Alexei S. Ispolinov, Head of international law department, Moscow State University

1. Violations of WTO
obligations and sanctions
for not-bringing in
compliance: reflections for
Russia
Alexei S. Ispolinov
head of international law
department
Moscow State University

2. Implementation of the DSB decisions
 Bringing the contested measure in conformity with
WTO rules
 Compensation
 Refusal to comply - readiness to face sanctions
1

3. Sanctions in GATT
Requirement of consensus for adoption of the
panel report and for imposition of sanction
As a result – (a) sanctions have been
authorized just once (US – suspension of
obligations, 1952)
(b) Self –help approach by the states
(especially by USA) – aggressive unilatelarism.
Questions regarding validity and
proportionality of the unilateral measures
Conditions for
impositions
Practice
Approach of
the states
2

4. WTO: conditions for imposition of
sanctions
WTO – some major innovation of the dispute
settlement system including sanction regime
Basic features of WTO sanction regime:
 Absence of collective sanctions
 Absence of retrospective sanctions
 Sanctions if the state failed to bring the measure in conformity
in a reasonable time
3

5. WTO: conditions for imposition of
sanctions
 Only by complaining state
 Temporary character till bringing the contested
measure into conformity
 Shall be equivalent to the level of violation (art. 22.4
DSU)
 In case of disagreement the level of equivalence shall
be determined by arbitrators
4

6. Issues of terminology
Art. 22 of DSU says about “suspension of concessions
and other obligations”
In literature and in some DSU decisions: “sanctions” or
“retaliatory measures”
We will use “sanctions”
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7. Statistics
 1995-2014 – 474 complaints
 Only in 10 cases the complaining parties asked for
authorization of sanctions
 Only in 4 disputes the complaining parties decided
to impose sanctions (USA, Canada, EU)
 Some countries (including Brazil, Antigua, Ecuador)
refrained from imposition of sanctions
6

8. USA experience
 Sanctions in all cases they got the authorization – EU-
bananas and EU-hormones
 Immediate imposition of 100% duties on the goods
imported from the EU
 List of goods – EU-bananas – leather bags Luis
Vuitton (France), Pecorino cheese (Italy), cashmere
sweaters and bath accessories (UK), batteries and
coffee machines (Italy)
 EU-hormones – delicious products (Dijon mustard,
Roquefort cheese, truffle from Italy, Danish ham,
chocolate, juices and jams from England)
7

9. USA experience (cont.)
Decisive factors:
 Lobbyist capacities of the European manufacturers of the
products
 Choice of the country – influence in EY decision-making
 Activity in adopting of the contested measure (sort of
punishment)
 Less possible negative impact on the USA consumer market
 Publicity
 Carousel approach
8

10. EU approach
For EU a main aim of sanctions is to induce compliance
with WTO rulings
FSC case experience (record amount – 4 biln USD):
More flexible approach – Instead of 100% duties – to
increase by 5%, and by 1 % per month till a level of 17%
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11. EU approach (cont.)
 Publicity
 Politically motivated choice (re-election of G. Bush)
 Smart approach – Screaming exporter is better ten an
exporter who is out of the market
10

12. Brazil experience
 Brazil is proud to join the club
 Perspectives of the victory in US-Cotton case – full
scale preparation of sanctions program
 Special legislative act TRIOPS related sanctions
 Confidentiality
 amicable agreement with UAS – annual payment of
147,3 mln USD
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13. Equivalence: problems with definition
and calculations
“The level of suspension of concessions and other
obligations shall be equivalent to the level of
nullification and impairment’ (art. 22.4 DSU)
 EC-bananas – USA – request for sanctions in amount 520
mln. , authorization for 191,4 mln.
 EC-Hormones – USA request for 202 mln., received
authorization – 116,8 mln.
 Brazil US cotton requested 3 bln. USA – 147,3 mln in outcome
 Antigua – 3 bln 443 mln USA – authorization for 21 mln per
year
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14. Methods of calculation
 “The equality-of-harm” approach – tit-for-tat”
Comparison of 2 situations – (a) level of trade blocked
as a result of the application of contested measure and
(b) counterfactual situation where no such measure
exists
 “The level-of-subsidy” approach – calculation based
on the amount of prohibited subsidy
13

15. Equivalence of sanctions based on GATS
and TRIPS
 Problems with calculations and with choice of
counterfactuals
 Ecuador – first case, 201 mln USA TRIPS-related
sanctions due to the insignificant import from the EU
 Antigua – no detailed explanations. Judicial disaster.
Necessity to have an appeal instance
14

16. Summary of WTO sanctions regime
Advantages:
1. Absence of damage compensation – further incentive
to submit all disputes to DSB
2. Absence of retrospective sanction – incentive for
further liberalization of world trade
3. Decrease of disparity between developed and
developing counties. Having not enough specialists.
the developing countries tend to make more WTO
violations
4. Specifics of WTO – obligation regarding the results not
obligation regarding behavior
15

17. Disadvantages
 Current sanctions regime creates de facto escape clause –
measure continue to be applied till the moment of
completion of all judicial procedure and authorization of
sanctions – 3-4 years (6.5 years in case US-cotton) no need to
use the Special safeguard agreement
16
Suggestion of reform
Compensation, interim measures. Highly disputable and not
realistic

18. Russia and WTO sanctions regime
 One of the mail arguments in favor of joining WTO –
availability of DSB for contest measures of another
states. Another example – an idea of question in
WTO the EU energy package
 In case of victory – what will be our further steps in
case of the EU refusal to comply? Sanctions?
 In what form? Russia has a huge internal market but
how to use it in case of sanctions? Russia is already a
member of the Customs Union and any increase of
the import duty shall be a decision of the CU
institutions
17

19. Sanctions against Russia and the Customs
Union
 Suggestions in the Russian circles to adopt WTO non-
consistent measures and then us to the full extend de facto
escape clause (4-5 years)
 complicated situation with the legal status of the Customs
Union and its measures (plus the fact that Belarus and
Kazakhstan are not still WTO members)
Solutions or EU
EU Commission proposal for new enforcement framework for
international trade rules,
MEMO/12/1006, 18/12/2012
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20. What does the proposal cover?
 EU trade sanctions when a country does not comply
with a ruling under multilateral or bilateral dispute
settlement rules
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21. What does the proposal cover?
 Retaliatory actions in case of adoption by third
countries of bilateral/regional safeguard measures
without satisfactory compensation
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22. What does the proposal cover?
 Suspension of trade benefits granted to a WTO
Member that modifies its concessions
 Towards the EU under Article XXVIII GATT 1994 and
fails to provide due compensation (Ukraine, fall 2013
initiative of the Ukrainian Government aiming to
modify its binding tariffs on over 300 goods agreed
upon Ukraine accession)
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23. “Russia could in return have recourse to the
WTO’s formal dispute settlement proceedings
to challenge the level and/or form of the EU’s
retaliation, but even in case of a positive
outcome of the dispute the WTO rulings
would not have retroactive effect. Hence, in
practice the EU’s measures may be in force as
long as the CU’s safeguards are affecting the
EU’s interests”
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24. Recommendations
 In principle current systems of WTO sanctions has more
advantages for Russia due to the huge and very
competitive internal market
 But Russia’s ability to impose WTO sanctions is seriously
limited by its membership in the CU
 What is available? Sanctions based on TRIPS and GATS
 Highly advisable solution – to adopt a special legislative
act clarifying all such issues
 Absence of clarifications means for Russia that the county
has no teeth even willing to protect the interest of the
Russian companies using WTO dispute settlement
mechanism
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25. Thanks for attention