WTO and Indo-Bangladesh trade dispute
Thursday, 3 January 2008
M. A. Taslim
THE dispute settlement mechanism of WTO was established with a view to ensuring that the trade policies and other measures of the member countries were consistent with the WTO rules, and did not impair or nullify the rights and obligations of any member. During the first ten years of its existence, the dispute settlement body of the WTO has been kept busy with members filing several hundred cases against one another. However, during this long period only one case was lodged by any of the least developed countries (LDC) that comprise more than one-fifth of the membership of the WTO.
It would be most unusual if the LDCs did not make much use of the dispute settlement system of the WTO only because they had no reason to believe that their trade and economy were not adversely affected by the policies of the other members. A more plausible reason seems to be that these countries did not have the capacity to mount a legal challenge at the WTO.
Bangladesh is the only least developed country to have approached the WTO dispute settlement system (in January 2004) to resolve a trade dispute it had with its powerful neighbour India. The hurdles that it had to overcome in preparing for a case against a controversial anti-dumping measure taken by India against its lead acid battery exports, and formally lodging a request for consultation in the WTO (as a prelude to a legal challenge) provide a pointer to the formidable difficulties that an LDC could face in mounting a legal challenge at the WTO against any perceived wrong doing by its powerful trading partners.
The most important prerequisites for seeking legal redress from any unfair trade practice or measure are a decision to seek redress and a capacity (both intellectual and material) to seek redress. While the former might at first blush seem trivial, it could prove to be the most critical factor in many circumstances. Most of the trade (particularly exports) of the LDCs are done with the developed countries, particularly USA and EU. The domestic economies of the LDCs are also greatly influenced by the internal policies of the developed countries such as agricultural subsidies. Many of the trade related complaints that LDCs have involve the developed countries. On some occasions, large developing countries could also be involved. When this is the case, a decision to confront the adversary in the WTO is no longer a simple decision based on the merit of the case. The political, economic and financial leverage that these countries possess are usually sufficient to browbeat the aggrieved LDCs into inaction. For example, the cotton-growing African LDCs might quite correctly assess that their economies are being badly injured by the subsidies provided by the USA to its cotton farmers; but they might not proceed further for fear of US retaliation in other important areas. Even when there are no explicit threats, these countries might worry about hardening of the attitude of the developed nations in various negotiations, or withdrawal of support of the government.
In such circumstances the decision to resort to the WTO dispute settlement system to resolve a trade dispute would require a political will that is most likely to be missing among the LDCs. It's no wonder that during the first nine years of the establishment of the WTO, no LDC had summoned the political will to utilise the good offices of the WTO to settle grievances about policies of developed countries.
Another factor that contributes to the unwillingness of the LDCs to seek a legal recourse is the sheer lack of capacity to take such a measure. WTO laws, regulations etc. have quickly multiplied into tens of thousands of pages. It requires enormous amount of effort to prepare a case for presenting at the panel of the dispute settlement body of the WTO. No LDC is in a position to develop the capacity for such a task.
Furthermore, it might not be economically feasible for any LDC to do so unless the country foresees a steady stream of disputes that it would have to settle at the WTO. For most LDCs this is unlikely to happen and hence they would not have an incentive to build up a legal capacity in this area.
Possessing the necessary legal capacity of its own is not essential if the country has the opportunity to hire the services of specialised lawyers or firms. Since lawyers specialising in WTO laws are available, this is a distinct possibility. However, the services of such lawyers can be procured only at a very high cost. It is estimated that lawyers' fees alone for an average WTO case are in the range of 300-400 thousand dollars and could be much more in specific cases. Such high costs essentially put the WTO dispute settlement system beyond the reach of an LDC much like its domestic legal system is beyond the reach of the poorer section of its population.
Although formally governments engage in dispute settlement in the WTO, they are de facto lawyers representing private firms (in some cases public enterprises) who are the real aggrieved parties. Hence, the effectiveness of the legal challenge will depend on the coordination and cooperation between the government and the private (public) enterprises. In preparing a strong case, the government would need full disclosure of information and data on all relevant issues. Private firms in LDCs often do not keep records of all their transactions and some of the records may not be in a usable format. They are also sometimes reluctant to divulge information about the financial aspects of their business to the government. If such problems exist, their case would be weakened and hence, should be sorted out before the case is taken to the WTO.
The administrative structure of the government could also pose some constraints. If several government departments or agencies become involved in the administrative procedures leading to filing a case in the WTO, problems of coordination might arise. Different departments may not cooperate with one another being over-protective of their jurisdiction. They may also differ on the right course of action.
Even when other departments are not directly involved, they may nonetheless object to a legal challenge if they are concerned that the dispute might eventually spill over onto their domain. All these may result in the case being caught up in a bureaucratic tangle causing long delays. The problem would be less severe if a single department holds the statutory authority to decide on the case while other department may assist in an advisory capacity.
As mentioned earlier, Bangladesh is the only LDC to have resorted to the WTO dispute settlement system to resolve a trade dispute. Three countries have so far imposed anti-dumping duties on export products of Bangladesh. The USA was the first to slap on anti-dumping duties on cotton shop towels (February 1992). Brazil imposed anti-dumping duties on jute bags imported from Bangladesh (September 1992) and India on lead acid batteries (January 2002). Bangladesh could not challenge the legality of the anti-dumping duties imposed by the USA and Brazil for some of the very same difficulties discussed above.
In both cases the affected firms did not wish to pursue the cases reportedly because of the high legal and other costs. This inability of the victims to launch a legal challenge permitted the USA to continue with the anti-dumping duties till February 2005 when it was withdrawn only because no US firms showed up during the sunset review to request for a continuation of the duties.
The Brazilian anti-dumping duties have been renewed twice and are still in force; they are unlikely to be withdrawn in the near future.
Bangladesh was a bit more favourably placed in the case of the dumping dispute with India. It being a neighbouring country, contact with its authorities was easier.
Bangladesh tried to resolve the anti-dumping case with India bilaterally both before (during the investigation stage) and after the duties were imposed. But its efforts proved to be unsuccessful. Only after the bilateral negotiations proved to be futile that Bangladesh seriously contemplated the possibility of taking the case to the WTO for an impartial resolution. Fortunately, the difficulties proved to be surmountable in the Indian case; a confluence of some positive factors made this possible. By this time there was some understanding of the difficult issues involved in dumping cases. Bangladesh Tariff Commission (BTC), a statutory body responsible for dumping matters, made a detailed analysis of the case and came to the conclusion that the determination of the Indian authorities on the dumping case was inconsistent with some of the provisions of the WTO Agreement. It strongly recommended that Bangladesh should take the case to the WTO dispute settlement system.
Perhaps the most important factor that allowed Bangladesh to approach the WTO is the relentless pursuit of the case by the affected firm, Rahimafrooz. Quite independently of the government, Rahimafrooz sought redress from the unfair imposition of anti-dumping duties on its export products in the High Court and at CEGAT (Custom, Excise and Gold Appellate Tribunal) of India. Unfortunately, both ended in failure as these Indian institutions upheld the decision of their designated authority on dumping matters. Rahimafrooz also lobbied the Government of Bangladesh to take up its case directly with the Indian Commerce Ministry.
Two successive Commerce Ministers of Bangladesh did take up the matter with their counterparts in India, but without much success. Finally, Rahimafrooz lobbied the Government for taking the case to the dispute settlement body of the WTO. Most importantly, it gave an undertaking to bear all financial costs of the dispute settlement process and cooperate fully with BTC to prepare for the case. Without the dogged determination of Rahimafrooz, the case could have suffered the same fate as that of the other two.
Notwithstanding the enthusiasm of Rahimafrooz, it would have been well nigh impossible to mount the legal challenge without the support provided by the Advisory Centre on WTO Law in Geneva. If the full legal costs of the challenge had to be borne by Rahimafrooz, it would have been a strong deterrence to proceeding further.
The legal experts of the Advisory Centre provide legal support to LDCs on any disputes in the dispute settlement body of the WTO at only 10 per cent of the full costs. The concessionary service provided by the Advisory Centre made it possible for Bangladesh to seek its assistance to prepare the legal case and engage India before the dispute settlement body of the WTO. Although BTC's brief given to the Advisory Centre had spotted many inconsistencies and legal breaches in India's conduct of the dumping investigation and the imposition of the anti-dumping duties, BTC did not have in-house legal expertise. It had neither any staff with legal background nor any experience of judicial challenge in the WTO or elsewhere. The Advisory Centre helped with the preparation of Bangladesh's 'request for consultations' served on India at the WTO. It also provided two lawyers to assist the Bangladeshi team during the Consultation with India under the provisions of WTO dispute settlement. Without the generous assistance of the Advisory Centre, it would have been very difficult for Bangladesh to seek redress in the WTO. In deciding to contest India at the WTO on the anti-dumping dispute, Bangladesh had to overcome a psychological barrier in its understanding of the relationship between trade and diplomacy. Bangladesh Tariff Commission is only an advisory body; the implementation of its recommendations depends on the Ministry of Commerce. While BTC was forthright in its recommendation to take the dispute to the WTO, the Ministry officials were more circumspect. Bangladesh was in the midst of delicate trade negotiations with India with a series of planned meetings with high-level Indian officials.
The Ministry felt that their efforts might come to naught if India were annoyed by Bangladesh's move to push a bilateral trade dispute to the multilateral arena. The Commerce Ministry also received support from the Ministry of Foreign Affairs in this matter who were concerned that such a course of action could have untoward diplomatic ramifications and hence, needs to be cautiously viewed in the broader perspective of overall relation with India. BTC on the other hand argued that the dispute was essentially between two rival companies, and it was most unlikely that the outcome of the dispute would spill over to diplomatic relations.
This view also received support of the Permanent Mission of Bangladesh in Geneva that looked after the WTO matters. It had earlier advised the Ministry that such legal challenges between trading nations, rich and poor, large and small, are a common occurrence in the WTO Dispute Settlement Body; and these did not significantly affect the diplomatic relations between the disputants. Faced with such conflicting opinions, then Commerce Minister had a tough choice to make. He finally decided in favour of taking the dumping dispute with India to the WTO for a settlement. With this decision Bangladesh broke into a new territory in handling bilateral trade disputes; it became aware of the possibility of using the multilateral trade forum for resolving bilateral trade disputes with powerful trading partners.
India's WTO team probably did not want to pursue a case that could have a negative effect on their overall work at the WTO. India was seriously engaged in raising its profile in trade negotiations and present itself as a champion of the trade interests of the developing nations. It wanted to ensure that it was not sidelined in any trade negotiations at the WTO. It needed a good image and the support of the developing nations to achieve its objectives.
A trade dispute of dubious merit with one of the poorest countries of the world was hardly conducive to improving the image of the country as a champion of the cause of the poorer countries. As it turned out, India initiated the process of withdrawing the antidumping duties soon after the consultation. The duties were finally withdrawn by a customs notification in January 2005. An undesirable irritant in the trade relations between the two countries was thus expeditiously removed through the good offices of the dispute settlement mechanism of the WTO.
The author is Professor of Economics, University of Dhaka
THE dispute settlement mechanism of WTO was established with a view to ensuring that the trade policies and other measures of the member countries were consistent with the WTO rules, and did not impair or nullify the rights and obligations of any member. During the first ten years of its existence, the dispute settlement body of the WTO has been kept busy with members filing several hundred cases against one another. However, during this long period only one case was lodged by any of the least developed countries (LDC) that comprise more than one-fifth of the membership of the WTO.
It would be most unusual if the LDCs did not make much use of the dispute settlement system of the WTO only because they had no reason to believe that their trade and economy were not adversely affected by the policies of the other members. A more plausible reason seems to be that these countries did not have the capacity to mount a legal challenge at the WTO.
Bangladesh is the only least developed country to have approached the WTO dispute settlement system (in January 2004) to resolve a trade dispute it had with its powerful neighbour India. The hurdles that it had to overcome in preparing for a case against a controversial anti-dumping measure taken by India against its lead acid battery exports, and formally lodging a request for consultation in the WTO (as a prelude to a legal challenge) provide a pointer to the formidable difficulties that an LDC could face in mounting a legal challenge at the WTO against any perceived wrong doing by its powerful trading partners.
The most important prerequisites for seeking legal redress from any unfair trade practice or measure are a decision to seek redress and a capacity (both intellectual and material) to seek redress. While the former might at first blush seem trivial, it could prove to be the most critical factor in many circumstances. Most of the trade (particularly exports) of the LDCs are done with the developed countries, particularly USA and EU. The domestic economies of the LDCs are also greatly influenced by the internal policies of the developed countries such as agricultural subsidies. Many of the trade related complaints that LDCs have involve the developed countries. On some occasions, large developing countries could also be involved. When this is the case, a decision to confront the adversary in the WTO is no longer a simple decision based on the merit of the case. The political, economic and financial leverage that these countries possess are usually sufficient to browbeat the aggrieved LDCs into inaction. For example, the cotton-growing African LDCs might quite correctly assess that their economies are being badly injured by the subsidies provided by the USA to its cotton farmers; but they might not proceed further for fear of US retaliation in other important areas. Even when there are no explicit threats, these countries might worry about hardening of the attitude of the developed nations in various negotiations, or withdrawal of support of the government.
In such circumstances the decision to resort to the WTO dispute settlement system to resolve a trade dispute would require a political will that is most likely to be missing among the LDCs. It's no wonder that during the first nine years of the establishment of the WTO, no LDC had summoned the political will to utilise the good offices of the WTO to settle grievances about policies of developed countries.
Another factor that contributes to the unwillingness of the LDCs to seek a legal recourse is the sheer lack of capacity to take such a measure. WTO laws, regulations etc. have quickly multiplied into tens of thousands of pages. It requires enormous amount of effort to prepare a case for presenting at the panel of the dispute settlement body of the WTO. No LDC is in a position to develop the capacity for such a task.
Furthermore, it might not be economically feasible for any LDC to do so unless the country foresees a steady stream of disputes that it would have to settle at the WTO. For most LDCs this is unlikely to happen and hence they would not have an incentive to build up a legal capacity in this area.
Possessing the necessary legal capacity of its own is not essential if the country has the opportunity to hire the services of specialised lawyers or firms. Since lawyers specialising in WTO laws are available, this is a distinct possibility. However, the services of such lawyers can be procured only at a very high cost. It is estimated that lawyers' fees alone for an average WTO case are in the range of 300-400 thousand dollars and could be much more in specific cases. Such high costs essentially put the WTO dispute settlement system beyond the reach of an LDC much like its domestic legal system is beyond the reach of the poorer section of its population.
Although formally governments engage in dispute settlement in the WTO, they are de facto lawyers representing private firms (in some cases public enterprises) who are the real aggrieved parties. Hence, the effectiveness of the legal challenge will depend on the coordination and cooperation between the government and the private (public) enterprises. In preparing a strong case, the government would need full disclosure of information and data on all relevant issues. Private firms in LDCs often do not keep records of all their transactions and some of the records may not be in a usable format. They are also sometimes reluctant to divulge information about the financial aspects of their business to the government. If such problems exist, their case would be weakened and hence, should be sorted out before the case is taken to the WTO.
The administrative structure of the government could also pose some constraints. If several government departments or agencies become involved in the administrative procedures leading to filing a case in the WTO, problems of coordination might arise. Different departments may not cooperate with one another being over-protective of their jurisdiction. They may also differ on the right course of action.
Even when other departments are not directly involved, they may nonetheless object to a legal challenge if they are concerned that the dispute might eventually spill over onto their domain. All these may result in the case being caught up in a bureaucratic tangle causing long delays. The problem would be less severe if a single department holds the statutory authority to decide on the case while other department may assist in an advisory capacity.
As mentioned earlier, Bangladesh is the only LDC to have resorted to the WTO dispute settlement system to resolve a trade dispute. Three countries have so far imposed anti-dumping duties on export products of Bangladesh. The USA was the first to slap on anti-dumping duties on cotton shop towels (February 1992). Brazil imposed anti-dumping duties on jute bags imported from Bangladesh (September 1992) and India on lead acid batteries (January 2002). Bangladesh could not challenge the legality of the anti-dumping duties imposed by the USA and Brazil for some of the very same difficulties discussed above.
In both cases the affected firms did not wish to pursue the cases reportedly because of the high legal and other costs. This inability of the victims to launch a legal challenge permitted the USA to continue with the anti-dumping duties till February 2005 when it was withdrawn only because no US firms showed up during the sunset review to request for a continuation of the duties.
The Brazilian anti-dumping duties have been renewed twice and are still in force; they are unlikely to be withdrawn in the near future.
Bangladesh was a bit more favourably placed in the case of the dumping dispute with India. It being a neighbouring country, contact with its authorities was easier.
Bangladesh tried to resolve the anti-dumping case with India bilaterally both before (during the investigation stage) and after the duties were imposed. But its efforts proved to be unsuccessful. Only after the bilateral negotiations proved to be futile that Bangladesh seriously contemplated the possibility of taking the case to the WTO for an impartial resolution. Fortunately, the difficulties proved to be surmountable in the Indian case; a confluence of some positive factors made this possible. By this time there was some understanding of the difficult issues involved in dumping cases. Bangladesh Tariff Commission (BTC), a statutory body responsible for dumping matters, made a detailed analysis of the case and came to the conclusion that the determination of the Indian authorities on the dumping case was inconsistent with some of the provisions of the WTO Agreement. It strongly recommended that Bangladesh should take the case to the WTO dispute settlement system.
Perhaps the most important factor that allowed Bangladesh to approach the WTO is the relentless pursuit of the case by the affected firm, Rahimafrooz. Quite independently of the government, Rahimafrooz sought redress from the unfair imposition of anti-dumping duties on its export products in the High Court and at CEGAT (Custom, Excise and Gold Appellate Tribunal) of India. Unfortunately, both ended in failure as these Indian institutions upheld the decision of their designated authority on dumping matters. Rahimafrooz also lobbied the Government of Bangladesh to take up its case directly with the Indian Commerce Ministry.
Two successive Commerce Ministers of Bangladesh did take up the matter with their counterparts in India, but without much success. Finally, Rahimafrooz lobbied the Government for taking the case to the dispute settlement body of the WTO. Most importantly, it gave an undertaking to bear all financial costs of the dispute settlement process and cooperate fully with BTC to prepare for the case. Without the dogged determination of Rahimafrooz, the case could have suffered the same fate as that of the other two.
Notwithstanding the enthusiasm of Rahimafrooz, it would have been well nigh impossible to mount the legal challenge without the support provided by the Advisory Centre on WTO Law in Geneva. If the full legal costs of the challenge had to be borne by Rahimafrooz, it would have been a strong deterrence to proceeding further.
The legal experts of the Advisory Centre provide legal support to LDCs on any disputes in the dispute settlement body of the WTO at only 10 per cent of the full costs. The concessionary service provided by the Advisory Centre made it possible for Bangladesh to seek its assistance to prepare the legal case and engage India before the dispute settlement body of the WTO. Although BTC's brief given to the Advisory Centre had spotted many inconsistencies and legal breaches in India's conduct of the dumping investigation and the imposition of the anti-dumping duties, BTC did not have in-house legal expertise. It had neither any staff with legal background nor any experience of judicial challenge in the WTO or elsewhere. The Advisory Centre helped with the preparation of Bangladesh's 'request for consultations' served on India at the WTO. It also provided two lawyers to assist the Bangladeshi team during the Consultation with India under the provisions of WTO dispute settlement. Without the generous assistance of the Advisory Centre, it would have been very difficult for Bangladesh to seek redress in the WTO. In deciding to contest India at the WTO on the anti-dumping dispute, Bangladesh had to overcome a psychological barrier in its understanding of the relationship between trade and diplomacy. Bangladesh Tariff Commission is only an advisory body; the implementation of its recommendations depends on the Ministry of Commerce. While BTC was forthright in its recommendation to take the dispute to the WTO, the Ministry officials were more circumspect. Bangladesh was in the midst of delicate trade negotiations with India with a series of planned meetings with high-level Indian officials.
The Ministry felt that their efforts might come to naught if India were annoyed by Bangladesh's move to push a bilateral trade dispute to the multilateral arena. The Commerce Ministry also received support from the Ministry of Foreign Affairs in this matter who were concerned that such a course of action could have untoward diplomatic ramifications and hence, needs to be cautiously viewed in the broader perspective of overall relation with India. BTC on the other hand argued that the dispute was essentially between two rival companies, and it was most unlikely that the outcome of the dispute would spill over to diplomatic relations.
This view also received support of the Permanent Mission of Bangladesh in Geneva that looked after the WTO matters. It had earlier advised the Ministry that such legal challenges between trading nations, rich and poor, large and small, are a common occurrence in the WTO Dispute Settlement Body; and these did not significantly affect the diplomatic relations between the disputants. Faced with such conflicting opinions, then Commerce Minister had a tough choice to make. He finally decided in favour of taking the dumping dispute with India to the WTO for a settlement. With this decision Bangladesh broke into a new territory in handling bilateral trade disputes; it became aware of the possibility of using the multilateral trade forum for resolving bilateral trade disputes with powerful trading partners.
India's WTO team probably did not want to pursue a case that could have a negative effect on their overall work at the WTO. India was seriously engaged in raising its profile in trade negotiations and present itself as a champion of the trade interests of the developing nations. It wanted to ensure that it was not sidelined in any trade negotiations at the WTO. It needed a good image and the support of the developing nations to achieve its objectives.
A trade dispute of dubious merit with one of the poorest countries of the world was hardly conducive to improving the image of the country as a champion of the cause of the poorer countries. As it turned out, India initiated the process of withdrawing the antidumping duties soon after the consultation. The duties were finally withdrawn by a customs notification in January 2005. An undesirable irritant in the trade relations between the two countries was thus expeditiously removed through the good offices of the dispute settlement mechanism of the WTO.
The author is Professor of Economics, University of Dhaka