Peer pressure: direct effect in

comparison with WTO dispute

resolution
By Zefanya Brian Partogi Samosir
a. introduction
The judgment of the Van Gend en Loos case 1 has been lauded as a
decisive turning point in the history of the ECJ and of European Law in general. 2
This status is attached mainly due to its clarification of the principle of direct
effect adopted in EU law, particularly in relation to the application of Article 12
of the Treaty of Rome which regulates import / export customs duties between
member States.3 However, the EU law is not the only international agreement in
which we can find regulation of import / export customs. We can also find the
regulation of import / export customs in GATT (the legal instrument of the WTO) 4.
The difference, though, is that GATT does not recognize direct effect. 5 The
question that I am attempting to discuss in this Paper is not specifically the
regulation of import / export duties, but its application. More specifically, the
application of the regulation if import / export duties according to the peculiar EU
principle of direct effect. Therefore the question goes: How does the principle
of direct effect differentiates the EU law from GATT?
The purpose of this presentation is to attempt to highlight how the principle
of direct effect as applied in Van Gend en Loos differentiates EU law from GATT.
I will attempt to do so by using the comparative legal method, in which I will
present the Van Gend en Loos judgment and a WTO dispute, namely the Thailand

1 EU:C:1963:1
2 Morten Rasmussen,Revolutionizing European Law: A history of the Van Gend
en Loos Judgment, I.CON (2014) Vol. 12 No. 1. 136-163, Web, 9 Jan 2015
3 Since the coming into force of the Lisbon Treaty, this Article has been replaced
by Article 30 TFEU
4 The General Agreement on Tariffs and Trade (GATT 1947), art. 1, October 30,
1947, http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm
5 Hlne Ruiz Fabri, Is There a Case Legally andPolitically for Direct Effect of WTO
Obligations?, EJIL (2014), Vol. 25 No. 1, 151-173, Web, 9 Jan 2015

 Customs and Fiscal Measures on Cigarettes from the Philippines case

(DS371)6
First, however, I will attempt to orientate the discussion by briefly
examining the meaning of the term direct effect as used on EU law. Having
briefly examined the meaning of direct effect, I will then go on to present the
relevant facts of the cases, both the EU case (the Van Gend en Loos case 7) and
the WTO case (the Thailand Customs and Fiscal Measures on Cigarettes from
the Philippines (DS371)8). From the individual case presentations, I will attempt
to fulfil the purpose of the presentation set out in the previous part.
The documents that will be used as sources are: The General Agreement on
Tariffs and Trade (GATT 1947), Treaty of Rome 1957, The Treaty on the
Functioning of the European Union, the Judgement of the Van Gend en Loos case
(ECLI:EU:C:1963:1), the Opinion of the Van Gen den Loos (ECLI:EU:C:1962:42),
the WTO DSB Report on the Thailand Customs and Fiscal Measures on
Cigarettes from the Philippines (WT/DS371/R), and some articles: Hlne Ruiz
Fabri, Is There a Case Legally and Politically for Direct Effect of WTO
Obligations?, Morten Rasmussen,Revolutionizing European Law: A history of
the Van Gend en Loos Judgment.

b. direct effect
A hard and fast definition of direct effect that is universally agreed has
not come into existence. However, from the video lecture on the effects of EU
law,9 a practical definition can be found: the capacity of EU law to give rise rights
and obligations directly without the need for further implementation. For an EU
law to have direct effect, it has to meet 3 criteria: it has to (1. be clear and
precise, (2. contain unconditional rights, and (3. be not dependent on
implementing measures.

c. the cases
First, the Van Gend en Loos case. The crux of Van Gend en Loos was the
allegation put forth by Van Gend en Loos (a company importing
Ureaformaldehyde from the Federal Republic of Germany to The Netherlands)
that The Netherlands has increased import taxes on the product it imports, thus
6 A summary of the case can be viewed at
http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds371_e.htm
7 EU:C:1963:1
8 A summary of the case can be viewed at
http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds371_e.htm
9 https://class.coursera.org/europeanbusinesslaw-001/lecture/21

violating of Article 12 of the Treaty of Rome.10 Van Gend en Loos had attempted
to submit an objection to the Dutch institutions, which then referred the matter
to the ECJ.11 The case before the EU was for the annulment of a decision of the
Dutch institution (The Netherlands Inland Revenue Administration.) 12
The questions presented to the Court are:
1. Whether Article 12. of the EEC Treaty has direct application within the
territory of a Member State, in other words, whether nationals of such a State
can, on the basis of the Article in question, lay claim to individual rights which
the courts must protect;
2. In the event of an affirmative reply, whether the application of an import
duty of 8% to the import into the Netherlands by the applicant in the main action
of ureaformaldehyde originating in the Federal Republic of Germany represented
an unlawful increase within the meaning of Article 12 of the EEC Treaty or
whether it was in this case a reasonable alteration of the duty applicable before
1 March 1960, an alteration which, although amounting to an increase from the
arithmetical point of view, is nevertheless not to be regarded as prohibited under
the terms of Article 12;

The Court finally found that:

I. Article 12 of the Treaty establishing the European Economic Community

produces direct effects and creates individual rights which national courts must
protect.
2. In order to ascertain whether customs duties or charges having
equivalent effect have been increased contrary to the prohibition contained in
Article 12 of the Treaty, regard must be had to the duties and charges actually
applied by the Member State in question at the date of the entry into force of the
Treaty. Such an increase can arise both from a re-arrangement of the tariff
resulting in the classification of the product under a more highly taxed heading
and from an increase in the rate of customs duty applied.
3. The decision as to costs in these proceedings is a matter for the
Tariefcommissie.

10 Van Gend en Loos, C-26/62, EU:C:1963:1, Page 4-5

11 Ibid.
12 Van Gend en Loos, C-26/62, EU:C:1962:42, Page 16

Second, the Thailand Customs and Fiscal Measures on Cigarettes from

the Philippines (DS371). This dispute concerns a series of inter-related customs
and internal tax measures taken by Thailand regarding cigarettes imported into
Thailand from the Philippines by PM Thailand. These customs and tax measures
have been both formulated and applied by Thailand in ways that serve to protect
the interests of the State-owned monopoly producer of cigarettes, TTM. In
addition to protecting TTM's domestic cigarettes, these measures are
characterized by a lack of transparency that deprives the importer of the most
basic information regarding the regulatory treatment of its goods, and also by
chronic delays in decision-making.13 The protection includes the dual role of
senior Government officials as senior TTM executives, who could use their
governmental powers in a manner that confers a competitive advantage on their
own company, TTM, and its products.
The Panel found that Thailand had acted inconsistently with various articles
of GATT and the Panel recommends that the Dispute Settlement Body request
Thailand to bring its inconsistent measures into conformity with its obligations
under the GATT 1994 and the WTO Agreement.

d. the discussion
First, we can see that in both cases, the aggrieved parties are originally
private enterprises, which are importers: Van Gend en Loos in the EU case, and
PM Thailand in the WTO case.
Second, the status of the parties in the actual case handled by the
international dispute settlement process is different: in Van Gend en Loos the
plaintiff is still the original aggrieved private party (N.V. Algemene Transport en
Expeditie Onderneming van Gend & Loos), and the defendant is an official
government body (Nederlandse administratie der belastingen (Netherlands
Inland Revenue Administration). In the WTO dispute the plaintiff and defendants
are states (Thailand and the Philippines).
Third, the request of the plaintiff (and consequently, the judgment) is
different. In the WTO case,Thailands tariff measures themselves are put against
the international agreement (GATT) and the Panel is requested to determine
whether or not these measures consistent with GATT, and the WTO DSB Panel
finally did give a judgment regarding the consistency of the measures with GATT
and gave a recommendation to Thailand to bring these measures into conformity
with GATT. In Van Gend en Loos, the plaintiff primarily asked the court for a
clarification of their rights vis--vis the national court and although the plaintiff
did ask whether the increase in tariff was lawful, the Court didnt pronounce a
strict judgment on it and left the application of article 12 of the Treaty of Rome to
the national courts.
However, I must admit to having chosen the issue rather carelessly. Some
WTO DSB panel judge remarks were rather discouraging. Take for example: the
13 WT/DS371/R Paragraph 4.2

question of direct effect is not a question for scholars or even, in the first
instance, judges. Rather, it is a political question to be answered in political
terms14 Further research revealed the same thing: the matter of direct effect per
se (without delimitation) is one more suited for examination by political sciences
journal, rather than a legal scholarly writing.
The principle of direct effect in itself is not the cause of the difference
between EU and GATT (WTO) law (in other words, direct effect does not in itself
differentiate the two legal systems). Rather, the adoption of direct effect by one
legal system and its rejection in the other is the effect / symptom of other,
pre-existing differences. Again, I must admit once again that this is due to my
own poor selection of the issue.
However, The difference in the wording / form of the respective dispute
settlement forums (EU and WTO) judgment, as stated before, can vaguely
illustrate the difference made by direct effect: The WTO Panel went further into
the States administration of justice as it recommends, on its own, that the State
brings its measures into conformity with the international agreement. The EU in
Van Gend en Loos didnt go that far, letting the national courts to decide on the
specific matters relating to the tariff measures.
In not pronouncing too deep a judgment on the specific matters of tariffs
themselves, the EU system has, in my opinion, emphasized that the rights in the
international agreement (Treaty of Rome) are vested by the individuals in the
member States. That is to say, that individuals are very much a part of the legal
order.
The WTO, in pronouncing a specific and strict judgment, has in my opinion,
put the emphasis of the rights on states. That is to say, that the rights in GATT
are primarily rights of the member states as part of the pursuance of its national
goals (in matters of international commerce).
Further, If analogy to international arbitration is allowed, then we can find a
difference in terms of rationae personae, i.e., the party that has legal standing in
matters of a Statesl application of tariffs that is suspected to be in violation of
the international treaties (GATT / Treaty of Rome 1957).
In the GATT / WTO system, only states have legal standing to initiate
dispute resolution process, directly in the inter-state forum of the WTO DSB. in
the EU, with the principle of direct effect, any individual can assert his rights
contained in the international treaty as individuals, to a national court. The
adoption of direct effect in EU system, then, has freed EU citizens from a need for
a mechanism that is needed in WTO system: espousal.

14 Trachtman, Bananas, Direct Effect and Compliance, 10 EJIL (1999) 667, cited in
Hlne Ruiz Fabri, Is There a Case Legally andPolitically for Direct Effect of WTO
Obligations?, EJIL (2014), Vol. 25 No. 1, 151-173, Web, 9 Jan 2015

Espousal itself is the process by which a State takes over the individual
parties interests and represent the individuals by initiating a dispute resolution
mechanism as a state. The necessity of this mechanism means that an individual
who feels that his rights under GATT has been violated must first lobby his
country to espouse his claims at the international level. This would present a
difficulty for the aggrieved private party in that his home state may have political
considerations that, while legally irrelevant to the private parties complaint,
would however make it difficult to convince his home state to take up his
interest.15 For example, his home states fear of reduction of development aids
funds or the suspension of military cooperations.
The mechanism of espousal, which is necessary in a system without direct
effect presents another problem for private parties:even if he managed to lobby
his home state into espousing his interests, and that the state has successfully
secured a favourable judgment, it is still not certain that he will get the
compensation / monetary damages16 because in the case before the
international tribunal, it is the state that is the party to the case. Therefore any
compensation or damages would go to the State and it is up to the state whether
to distribute it to the private party. Moreover, the remedy offered by the WTO is
not monetary in nature, it is more political; in the meantime, it is possible that,
due to the wrongful imposition of tariff by the other country, the private party
has suffered considerable ( and possibly irreversible) financial damages.
This is crucial for, at least in the two cases presented here, the original
victims of the tariff measures are private parties (companies) and not state
organs.
So direct effect, while not in itself a sine qua non differentiator, has helped
bring about some differences between EU and WTO at least by proxy of the
consequence of a system lacking direct effect needing the mechanism of
espousal. The other difference is the emphasis of the holder of the rights
contained in the international agreements: with direct effect the private parties
are very much the primary holder of the rights, and in WTO (without direct
effect) the holder of the rights is primarily states.
However, as the question of the adoption of direct effect is political rather
than legal, no strict argument is going to be set forth. After all whether to
emphasize rights to individuals rather than staes or vice versa is is not
something that can be forced upon the members of a legal order and it also goes
way beyond the scope of the present paper. However, if find that direct effect is
theoretically desirable in a legal order for reasons stated above.
15 Redfern, Alan, Martin Hunter, et.al., Redfern and Hunter on International
Arbitration, 2009, Oxford University Press, pp. 467
16 Susan Franck, The Legitimacy Crisis in Investment Treaty Arbitration:
Privatizing Public International Law Through Inconsistent Decisions, Fordham
Law Review, vol. 73