Jean Monnet Center at NYU School of Law

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The current non-violation provisions[1] under the World Trade Organization (WTO) [2] dispute settlement system present several disadvantages, both to panels attempting to resolve disputes under these provisions and to the WTO system as a whole. These disadvantages include, inter alia, their inherent ambiguity and the concomitant risk that they might be misused. Although efforts have been made to overcome these problems during the half-century history of the General Agreement of Tariffs and Trade (GATT)[3], they continue to persist. The Fuji-Kodak dispute between the United States and Japan vividly illustrates many of these problems.

The United States has long complained about the alleged restrictive business practices against foreign suppliers in the Japanese film market. These practices, the United States believes, are the main reason for the chronic poor performances of United States film manufacturers like Kodak in the Japanese market. [4] In October 1996, the United States filed a complaint with the WTO against Japan, arguing that laws, regulations and requirements of the Japanese government negatively affected the distribution, offering for sale, and internal sale of imported consumer photographic film and paper. The thrust of the U.S. argument was that Japan had violated Article III (National Treatment) of the General Agreement on Ta riffs and Trade 1994 (GATT 1994) [5], Article III (Transparency) and Article XVI (Market Access) of the General Agreement on Trade in Services (GATS). [6] Alternatively, the United States contended that even if there was no violation, the practices regarding anti-competitive barriers directly or indirectly harmed the United States under the GATT 1994 and GATS within the meaning of the "non-violation" provisions. In other words, the United States argued that in the event that the regulations of the Japanese government governing the Japanese film market were GATT 1994- or GATS-legal, the benefits to the United States as a GATT 1994 or GATS Member were nevertheless nullified or impaired. [7]

The Fuji-Kodak (1998) case undoubtedly posed a difficult problem for the panel. For example, it raised the question of whether a Member country could nullify or impair benefits of another without breaching any obligations. Furthermore, even if the panel believed that U.S. benefits were nullified or impaired without any violation by the Japanese government's regulations, it would be difficult for the panel to make such a finding when the non-violation provisions in the GATT 1994 and GATS themselves do not directly address this issue. If the Japanese government argues that it has the sovereign right to implement any domestic policy as long as it observes international obligations under international agreements like the WTO, it is debatable whether the panel should or could rule against Tokyo. In addition, there is still a question of whether such a panel decision would be acceptable to Japan or other WTO Members.

In fact, it has been very difficult for the panel to establish a unified and clear set of norms regarding this concept of non-violation nullification or impairment due to the provisions' inherent ambiguity. Nevertheless, contracting parties have insisted on invoking the non-violation provisions, because their ambiguity allows for broad jurisdiction over parties' complaints.[8] Any measure that does not appear to directly violate the provisions of the GATT, but is nevertheless disadvantageous to the exports of one country, can fall within the category of non-violation complaints.

This persistent ambiguity of the non-violation provisions will inevitably lead to heavy burdens on future panels. Moreover, as discussed below, so-called wrong cases of non-violation could come before a panel, which might then be unable to persuade a losing party to observe its decision and compensate the winning party. This phenomenon would undoubtedly damage the legitimacy and stability of the WTO dispute settlement system. Furthermore, the uncertainties surrounding the non-violation provision will be exacerbated when countries try to take advantage of the uncertainty by seeking to apply the non-violation concept to newly emerging areas, such as competition policies, which the current WTO legal text cannot effectively cover.

In order to prevent the adverse effects of non-violation cases and keep the WTO on a rule-oriented track, the use of non-violation cases should be restricted. Accordingly, this paper offers an approach that transforms non-violation cases either into violation cases or into cases for settlement by inter-governmental cooperation. In addition, it proposes that private parties have direct access to a WTO panel as one pragmatic way of minimizing non-violation cases and their impact.

Part I reviews the evolution of non-violation cases through the GATT's half-century history. Part II examines how non-violation cases may embarrass a future panel and further damage the WTO dispute settlement system. In particular, it explores how the initial problems embedded in the non-violation cases could be exacerbated in the context of newly emerging areas, such as the GATS and competition policies. Finally, Part III proposes that the current violation regime be fine-tuned, that some sensitive non-violation cases be taken out of the domain of the WTO dispute settlement system, and that a panel process be instituted to allow direct access to a panel by private parties on a selective basis.

[1] See GATT 1994, infra note 5, art. XXIII, ¶ 1(b); GATS, infra note 6, art. XXIII, ¶ 3.

[2] See Marrakech Agreement Establishing the World Trade Organization, April 15, 1994, Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, RESULTS OF THE URUGUAY ROUND, 6, 6-18; 33 I.L.M. 1140, 1144-1153 (1994) [hereinafter WTO Agreement]. For a historical background of the creation of the WTO, see generally WORLD TRADE: TOWARD FAIR AND FREE TRADE IN THE TWENTY-FIRST CENTURY (Marie Griesgraber & Bernhard G. Gunter eds., 1997); ASIF H. QURESHI, THE WORLD TRADE ORGANIZATION (1996); BRUCE E. MOON, DILEMMAS OF INTERNATIONAL TRADE (1996); PHILIP RAWORTH & LINDA C. REIF, THE LAW OF THE WORLD TRADE ORGANIZATION: FINAL TEXT OF THE GATT URUGUAY ROUND AGREEMENTS (1995).

[3] General Agreement on Tariffs and Trade, October 30, 1947, T.I.A.S. No. 1700, 55 U.N.T.S. 187 [hereinafter GATT 1947].

[4] See Kodak Chief Urges Japanese Government to Dismantle Systematic Barriers to Film, 12 INT'L TRADE REP. (BNA) 23, at 974 (June 7, 1995). On May 18, 1995, Eastman Kodak filed a complaint under Section 301 of the Trade Act of 1974, arguing that anti-competitive practices by Fuji film blocked Kodak's access to the photographic paper and film markets in Japan. See Trade Act of 1974, §§ 301-310, 19 U.S.C. §§ 2411-2420 (1994) [hereinafter Section 301]. However, the Japanese government refused to negotiate under Section 301 with the United States, maintaining that this dispute, in itself, should be resolved between two private parties: Fuji and Kodak. The United States stopped pursuing this case under Section 301. C. O'Neal Taylor, The Limits of Economic Power: Section 301 and the World Trade Organization Dispute Settlement System, 30 VAND. J. TRANSNAT'L L. 209, 274 (1997); Fujifilm, WTO Film Case (visited August 18, 1997) <>.

[5] General Agreement on Tariffs and Trade 1994, April 15, 1994, art. XVII, Marrakech Agreement Establishing the World Trade Organization, Annex 1A, RESULTS OF THE URUGUAY ROUND 20, 20-38; 33 I.L.M. 1153, 1180 (1994) [hereinafter GATT 1994]. WTO Agreement Annex 1A incorporates a document labeled GATT 1994, which is essentially GATT 1947, as amended through the Uruguay Round, along with all the ancillary agreements pertaining to GATT 1947, as modified. See JOHN H. JACKSON ET AL., LEGAL PROBLEMS OF INTERNATIONAL ECONOMIC RELATIONS- CASES, MATERIALS AND TEXT ON THE NATIONAL AND INTERNATIONAL REGULATION OF TRANSNATIONAL ECONOMIC RELATIONS 290 - 91 (3d ed. 1995).

[6] General Agreement on Trade in Services, Dec. 15, 1993, arts. III, XVI, 33 I.L.M. 44 [hereinafter GATS].

[7] See Japan--Measures Affecting Consumer Photographic Film and Paper, Request for Consultations by the United States (June 21, 1996), WT/DS44/1, G/L/87 [hereinafter Fuji-Kodak]; Japan--Measures Affecting Distribution Services, Request for Consultations by the United States (June 20, 1996), WT/DS45/1, S/L/22 [hereinafter Fuji-Kodak II]. On March 31, 1998, the Fuji-Kodak panel released its final report in which it rejected almost all the arguments made by the United States, both violation (Article III:4 & X:1) and non-violation (Article XXIII:1(b)) claims. See Japan--Measures Affecting Consumer Photographic Film and Paper, Panel Report circulated on March 31, 1998, WT/DS44, WTO, Dispute Settlement/Overview of the State-of-Play of WTO Disputes (visited April 3, 1998) <> [hereinafter Fuji-Kodak Panel Report].

[8] See infra Part II.B.

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