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  • Ahan Gadkari

Fragmentation of International Economic Law: The Interpretation of WTO Agreements by Swiss Domestic

Introduction

Presently, the World Trade Organisation (WTO) is hearing an increasing number of disputes involving a range of areas and therefore going beyond traditional trade law concerns; see, for example, the trade and environment debate. This development is often seen as an incursion of international legislation into national sovereignty. For this paper, Switzerland's political debates recognized that this system ensures market access and non-discrimination for Swiss enterprises operating overseas. The growing importance of this debate has been paralleled in recent years by an increasing number of cases involving WTO legislation being heard by Swiss adjudicatory organizations. However, contrasted to other areas of international economic agreements, such as Switzerland's bilateral economic integration accords with the European Union, the absolute number of instances remains relatively low. General Agreement on Tariffs and Trades (GATT) was only relevant in three cases before the Swiss Supreme Court in the 1960s and 1970s (p. 164). However, the direct effect still reverberates in an express disagreement between domestic and international norms.


Simply put, a private individual may directly dispute the domestic law provision by relying on the international law provision. However, a direct effect may be expressly mandated or prohibited by an international agreement or local regulation. Generally, it is left to the Court to determine whether a regulation has direct effect and/ or should be applied in a particular situation and/ or deny direct implementation of international accords (p. 305ff). Because international treaties are, by legislation, made part of the domestic system, they offer courts and administration unique functions. Courts have, time and again, expressed their apprehension vis-à-vis treaty interpretation and application (See here, here and here). In Switzerland, it is customary to hold that a treaty norm must be justiciable, which means that its substance must be explicit and unambiguous enough to serve as the foundation for a judgment in a particular instance (p. 121ff). Furthermore, it is common to consider that such a provision must include specific rights or responsibilities, relevant to the individual, that are intended to instruct the authorities or the judge to carry out the norm (p. 29ff). In Switzerland, the issue of whether a particular international treaty regulation has a direct effect is inextricably linked to the question of whether a person may apply it.


This article undertakes a judicial examination of the domestic court’s interpretation of WTO Legislation. To assist in this study, the authors will study the Swiss Federal Supreme Court’s jurisprudence to underscore its trajectory and hesitance vis-à-vis WTO rules as foundations of their judgment. As a result of this undertaking, it will be apparent that only upon prima facie complicity of the domestic system with WTO, interpretation, and application of WTO is considered. While complicity and consistency are important across sections of domestic governance, it is in stark contrast to practice in other nations (See here and here). Although courts appear to be gradually accepting the concept of multi-layered governance (at least in certain states), it is still preferable in many instances to interpret domestic sources by existing obligations rather than giving priority to international obligations over domestic obligations (See here, here and here).


The Role of Courts in International Treaty Application

Like the United States of America, Swiss Courts refer to 'self-executing nature' to highlight the absorption of an international treaty that requires domestic application via a separate statute to become effective. The European Convention on Human Rights and some sections of the United Nations Convention on the Rights of the Child and other UN Human Rights Treaties are primarily regarded as self-executing. While the International Covenant on Civil and Political Rights is widely viewed as being directly applicable. However, Courts have been more hesitant to grant direct application to the economic and social rights outlined in the International Covenant on Economic, Social, and Cultural Rights. Such provisions are enshrined in Article 95 Letter of the Federal Law on the Federal Supreme Court which speaks about the possibilities for persons to rely on self-executing provisions of international treaties before the Swiss Federal Supreme Court. Generally, Swiss courts acknowledge treaty existence and influence on the domestic legal system. However, Swiss courts have been particularly lenient in recognizing human rights' direct impact (See here and here).


The concepts of direct application or effect also apply to international law derived from trade agreements such as the GATT 1947 and other components of the WTO legal framework. The Swiss Federal Council noted that the WTO Agreements’ direct and unhindered impact. This, however, must be studied on a case-to-case basis. The Swiss Courts have expressed hesitance to give direct effect to international treaty standards liberalizing international commerce. For instance, the European Free Trade Area (EFTA) Convention and the bilateral Free Trade Agreement between Switzerland and the European Community, Swiss Courts have been criticized for frequently denying direct effect to treaty norms intended to liberalize trade. This reluctance germinates from the Courts' fear of interfering with the country's rule-making authors and thus directly impacts foreign policy and investment. Cottier understands this as a mercantilist and protectionist stance.


GATT 1994 Applicability in Switzerland and Federal Supreme Court Practice

Post-1995, there were hopes that the WTO's strengthened legal framework and the introduction of the dispute resolution mechanism would influence Switzerland's approach towards GATT and WTO standards. The Swiss Federal Supreme Court, in its first ruling on the GATT since 1995 (the unpublished decision of 9 June 1998 re Kingston-Bier), addressed a claim filed by importers of beer that had been infused with alcohol since 1993. As a result of higher alcohol levels in the beer, the tax was higher than if the beer was produced domestically. The Commission looked into whether the amount paid complied with the GATT's Article III:2 national treatment (NT) provision. Determining that the tax was unfair (taxing imports differently than domestic production), the Appeals Commission found it to be illegal. But, due to the lack of precedent, this violation had no legal consequences. The Swiss Federal Supreme Court affirmed the verdict and its 1986 judgement (Decision not officially published but reprinted in 1998 ASA 69, 366 ff). Also, the Swiss Federal Supreme Court mentioned the WTO Agreement and stated that it was not required to decide on the new Agreement's implementation and since it was not (yet) relevant. Additionally, it should be highlighted that the statute determined to be incompatible with the GATT in this instance had been amended by the authorities to prevent future incompatibilities.


The Swiss Federal Supreme Court addressed the distribution of a tariff quota in the Swiss Federal Ministry of Economic Affairs v Appeals Commission for the Swiss Federal Ministry of Economic Affairs and Vilaclara Jr & Co. The importer reasoned that it was not permitted under the GATT to require importers to give a bank guarantee when applying for tariff quota imports. The Court determined that this was a matter of domestic procedural law since the WTO Agreement did not include any regulation governing this issue (para. 419). The complainant was an importer of dried meat in an unpublished judgment in re A SA v Federal Office for Agriculture and Appeals Commission for the Swiss Federal Ministry of Economic Affairs (Bresaola) (Judgment 2A.496/1996 of 14/7/1997 E. 4b). Following the Uruguay Round, specific tariff quotas for such dried meat were auctioned. According to the complainant, this auctioning mechanism was incompatible with Article 4:2 of the Agriculture Agreement and Article 3 of the Import Licensing Agreement. The Court recognized that the WTO Agreement was designed to provide legal clarity, particularly concerning GATT issues that were now addressed in more specific accords, such as the one on import licensing. Simultaneously, the Court emphasized that many WTO rules like, GATT 1947, were ambiguous. Furthermore, Parties had substantial discretion over the precise measures to be implemented, a circumstance that might jeopardize the direct execution (subsequent impact) of these Articles by domestic courts. However, all of these factors were irrelevant to the case since the Court determined that the actions were fully compliant with the cited provisions. This also highlights the beginning of WTO legal framework interpretation under Swiss law. In other subsequent decisions, the Court left open the issue of whether a WTO provision is directly applicable and ruled that, in any event, the domestic law was consistent with international norms. This was also considered as a sign that public perception of the WTO has shifted in comparison to the former GATT (p. 105).


The Panel and Appellate Body Reports' Influence

Apart from the issue of local courts applying the WTO Agreements, the effect of case law created under the Dispute Settlement Understanding (DSU) is of primary concern. Given the nature of the Agreements, it is widely accepted that the Reports generated by dispute resolution panels, particularly the Appellate Body, play a critical role in guiding the accurate interpretation of the covered agreements (See here and here).


In its GATT Message, the Swiss Federal Council stated that it considered Panel and Appellate Body reports to be binding only on Contracting Parties (p. 418). Switzerland has never been a party to a WTO Dispute Resolution Procedure. As a result, no Dispute Settlement Body (DSB) Report has ever been sent directly to Switzerland as a Party, and no court has ever been required to define the consequences of such a decision in Swiss law. In RePreferential Treatment of Domestic Newspapers, the Swiss Appeals Commission for Infrastructure and the Environment declared the Swiss Postal Services' preferential rates of newspapers delivery as unconstitutional. However, it was argued that preferential treatment violated Article III GATT prohibition on discrimination, the Commission refrained from explicitly applying Article III GATT but reiterated that Article 15 of the Postal Act must be construed in a manner compatible with Switzerland's international responsibilities, namely Article III GATT (Consideration 13.3). The Commission concluded that preferential treatment violated Article III: 4 GATT and could not be justified under the exemption in Article III: 8 letters b GATT. Concerning the proper interpretation of this latter paragraph, the Commission relied extensively on the WTO Appellate Body's view in its report WT/DS31/AB/R dated 30/6/1997 Canada – Certain Measures Concerning Periodicals (Consideration 13.4.2). The Commission regarded the WTO Report as an authoritative source for determining the meaning of WTO requirements.


While the Commission's interpretation of the report is debatable, it is noteworthy to mention that the Commission regarded the WTO Report as an authoritative source for determining the meaning of WTO requirements and therefore indirectly for interpreting domestic legislation in a treaty-consistent manner. Tracing further case law, the plaintiffs stated in their judgment BGE 131 III 76 of 4 October 2004 re X A/S v Y AG that the authorities' action was discriminatory under Article 3.1 TRIPs and cited to a WTO Panel Decision of 7 November 1989 United States – section 337 of the Tariff Act of 1930 (BISD 36S/345). This dispute involved the diminished availability of a forum according to Article III:4 GATT. The Court erroneously referred to a 'GATT Panel of 1998' but took no opinion on the Panel Report's relevance to the matter at hand, since it regarded domestic legislation to be fully compliant with the TRIPs Agreement in light of the Paris Convention's reference to exceptions (Consideration 2). Local and specialized authorities also seem to be more likely to cite GATT and WTO Dispute Settlement Reports; however, this often appears to rely on whether the claimant does so or if the law clerks involved are knowledgeable with WTO law. This is especially prevalent in the realm of government contracting.


A particularly interesting example is the reference by the Canton of Zurich's Administrative Tribunal to case law relating to processes and production methods (PPMs) under Articles I, III, and XX (b) GATT, in particular, the Tuna/Dolphin and Shrimps/Turtles cases when asked whether Article XXIII: 2 of the GPA permitted authorities to require bidders to provide wood only from sustainable forestry (p. 206). Another example is the reference to the Panel Report Korea – Measures Affecting Government Procurement, WT/DS163R, adopted on 15 June 2000, in a 28 September 2001 judgment by the Federal Appeals Commission for Public Procurement CRM 7/01 re Skyguide. The Swiss authorities were required to determine whether a public body was controlled by the state and therefore subject to the GPA's rules or were sufficiently autonomous to be regarded as a distinct organization. The authorities attempted to use the same standard as the WTO Panel to interpret the extent of the implementing laws by the GPA. It also referred to a second Panel Report created under the GATT 1947, namely the United States – Sonar Mapping System, Government Procurement Agreement, DS1/R of 23 April 1992, which was never implemented. Although this second report was never formally approved by the Parties, the Federal Appeals Commission for Public Procurement determined that it was significant in developing the present Article I: 3 GPA and should therefore be utilized to interpret it correctly (Consideration 3c) ee.).


Conclusion

While the Swiss Federal Supreme Court and other judicial and administrative organizations have been criticized for denying GATT 1947 direct effect. There has also been a failure of the Swiss courts to address the direct consequences of the GATT 1994 and subsequent WTO accords. In particular, the GATT's trade liberalization articles have not been accepted by the Supreme Court to have a direct impact. Nonetheless, it can be observed that the Swiss courts, particularly the administrative bodies in the first instance, have been inventive in their interpretation of domestic law to achieve compliance with or adherence to international responsibilities.


As a result, WTO law has had a significant indirect influence on the Swiss legal system. Notably, WTO jurisprudence, that is, Panel and Appellate Body findings, even if they are not implemented are qualified to implement these treaties and case laws as relevant. Without providing a definitive response about the direct influence of WTO law on Swiss jurisprudence, the issue of consistent interpretation of Swiss law with WTO law ensures legal consistency and has beneficial consequences for the creation of domestic law. In areas of international trade regulations, there are extensive and intricate models for establishing an effective legal system. WTO rules are critical to domestic law and will not be disregarded as domestic regulations. Rather, they will provide specific legal language to aid in interpreting broad and open-textured local law. The Swiss experience exemplifies this critical connection between international law and domestic norms. The Swiss Courts' consistent interpretation of domestic laws in light of WTO legislation pulls domestic and international economic law closer together.

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