility. 154 The EU,
however, merely accepted the sanctions employed by the US without retaliation, but until
today has neither lifted the ban nor provided scientific evidence for its justification.155
Comparing the Hormones Cases

The comparison of US behaviour in the two Hormones cases under GATT and WTO bears
out the institutionalist hypothesis. While constantly disregarding the diplomatic GATT dispute
settlement procedures during the first case, the US was willing to follow the judicial WTO
dispute settlement provisions to the letter in the second case. As the first Hormones case
reveals, the GATT dispute settlement proceedings had hardly any effect on US behaviour.
The very moment that the procedure did not deliver the desired results, because the EU
refused the required TBT panel, the US decided to take the law into its own hands. In the
second Hormones case, by contrast, the US was prepared to strictly follow the WTO
procedures although it also did not bring forth the desired results. In particular, the dispute
settlement proceedings did not authorize the amount of sanctions requested by the US, and
(therefore) failed to ensure EU compliance with the panel report requiring the EU to lift its
ban. The US was obviously prepared to follow the WTO procedure because it perceived it to
allow effective shaming of the EU and to get sanctions authorized. At the same time it
followed the procedures to rule out that the EU could shame the US for disregarding its WTO
obligations and to ask the WTO itself for authorized sanctions. In addition, normative
commitments towards the WTO seemed to have had an impact on US behaviour too.
Moreover, in the Hormones cases not only the US, but also the EU acted more in
accordance with the dispute settlement procedures under the WTO than under GATT.
Certainly, in both cases the EU upheld its ban on hormone-treated beef in defiance of the
respective rulings. Remarkably, however, in the second Hormones case the EU accepted the
sanctions the US was authorized to employ without any threat of retaliation. Therefore the
way in which the two superpowers of international trade dealt with the dispute changed
considerably. While in the first case, under GATT, their behaviour threatened to lead to a
spiral of unauthorized sanctions, retaliation and counter-retaliation, the second case could be
kept within the frame of the WTO dispute settlement system.
3.4 Comparing the Citrus and Bananas Cases

In terms of case similarity the so-called Citrus case under GATT and the Bananas case
under the WTO fulfil the criteria for evaluating the institutionalist hypothesis, because both
are similar inasmuch as the US complained that the EUs preferential treatment of
agricultural products from former European colonies discriminated against products from the
US.
153
154
155
Financial Times 17.05.1999, 27.07.1999.

For example, USTR Charlene Barshefsky said: I would urge the EU to reconsider its damaging
actions and to demonstrate a real commitment to a rules-based multilateral trading system (Financial
Times 13.07.1999).
25
The Citrus Case

Since the 1960s, the EU (then the EC) held trade agreements with states around the
Mediterranean rim giving them preferential access to European markets for a variety of
products. 156 In 1976, the US, although in principle accepting the preferential treatment of
developing countries, criticized specifically the agreements for Citrus products. The US
claimed that these agreements were illegal under GATT because they unduly discriminated
against American Citrus products. The EU, which saw the US allegations as an attempt to
undermine its trade agreements with Mediterranean countries, argued that the preferences
for Citrus from these countries were compatible with GATT, which explicitly allows
preferential treatment for developing countries.
During the early complaints phase the US avoided dealing with the dispute under the GATT
dispute settlement procedures. As encouraged by the GATT agreement, it tried to reach a
negotiated settlement with the EU, first between 1976 and 1978 outside of GATT, then
between 1979 and 1982 in the context of the GATT Tokyo Round. Only in June 1982, after
these attempts failed, did it invoke GATT dispute settlement procedures. Now following the
dispute settlement provisions, the US requested formal consultations. 157 Consultations
followed, but the US and the EU were unable to find a solution for the Citrus case.158
The dispute thus entered the adjudication phase, and the US requested the appointment of a
GATT dispute settlement panel. 159 The Reagan administration followed GATT dispute
settlement provisions although attempts by the EU to block the establishment of a panel
delayed the commencement of their work until October 1983.160 In its report of December
1984 the panel concluded that the preferential treatment of Citrus products from developing
countries while not a violation of GATT obligations nullified privileges the EU had already
granted to the US.161 Hence the panel neither concurred with the US that the preferential
treatment itself was a violation of GATT, nor did it accept the EU argument that the
preferential treatment was entirely compatible with the provisions of the GATT. The EU was
merely requested to reduce tariffs for two Citrus products, i.e. oranges and lemons. 162
Although the US had not accomplished what it had desired, the administration supported the
approval of the panel report. 163 The EU, by contrast, blocked its adoption by the GATT
Council.164
The dispute proceeded to the implementation phase, in the course of which the US
administration declared that it now considered the dispute settlement process under GATT to
be terminated.165 Due to the EUs obstruction of the panel report and its refusal to comply
with the panels recommendations, the US claimed the right to employ sanctions without
156
157
158
159
160
161
162
163
164
165
Hudec 1993: 157-161.

Hudec 1993: 158.
Wall Street Journal 21.04.1982, Financial Times 22.04.1982.
L/5337.
Hudec 1993: 159; USTR 2002: 2.
Hudec 1993: 159; Petersmann 1997: 160-164.
L/5776.
Hudec 1993: 504.
C/M/190.
26
GATT approval. 166 Disregarding GATT dispute settlement provisions, the US indeed
prepared a list of sanctions it was willing to employ.167 The EU however warned that it would
retaliate against non-authorized US sanctions immediately.168
Now entering the enforcement phase, however, the US continued to disregard the GATT
dispute settlement provisions. Without obtaining GATT approval it increased tariffs for
European pasta by 25-40%. 169 The Reagan administration claimed that this was justified
because the GATT dispute settlement system was unreliable.170 However, these unilateral
sanctions aggravated the dispute, because the EU retaliated, again without GATT approval,
by increasing tariffs on American citrus and walnuts by 20% and 30% respectively.171 The
European Commission considered its retaliatory sanctions justified because of the US
disrespect for the GATT ban on non-authorized sanctions.172
To prevent the dispute from escalating further both parties were meanwhile threatening to
retaliate against the other partys retaliation the US and the EU tried to reach a negotiated
settlement. In June 1985 they agreed on a ceasefire to temporarily give up their sanctions
against European pasta and American citrus and walnuts.173 But when the ceasefire ended in
October 1985, both parties reinstateded their sanctions.174 During the summer of 1986 the
dispute seemed to be getting out of control, with both the US and the EU threatening to step
up their retaliatory measures.175 Only the prospect that the Citrus dispute might hamper the
GATT Uruguay Round negotiations brought the US and the EU back to the negotiation
table. 176 In August 1986, after tough negotiations, they finally agreed that the EU had to
reduce its tariffs on citrus, while the US accepted its preferential treatment of Mediterranean
countries.177 After more than ten years the citrus dispute was finally over.178
The Bananas Case

The EU Bananas Directive of 1993, which provided preferential access to European markets
for bananas from certain developing countries, especially from the Caribbean, gave rise to
the Bananas dispute with the US.179 The US complained that the Bananas regime was not
166
167
168
169
170
171
172
173
174
175
176
177
178
179
Financial Times 20.05.1985, 20.06.1985.

USTR 2002: 2.
Financial Times 20.06.1985, Los Angeles Times 20.06.1985.
Washington Post 21.06.1985. US President Reagan declared: I have determined that the preferential
tariffs granted by the European Economic Community (EEC) on imports of lemons and oranges from
certain Mediterranean countries deny benefits to the United States arising under the General
Agreement on Tariffs and Trade (GATT). () I will therefore proclaim an increase in duties on pasta
products (...) imported from the EEC (Public Papers of the President 20.06.1985).
Hudec 1993: 160. US President Reagan explained: The EEC () has been unwilling to accept either
the panels findings or recommendations and has effectively prevented a resolution of this issue in the
GATT. (...) The EECs unwillingness to implement the panels finding (...) requires us to re-balance the
level of concessions (Public Papers of the President 20.06.1985).
New York Times 28.06.1985, Financial Times 28.06.1985.
Financial Times 11.07.1985, 13.07.1985.
Wall Street Journal 11.08.1986.
Financial Times 11.08.1986, 12.08.1986, Economist 16.08.1986.
Hanrahan 2002: 66, Cadot and Webber 2001: 3-6.
27
compatible with WTO law because it not only provided preferential treatment to developing
countries, but also privileged European marketing companies which mainly traded with
bananas from the Caribbean, and discriminated against American companies such as
Chiquita and Dole that marketed bananas from Latin America.180 The EU argued however
that its bananas regime was compatible with WTO law because it was merely designed to
privilege bananas from Caribbean countries without giving any advantage to European
marketing companies over their American competitors.181
Early on in the complaints phase, to avoid a formal WTO dispute settlement procedure the
US tried to persuade the EU to modify its projected bananas regime before it even came into
force. But since the bananas regime had been highly contested within the EU, it was unable
to agree on a modified regime that would satisfy US interests. In September 1995, in a move
to force the EU to give in, the US administration, following WTO dispute settlement
procedures, requested formal consultations with the EU. 182 As USTR Micky Kantor
explained, fear of being put to shame and losing its reputation prevented the US from
threatening to apply unauthorized sanctions:
If we had gone with unilateral sanctions, all we would have done was raise the ire of all the
other WTO members, including the member states in the EU who favoured our position.183
Since the US and the EU failed to solve the bananas dispute through consultations, however,
the dispute then entered the adjudication phase.184 Consistently following WTO procedures,
the US asked for a panel to decide on the EU bananas regime.185 The panel as well as the
Appellate Body concluded in their reports of May 1997 and September 1997 respectively that
the EU bananas regime was not compatible with WTO law. 186 The reports accepted the
preferential treatment of bananas from Caribbean countries, but criticized the fact that the EU
import quotas and import licences unduly discriminated against American and in favour of
European marketing companies.187
In the implementation phase, still following WTO procedures, the Clinton administration
accepted a WTO panel decision allowing the EU not only until August 1998, as demanded by
the US, but until January 1999 to adjust its banana regime.188 The EU declared that it was
willing to repeal its bananas regime by then.189 When, however, in July 1998 it became clear
that the EU would only agree on cosmetic changes to its bananas regime, the US began to
manipulate the WTO procedure. If the EU did not come up with a substantively revised
bananas regime, the Clinton administration threatened, the US would request sanctions
without involving another WTO panel to decide on the legality of the modified bananas
regime.190 Admittedly, the WTO dispute settlement provisions did not explicitly require the US
to invoke another panel to decide on the modified regime; implicitly, though, it was obvious
180
181
182
183
184
185
186
187
188
189
190
Tangermann 2003.
Josling 2003: 178-182.
WT/DS16/1, WT/DS27/1.
quoted from Stovall and Hathaway 2003: 155-156.
Josling 2003: 176-177.
WT/DS27/6.
WT/DS27/R/USA, WT/DS27/AB/R.
Josling 2003: 178-182, Hanrahan 2002: 66.
WT/DS27/16, WT/DS27/15.
Josling 2003: 183-185.
28
that it was not for the US to decide whether the modified regime complied with WTO law. It
had to invoke another WTO panel to decide on the EU bananas regime before requiring
sanctions which the WTO was bound to approve.191
In March 1999, now entering the enforcement phase, the Clinton administration imposed
non-authorized sanctions of 520 m. US dollars against the EU.192 However, it did not actually
collect these sanctions, but merely required importers to post bonds which would cover the
sanctions if authorized by the WTO; in this way manipulating rather than disregarding the
WTO procedures. 193 Through these bonds, the US wanted to reserve the right to collect
sanctions retroactively.194 Its reluctance to openly disregard the dispute settlement provisions
can be seen as an indication of its normative commitment to the WTO procedures. At all
events, when a WTO panel finally concluded in April 1999 that the modified EU bananas
regime still failed to comply with earlier WTO reports, the US reverted to following the WTO
procedures. 195 Although the panel merely authorized sanctions amounting to 191 m. US
dollars, rather than 520 m. US dollars as it had demanded, the US was prepared to reduce
its sanctions accordingly. 196 Moreover, the US also complied with a further panel report
stipulating that it may not employ sanctions retroactively, and refrained from using the posted
bonds.197 Nevertheless, even with authorized sanctions in place it took another two years
before the EU and the US could agree on a WTO-compliant regime for the importation of
bananas.
Comparing the Citrus and Bananas Cases

Overall, the comparison of US behaviour in the Citrus case under GATT and the bananas
case under the WTO sustains the institutionalist hypothesis. Admittedly, in both cases, the
US was only prepared to follow the agreed GATT/WTO procedures after attempting to avoid
a formal dispute settlement procedure. However, later on in Bananas dispute the US
abstained from openly disregarding WTO procedures, while it clearly violated GATT
provisions in the Citrus case. While in the citrus case the GATT dispute settlement
procedures hardly had any effect on US behaviour, the WTO dispute settlement procedures
in the bananas case had at least some impact. As in the second Hormones case, the US
was willing to go by the WTO procedure in the Bananas case because it perceived it as an
effective instrument for shaming the EU and getting sanctions authorized. Moreover, it
refrained from openly disregarding procedures, even when they did not deliver the desired
results, in order to avoid being put to shame by the EU for disregarding its WTO obligations,
and to pre-empt European sanctions authorized by the WTO. In addition, the normative
commitment toward the WTO also seems to have played a substantial role.
191
192
193
194
195
196
197
Josling 2003: 186, Cadot and Webber 2001: 30, Hanrahan 2002: 67.
Josling 2003: 187-189, Cadot and Webber 2001: 33.
Washington Post 04.03.1999, Journal of Commerce 05.03.1999. USTR Charlene Barshefsky
explained: The United States has simply preserved its ability to increase duties as of March 3
depending on the outcome of the arbitration decision (Journal of Commerce 09.03.1999).
Washington Post 09.03.1999.
WT/DS27/RW/EEC.
WT/DS27/ARB.
Hanrahan 2002: 67, Josling 2003: 187-189. USTR Charlene Barshefsky underlined: We view this as
a major victory for the WTO dispute settlement system. This demonstrates that there are time limits
that must be respected and if countries dont come into compliance at the end of a reasonable time
period, they have to pay the price (Washington Post 07.04.1999).
29
Furthermore, not only the US, but also the EU acted more in accordance with the WTO
dispute settlement procedures in the Bananas case than in the Citrus case under GATT.
Admittedly, the EU manipulated and disregarded both GATT and WTO procedures. But in
the Bananas case, in contrast to the Citrus case, it did not dare to retaliate against US
sanctions. The fact that US sanctions were authorized forbade the EU to employ any
retaliatory measures. Therefore, the way in which the US and the EU were able to handle the
dispute differed considerably. While the Citrus case like the Hormones case under GATT
threatened to escalate into an exchange of sanctions, retaliation and counter-retaliation, the
Bananas case like the Hormones case under the WTO was largely contained within the
WTO dispute settlement system.
4. Conclusion
The institutionalist hypothesis is thus clearly underpinned by the pairwise comparisons

described above. In each pair of cases the US acted no matter whether as complainant or
as defendant more in accordance with the judicial WTO dispute settlement procedures
than with the diplomatic GATT procedures. US behaviour in the FSC case was more
compliant than in the DISC case, more conforming in the Steel than in the Patents case;
more in compliance in the second than in the first Hormones case, and more conforming in
the Bananas than in the Citrus case.
Table 2: US Behaviour in Disputes with the EU

Complaints
Adjudication
Implementation
Enforcement
DISC
(GATT)
Avoiding
Following
Avoiding
Manipulating
Following
NA
FSC (WTO)
Avoiding
Following
Following
Following
Patents
(GATT)
Following
Following
Avoiding
Disregarding
Following
NA
Steel
(WTO)
Following
Following
Following
NA
Hormones
(GATT)
Disregarding
Disregarding
Disregarding
Disregarding
Hormones
(WTO)
Following
Following
Following
Following
Citrus
(GATT)
Avoiding
Following
Following
Disregarding
Disregarding
Bananas
(WTO)
Avoiding
Following
Following
Following
Manipulating
Manipulating
Following
30
The institutionalist hypothesis even fares well in a comparison of all the eight disputes. While
the US openly disregarded the relevant procedures at least temporarily in all but one of
the four GATT cases, it did not do so in a single one out of the four WTO cases. And while in
two of the four WTO cases the US strictly followed the procedures throughout the whole
dispute, it did not do so once out of the four GATT cases. Remarkably, in each of the four
WTO cases the US behaved more compliantly than in any single GATT case. When the
cases are ranked according to the degree to which US behaviour conformed to the relevant
procedures the first three positions are clearly taken by WTO cases, i.e. the Steel, the
second Hormones, and the FSC case. The next two positions are then held by the worst (in
terms of compliance) WTO and the best GATT cases, i.e. the Bananas and the DISC
cases. And the last three positions are occupied by GATT cases, namely the Patents, the
Citrus and the first Hormones cases.
Moreover, the eight cases also seem to support the institutionalist assumption that the
judicialization of procedures activates the effects specified above that international dispute
settlement procedures might have. The cases demonstrate that where the GATT dispute
settlement procedures were at all effective, this could be attributed to one effect, namely that
of shaming and the potential loss of reputation. This was most obvious in the DISC and the
Patents case, when the US, after a long history of disregarding, avoiding and manipulating
the procedures, started to follow procedures to avoid shaming. The WTO dispute settlement
procedure, by contrast, could not only rely on shaming, but also on states normative
commitments, their concerns about the credibility of the WTO, and on authorized sanctions.
In each of the four WTO cases the role of these effects albeit to varying degrees could be
illustrated.
The institutionalist hypothesis is also strengthened by the fact that not only the US, but also
the EU was more compliant under the WTO than under GATT. Certainly, in the WTO cases
the EU was less compliant than the US. In the Hormones and in the Bananas case at least,
though not in the FSC and the Steel case, the EU openly disregarded the WTO procedures.
However, in a comparison between EU behaviour under GATT and under the WTO one can
still maintain that it is more compliant under the judicialized WTO procedures than it was
under the diplomatic GATT mechanisms. Most importantly, the dispute settlement practices
between the EU and the US have certainly changed. As the cases show, the risk of an
escalation of unauthorized sanctions, retaliation and counter-retaliation that characterized
dispute settlement under GATT, has been substantially mitigated by the WTO procedures.
To be sure, this is not to argue that the judicialization of GATT/WTO dispute settlement
procedures offers the best explanation for the judizialization of US dispute settlement
behaviour. There may be better explanations for this! This is only to argue that the
judizialization of GATT/WTO dispute settlement procedures contributed to the shift in US
dispute settlement behaviour. To do so, however, I have to demonstrate that explanations
that do not include the judicialization of GATT/WTO dispute settlement procedures fail to
come to terms with this shift in US behaviour. Three alternative explanations seem to be of
particular relevance: distribution of power, level of interdependence, US presidents belief
systems.198
198
Zangl 2006: 246-254
31
(1) One alternative explanation might be a shift in the power distribution between the US and
the EU. Taking the ratio of their respective GDPs as indication for the distribution of power
between the US and the EU with respect to trade, however, this explanation does not fare
particularly well. While US behaviour in its disputes with the EU was more in compliance with
the dispute settlement procedures under WTO than under the old GATT system the
distribution of power between the US and the EU has hardly changed. With minor
fluctuations the ratio of their GDPs stayed almost constant with the GDP of the EU being
around 10 per cent higher than the GDP of the US.
Gross Domestic Product (in billions of US dollars; fixed exchange rates of 1995)
1975
1980
1985
1990
1995
2000
USA
3969
4772
5563
6521
7338
8987
EU
4548
5300
5849
7424
8613
9802
US/EU
0,87
0,90
0,95
0,87
0,85
0,91
Source: World Bank, World Development Indicators Database
(2) Another alternative explanation could be the level of interdependence between the US
and the EU. Higher levels of economic interdependence might lead to higher levels of
compliance with GATT/WTO dispute settlement procedures. In fact, using US foreign trade
quotas as indicator, levels of interdependence have, with some fluctuations, increased from
around 16 per cent in the mid-1970s to around 25 per cent in the mid-2000s. However, this
more or less constant increase does not match the sudden change of US dispute settlement
behaviour in the mid-1990s. Moreover, it does not match US levels of compliance under the
GATT and WTO dispute settlement systems respectively. Notwithstanding growing levels of
interdependence US behaviour in early GATT disputes such as the DISC case was more
compliant than in later GATT disputes such as the first Hormones case; and it was more
compliant in early WTO disputes such as the second Hormones case than in later WTO
disputes such as the Bananas or the FSC cases.
US Foreign Trade (in billions of US dollars)

1975
1980
1985
1990
1995
2000
2005
Export
149
280
302
552
812
1096
1175
Import
151
293
417
630
903
1475
1781
BIP
1825
2789
4220
5803
7397
9817
11735
FT-Quota
16%
20%
17%
20%
23%
26%
25%
Source: US Census Bureau, Foreign Trade Division
32
(3) Fundamental foreign policy beliefs of the respective US presidents could provide another
alternative explanation for changes of US dispute settlement behaviour under GATT and
WTO. US presidents with belief systems of a multilateralist might be more willing to settle
disputes with the EU according to the relevant GATT/WTO dispute settlement procedures
than US presidents with belief systems of a unilateralist. Taking Richard Nixon, Gerald Ford,
Ronald Reagan and George Bush jun. as unilateralists while assuming that Jimmie Carter,
George Bush sen. and Bill Clinton can be considered multilateralists this seems to explain
differences in US behaviour under GATT and WTO respectively: 21 dispute years of the
selected GATT disputes fall under unilateralist presidents (mainly Reagan) and only 17
dispute years under multilateralist presidents; under the WTO by contrast only 4 dispute
years fall under unilateralist presidencies whereas 16 dispute years fall under multilateralist
presidencies (mainly Clinton). However, US presidents belief systems can hardly explain all
the differences in US behaviour under GATT and the WTO. Most remarkably, under George
Bush jun. presidency the US behaved in the Bananas, Steel and FSC disputes more
compliant with WTO procedures than during Jimmie Carters presidency when the US
disregarded GATT procedures in both the Citrus and the DISC cases.
US Presidents Foreign Policy Beliefs

19731977
19771981
19811985
19851989
19891993
19931997
19972001
20012005
Nixon/
Ford
Carter
Reagan
Reagan
Bush sen.
Clinton
Clinton
Bush jun.
Unilateral
Multilateral
Unilateral
Unilateral
Multilateral
Multilateral
Multilateral
Unilateral
Overall, as alternative explanations of US/EU dispute settlement behaviour fail, the eight
GATT/WTO disputes underpin the hypothesis that the judicialization of international dispute
settlement procedures sustains the judicialization of states dispute settlement behaviour.
This, of course, does not prove that the rule of law has already emerged within the WTO.
The fact that the US and especially the EU did not always follow WTO procedures to settle
their dispute serves as a reminder of this. But one can claim that not only the procedures, but
also the corresponding practices of dispute settlement are judicialized to a greater degree
today under the WTO than under the old GATT. One can also claim that in the context of the
GATT/WTO an international rule of law is gradually emerging. Hence, contrary to realist
theory, an international rule of law indeed seems to be possible, at least in the GATT/WTO
regime. However, unlike early idealism, we should be cautious in seeing this as indication
that international law can be established beyond the GATT/WTO regime.
33
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Institut fr Interkulturelle

und Internationale Studien

InIIS-Arbeitspapier Nr. 34/06

Institut fr Interkulturelle und Internationale Studien

The Institutionalist Hypothesis

The Judicialization of Dispute Settlement Procedures under GATT/ WTO

The Judicialization of US Dispute Settlement Behaviour under GATT/ WTO

Comparing the DISC and the FSC Cases

1. The Institutionalist Hypothesis

The hypothesis that the judicialization of international dispute settlement procedures

Morgenthau 1948, McCall 2000: 139-140

States are constrained by their own

Institutions can help states to

States are constrained by their own

Institutions can help states to

2. The Judicialization of Dispute Settlement Procedures under GATT/ WTO

Helmedach et al. 2006, Zangl 2006.

Hudec 1998, Jackson 2004, Waincymer 2002:75

3. The Judicialization of US Dispute Settlement Behaviour under GATT/ WTO

To evaluate the institutionalist hypothesis I will investigate US dispute settlement behaviour

3.1 Comparing the DISC and the FSC Cases

The DISC Case

Parent 1989: 93-101, Hufbauer 2002: 1-3.

Jackson 1978: 766, Parent 1989: 53-53.

The FSC Case

Hudec 1993: 92-94, Parent 1989: 123.

Journal of Commerce 08.04.1998.

Comparing the DISC and FSC Cases

WT/DS108/ RW; WT/DS108/AB/RW.

3.2 Comparing the Patents and the Steel Cases

The Patents Case

Hudec 1993: 220, Dinan 1991.

The Steel Case

L/6439, 36S/ 345.

Financial Times 06.03.2002, The Economist 09.03.2002.

Comparing the Patent and Steel Cases

3.3 Comparing the Hormones Cases

Washington Post 05.12.2003, The Economist 06.12.2003.

The First Hormones Case

New York Times 28.12.1988.

The Second Hormones Case

Decker 2002: 150.

USTR 2002: 13.

Comparing the Hormones Cases

3.4 Comparing the Citrus and Bananas Cases

Financial Times 17.05.1999, 27.07.1999.

The Citrus Case

Hudec 1993: 157-161.

The Bananas Case

Financial Times 20.05.1985, 20.06.1985.

Comparing the Citrus and Bananas Cases

The institutionalist hypothesis is thus clearly underpinned by the pairwise comparisons

Table 2: US Behaviour in Disputes with the EU

Zangl 2006: 246-254

Source: World Bank, World Development Indicators Database

US Foreign Trade (in billions of US dollars)

Source: US Census Bureau, Foreign Trade Division

US Presidents Foreign Policy Beliefs