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COLLEGE OF EUROPE Academic Year 2013-2014

EU INTERNATIONAL RELATIONS Date 22/04/2014

AND DIPLOMACY STUDIES

How coherent is the EU’s representation in the WTO Dispute Settlement Mechanism?

Professors Guerts and Wouters The External Representation of the European Union

JOSH GARTLAND Word count: 2 353

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The establishment almost twenty years ago of a muscular dispute settlement mechanism as

an integral part of the World Trade Organization (WTO) was a game-changer for the EU.

Changes to voting rules opened the EU up to WTO-legitimated sanctions for practices that

violate trade law, while a formalised dispute settlement procedure codified in the Dispute

Settlement Understanding (DSU) subjected parties to strict deadlines. Both developments

increased the importance of a coherent defence of EU commercial interests. The paper will

begin with a brief discussion of the concept of ‘coherence’, before applying it to the EU’s

representation. Here the consideration of the EU’s representation in the Dispute Settlement

Mechanism (DSM) has been divided into three parts: the technical-procedural unity of the

EU’s representation; its coherence with the internal policies of the EU, such as the CAP,

environmental policy and development; and its coherence with the rest of the EU’s external

action in the DSM. The paper will conclude with an analysis of the recent dispute brought

against the EU by Denmark on behalf of the Faroe Islands.

The definition of coherence to be employed here will be a modified version of Gebhard’s

multi-faceted conceptualisation. Gebhard identifies four types of coherence: vertical,

horizontal, internal, and external,1 but it is primarily ‘external’ and ‘internal’ coherence that

concern us here. External coherence is described as the technical-procedural unity of the

EU’s external representation, relating more to “functionality and credibility than to specific

foreign policy contents.”2 For Gebhard, writing before Lisbon, internal coherence is taken to

be the ‘sound management’ of policies within each then-pillar. 3 It is, like external

coherence, assumed to be a technical-procedural rather than a political question. Yet

1 C. Gebhard, “Coherence”, in Christopher Hill and Michael Smith (eds.), International Relations and the

European Union, Oxford, Oxford University Press, 2011, 2nd edn., pp.101-127 2 Ibid., pp.108-109

3 Ibid., p.108

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Gebhard’s assumption that the policies within each pillar are necessarily politically coherent

is flawed. What kind of cases the EU chooses to bring, and how it defends itself, may be in

contradiction with other Union policies. For the purposes of this paper therefore, external

coherence will be treated as a technical-procedural question, and internal coherence as a

political one.

Upon first glance, the EU’s representation in the DSM scores highly in terms of external

coherence. Since the WTO’s founding, well before the extension of exclusive Union

competence to cover the whole of the Common Commercial Policy (CCP), member-states of

the EU have deferred to the Commission for the initiation of trade disputes, and have relied

on it to act in their defence in the case of complaints brought against them individually.4

While consistent with ECJ jurisprudence, in particular Opinion 1/94 which invoked the

“requirement of unity in the international representation of the Union”,5 as well as the

treaty commitment to ‘sincere cooperation’,6 the delegation of representation to the

Commission was perhaps more a result of practical considerations, given that threats of

retaliatory sanctions are more credible when delivered by a trading bloc like the EU than by

an individual member-state. Since the coming into force of the Lisbon Treaty, the Union’s

exclusive competence has been extended to cover almost the entirety of the CCP.7 This has

formalised the Commission’s exclusive right to representation in the DSM, since exclusive

Union competence in a field is assumed to extend to the management of the EU’s external

4 E. Berthelot, “La Communauté Européenne et le règlement des différends au sein de l’OMC”, Rennes :

Editions Apogée, 2001, pp.113-114 5 European Court of Justice, Opinion 1/94, 15 Nov 1994, no. 108

6 European Union, “Consolidated Versions of the Treaty on European Union and the Treaty on the Functioning

of the European Union of 13 December 2007”, Official Journal of the European Union, C115, 9 May 2008, art. 4(3) TEU 7 European Union, op. cit., TFEU arts. 3 and 207

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commitments in that field. 8 In the context of trade, the management of the EU’s

commitments has since 1995 entailed responsibility for dispute settlement.9 The coherence

of the EU’s external representation is further strengthened by the relatively limited role of

the member-states, who are informed of proceedings via the Trade Policy Committee and

who can (through the Council) only block the initiation of consultations through a qualified

majority. That said, when it comes to the adoption of an agreement negotiated during the

consultation phase, consensus is generally sought, despite the application of the QMV rule

in most cases.

Nevertheless, the EU’s representation is more complex than that it may first appear.

Members of the WTO can and do bring cases against individual member-states, even in

areas falling within the EU’s exclusive competence.10 This will probably remain the case

unless/until the Commission formally replaces the representations of the 28 in the Dispute

Settlement Body. Yet the Commission itself is not a homogeneous actor. Traditionally, it has

been personnel from the Commission Legal Service and the specialised dispute settlement

unit of DG TRADE seconded to the EU Mission to the WTO in Geneva who have represented

the EU in trade disputes.11 There is a sort of division of labour between DG TRADE and the

Legal Service, with the former taking care of the ‘political aspects’ of the process, and the

latter dealing with the legal aspects, such as pleading the EU’s case before the panel and

appellate body.12 The two protagonists are mutually dependent, and it is arguably for this

8 Berthelot, op. cit., pp.92-93

9 Ibid., pp.92-93

10 S. Billiet, “The EC and WTO Dispute Settlement: The Initiation of Trade Disputes by the EC”, European

Foreign Affairs Review, 10, 2005, pp.206-208 11

G. Le Roux, The EU’s Multilateral Trade Diplomacy at Work: A study of the EU’s Permanent Mission to the WTO, Master’s thesis, Bruges: College of Europe, 2012, p.10 12

Billiet, op. cit., pp.206-208

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reason that “quarrels are in fact occurring less frequently than expected”.13 But it may also

have something to do with the prominent role of the Legal Service, with which DG TRADE

representatives are supposed to confer prior to speaking in the consultation phase.14 The

ascendancy of the Legal Service may well have something to do with the shift from a

political to a legal logic that occurred with the setting up of a formalised DSM in 1995.15

However, the emergence of the so-called ‘trade and…’ issues has resulted in the

involvement of personnel from other DGs in dispute settlement. These personnel may come

from DGs such as AGRI and TRADE, where different cultures hold sway. Officials from DG

TRADE, for example, are known to be averse to ‘green protectionism’ sometimes perceived

to be the real motivation behind certain environmental initiatives.16 As the importance of

the ‘trade and...’ issues increases, the external coherence of the EU at the DSM will come

under pressure.

In another perspective, however, the presence of Commission officials from other DGs could

help to increase the EU’s internal coherence, i.e. between its representation at the DSM and

its other internal policies. Indeed, this internal coherence is challenged by potential

incompatibilities between policy areas. The EU’s commitment to the “progressive abolition

of restrictions on international trade”, 17 for example, is hardly compatible with its

maintenance of stringent sanitary and phytosanitary, technical, and environmental

standards, otherwise known as non-tariff barriers to trade. Here Young has identified two

role conceptions of the Commission in the DSM: as “champion of multilateral trade rules”

13

Ibid., p.208 14

Ibid., p.207 15

T. Cottier, “Dispute settlement in the World Trade Organization: characteristics and structural implications for the European Union”, in T. Cottier, The Challenge of WTO Law: Collected Essays, London: Cameron May, 2007, pp.19-21 16

S. Woolcock, European Union Economic Diplomacy: The Role of the EU in External Economic Relations, Farnham: Ashgate, 2012, p.138 17

European Union, op. cit., TEU art. 21(e), TFEU art. 206,

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and as “defender of the acquis communautaire”.18 These role conceptions have occasionally

come into conflict, calling into question the coherence of the EU’s representation. For

example, in concluding a Uruguay Round ‘peace clause’ with the USA exempting many

agricultural subsidies from legal challenge through the DSM until 2004,19 the EU was

protecting the Common Agricultural Policy at the same time as it was neglecting its

commitment to work for the abolition of restrictions on international trade. The same could

be said of its agreement with the US not to challenge each other’s airline subsidies.20 Yet,

perhaps paradoxically, external deals like this have undoubtedly helped preserve the

coherence of the EU’s representation in the DSM. The settling of sensitive issues outside of

the mechanism prevents them from splitting the EU within it.

Of much greater concern for the EU’s internal coherence is its defence of domestic policies

at the panel stage. The EU’s ban on hormone-treated beef was rejected by the WTO’s

Appellate Body as violating the SPS Agreement, yet the EU chose to accept retaliation rather

than bring its legislation in line with WTO law.21 EU resistance to GMOs has been another

area where Union policy is in contradiction with its commitments to trade liberalisation. In

terms of offensive disputes, the EU has had little patience for the environmental arguments

of third countries, such as China’s justification of its export restrictions on rare earths,

tungsten and molybdenum on environmental grounds under Article XX. In large part a result

of broader political contradictions, this incoherence also flows from the nature of dispute

resolution. Disputes for the EU are inevitably three-level games, demanding consideration

18

A. Young, “Punching its Weight? The European Union’s Use of WTO Dispute Resolution”, in Ole Elgström & Michael Smith (eds.), The European Union’s Roles in International Politics: Concepts and Analysis, London: Routledge, 2006 19

G. Garrett and J. Smith, “The Politics of WTO Dispute Settlement”, Occasional Paper Series, UCLA International Institute, July 2002, p.13 20

Ibid. 21

W. Kerr, and J. Hobbs, “The North American–European Union Dispute Over Beef Produced Using Growth Hormones: A Major Test for the New International Trade Regime”, World Economy, 25(2), February 2002

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of domestic, institutional and international interests.22 The consensus norm in the Council

generally means that the domestic economic interests of all EU member-states must be

accommodated before a deal can be approved in the consultations phase. Hence, for Young,

the Commission’s third representative role, as “advocate for particular economic

interests”.23 Member-states are unlikely to challenge the (defensive or offensive) economic

interests of another, even if these contradict other EU policies, “unless they have strong

countervailing interests”.24

The EU’s representation in dispute settlement is more coherent with its development policy.

Since Lisbon, CCP has been brought into the EU’s external action.25 This commits CCP to the

respect of the provisions laid out in art. 21 TEU, including the fostering of “the sustainable

social, economic and environmental development of developing countries”.26 The EU has

generally been reluctant to launch disputes against developing countries. Those that it has

targeted have tended to be large emerging economies such as India (ten complaints), China

(seven complaints), Argentina (eight complaints), and Brazil (five complaints).27

The Case of Denmark

The case is special thanks to the particular position of the Faroe Islands. Having opted out of

joining the EU as part of Denmark in 1973, the islands are treated like a third state by the

EU. The islands still benefit from Danish membership of the WTO but are not a Member in

their own right. In 2013, after withdrawing from the ‘Coastal states agreement’, the islands

22

A. Young, "What game? By which rules? Adaptation and flexibility in the EC's foreign economic policy", in Michèle Knodt and Sebastiaan Princen (eds.), Understanding the European Union's External Relations, London: Routledge, 2003, pp.55-71 23

Young, “Punching its Weight?”, op. cit., p.191 24

Ibid., pp.189-190 25

European Union, op. cit., TFEU art. 207(1) 26

Ibid., TEU art. 21(d) 27

World Trade Organization, Member Information: the European Union and the WTO, http://www.wto.org/english/thewto_e/countries_e/european_communities_e.htm, retrieved 10/04/2014

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unilaterally increased their catch quota of Atlanto-Scandian herring, prompting the EU to

issue a regulation restricting the sale of Faroese-caught Atlanto-Scandian herring and North-

east Atlantic mackerel and the access of Faroese fishing vessels to EU ports.28 The Faroe

Islands have since requested Denmark, as a WTO Member, to launch on their behalf a

challenge to this regulation through the DSM.29 The initiation of dispute proceedings by an

EU member-state is in itself a precedent. That the dispute itself is directed against the EU

has obviously challenged the coherence of the EU’s representation in this specific case. The

dispute raises question marks over the coherence of the EU in similar cases. There are a

number of French, British, Dutch and Danish overseas countries and territories that are part

neither of the EU nor of the customs union and that could be in a future position to request

that a complaint be made by their parent state. The main threat is that the coherence of the

EU will be undermined in the eyes of other WTO Members who already have a tendency to

play ‘divide and rule’ by lodging complaints against individual member-states.

Conclusion

Up until now, EU representation in the WTO’s DSM has been remarkably coherent in a

technical-procedural sense. Yet there are challenges. The first is the, admittedly limited,

potential for contagion from the Faeroes Islands dispute. The second is the probable

proliferation of actors dealing with dispute settlement. While encouraging smooth

cooperation between staff with different perspectives and priorities will at first present

itself as a technical-procedural issue, bringing the internal policies of the EU into line with its

28

Y. Ishikawa, “The EU-Faroe Islands Herring Stock Dispute at the WTO: the Environmental Justification”, American Society of International Law, 18(4), 14 Feb 2014, http://www.asil.org/insights/volume/18/issue/4/eu-faroe-islands-herring-stock-dispute-wto-environmental-justification, retrieved 11/04/2014 29

World Trade Organization, Faroe Islands files dispute against the EU over fisheries measures, 4 Nov 2013, http://www.wto.org/english/news_e/news13_e/ds469rfc_04nov13_e.htm, retrieved 11/04/2014

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commitment to trade liberalisation, and improving coherence between the various parts of

the EU’s external action, would be the surest way to reinforce the coherence of the EU’s

representation. For the former, Cottier suggests a Commission-run system to monitor

compliance with and implementation of WTO agreements by the member-states: “such a

process would assist national administrations and governments to enhance awareness and

expertise and bring about compliance in their own ways”.30 Ultimately, the still-strong role

of the member-states and the demands of their constituencies will make the task difficult.

30

Cottier, op. cit., p.38

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Young, Alasdair, “Punching its Weight? The European Union’s Use of WTO Dispute Resolution”, in

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