International Trade Law

The extent to which the WTO Agreements have legal effect before EU and Member
States’ courts, creating rights for individuals and the possibility of testing the
compatibility of EU secondary legislation with these Agreements

Claire O’Leary

07772785
07772785

Introduction

The European Court of Justice (ECJ) has always rejected the notion that the laws of the

General Agreement on Tariffs and Trade (GATT) and the World Trade Organisation (WTO)

have direct effect and that Community legislation could be challenged on the basis that it

contravened WTO law. While much academic analysis and speculation has surrounded the

lack of willingness on behalf of the ECJ to enter into a thorough discussion of the issue in any

one of the number of cases where its use has been unsuccessfully attempted, a step back must

be taken in order to consider the possible reasons for both the decision itself and for the

silence surrounding it in order to construct a fuller understanding of the situation as it stands.

This paper first gives a brief overview of the history of the WTO, followed by a review of the

case law examining the issue of direct effect of WTO law in Community law challenges and

a discussion of academic analysis in the area. Finally, it concludes that, though seeming to

reflect conflicting sides, there is a balance required between maintaining the autonomy of the

Community and ensuring compliance to maintain a healthy relationship with the WTO.

History

The WTO did not come into being overnight. Rather, it developed through various

incarnations from the seedling of the International Trade Organisation (ITO), touted at

Bretton Woods in 1944, through the purported interim measure of GATT 1945, overseen by

the United Nations, the formation of a GATT secretariat at the Havana Conference in 1948 to

fill the void of the non-starting ITO, before its establishment, at the Uruguay Round of GATT

talks by the Marrakech Agreement in 1994. Annexed to this Agreement was the Dispute

2
07772785

Settlement Understanding (DSU) which has been vital in initiating a change in attitude of the

ECJ.

The EC was one of the original members of the WTO when it came into being on January 1 st

1995. Today, the WTO provides a means of regulating trade between members, a framework

for negotiation and formalising of trade agreements and a dispute resolution process aimed at

enforcing participants' adherence to WTO agreements once duly signed up to by them.1

Case Law

Prior to the establishment of the WTO in 1994, there were a number of clashes between EC

law and the rules of GATT. In International Fruit Company,2 a case was taken by a number

of fruit importers challenging the imposition by EC Regulation,3 of quantitative restrictions

on the importation of apples, in contravention of Article XI of GATT. The ECJ considered

whether the GATT rules could be invoked by the applicants for this purpose. The ‘spirit, the

general scheme and the terms’4 of the Agreement and of Article XI were reviewed. It was

noted that GATT, as a system, was flexible and imprecise and thus it was incapable of

conferring rights on citizens and so could not be used to challenge Community law. A similar

situation arose in Germany v Council,5 and the same reasoning was displayed by the ECJ,

who cited the ‘great flexibility of its provisions, in particular those conferring the possibility

of derogation’,6 as issues preventing direct effect from arising. It concluded that those

features of GATT which prevent a citizen of the Community from invoking it in a court to

1
http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm
2
Cases 21- 24/72, International Fruit Company NV, Kooy Rotterdam NV, Velleman en Tas NV and Jan Van den Brink's Im- en
Exporthandel NV v Produktschap voor Groenten en Fruit, [1972] ECR 1219
3
Regulations No. 459/70, 565/70 and 686/70 - (OJ L 59, 14.3.1970, p. 32, OJ L 69, 26.3.1970, p. 33–35and OJ L 84, 16.4.1970, p. 21–23
respectively)
4
Cases 21- 24/72, International Fruit Company NV v Produktschap voor Groenten en Fruit, [1972] ECR para 20
5
Case C- 280/93, Germany v Council [1994] ECR I-4973
6
Case C- 280/93, Germany v Council [1994] ECR I-4973 para 106

3
07772785

challenge the lawfulness of a Community act also preclude the Court from taking provisions

of GATT into consideration to assess the lawfulness of a regulation in an action brought by a

Member State. The Court did concede, however, that a Community measure is reviewable in

the light of the GATT rules where the Community intended to implement a particular

obligation assumed in the context of the GATT,7 or where the measure refers expressly to the

provisions of the GATT agreements.8

This trend for rejecting challenges to Community law on the grounds of contravention of

GATT/WTO law continued in the landmark case of Portuguese Republic v Council,9 where

the ECJ extended its previous reasoning to the WTO, stating that, ‘ ... (WTO) agreements are not

in principle among the rules in the light of which the Court is to review the legality of measures

adopted by the Community institution.’10

Van Parys,11 a preliminary reference from the Belgian domestic courts, allowed the ECJ to

expand on the issue of direct effect in addressing a situation in which the WTO Dispute

Settlement Body (DSB) had ruled that EC Banana regulations12 were contrary to WTO law.

First, the Court noted that the WTO emphasises negotiation between parties but said that to

require the courts to refrain from applying rules of domestic law that run contrary to WTO

law would deprive the legislative and executive powers of contracting nations of participation

in such negotiation. Secondly, to suggest that Community Courts have responsibility for

ensuring Community compliance with WTO law deprives legislative or executive limbs of

the Community of the powers and discretion that those of other contracting parties enjoy.

Finally, it was necessary to consider again the direct effect of WTO law where the DSB had

7
This is known as the Nakajima exception, see Case C-69/89 Nakajima All Precision Co. Ltd v Council [1991] ECR I 2069, para 31
8
This is known as the Fediol exception, see Case 70/87, Fédération de l’industrie de la CEE (Fediol) v Commission, [1989] ECR1781
paras 19 - 22
9
Case C-149/96, Portuguese Republic v Council, [1999] ECR I-8395
10
Case C-149/96, Portuguese Republic v Council, [1999] ECR I-8395 para 47
11
Case C-377/02, Léon Van Parys NV v BIRB
12
Regulations No. 404/93, 2362/98, 2806/98, 102/1999 and 608/1999 - (OJ L 47, 25.2.1993, p. 1–11, OJ L 293, 31.10.1998, p. 32–45, OJ
L 349, 24.12.1998, p. 32–33, OJ L 011 , 16/01/1999 p. 0016 – 0016 and OJ L 075 , 20/03/1999 p. 0018 – 0019 respectively)

4
07772785

held that both initial legislation and subsequent legislation adopted by the Community to

comply with the relevant WTO rules were incompatible with those rules. After reiterating the

fact that Community law is not, in general, reviewable by reference to WTO law, it asserted

that, as main competitors did not have direct effect as part of their legal systems, a unilateral

concession on the part of the Community would put it at an unfair disadvantage in

comparison with competitors. This is clearly a point with which it is difficult to disagree.

Covert changes

Though the ECJ has been quite blatant and unapologetic in its rebuff of all those who attempt

to use WTO law to challenge Community action, there has been a rather understated

shift by the Community to ensure compliance with international law in general. In

Commission v Germany,13 the ECJ noted that Decision 80/271 which approved the

International Dairy Arrangement could be interpreted in a number of ways and that where

this happens,

...preference should be given as far as possible to the interpretation which renders the

provision consistent with the Treaty ... the primacy of international agreements ... over

provisions of secondary Community legislation means that such provisions must, so far

as is possible, be interpreted in a manner that is consistent with those agreements.14

This harmonious interpretation was seen once again in the case of Hermés International,15

where the Court sought to apply the law on intellectual property protection in line with the

Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The applicant sought

a three month time limit to be placed on challenges to the relief they were seeking. There was no such

13
Case C-61/94, Commission v Germany, [1996] ECR I-3989, relating to breach of obligations under the International Dairy Agreement.
14
Case C-61/94, Commission v Germany, [1996] ECR I-3989 at para 52
15
Case C- 53/96, Hermés International, v FHT Marketing Choice BV. [1998] ECR I-2069

5
07772785

provision in the TRIPS agreement but it existed under domestic law so the question was whether

domestic law was compatible with TRIPS. The Court noted Commission v Germany and the

principle of harmonious interpretation and pointed out that Article 50 of TRIPS authorises the

provision of additional measures to protect right-holders so long as any such measures are

prompt and effective. Thus, the additional domestic rules were found to be compatible with

the TRIPS agreement.

In Christian Dior,16 the Court began by stating once again that provisions of the TRIPS

Agreement as annexed to the Agreement establishing the WTO, are not such as to create

rights upon which individuals may rely directly before the courts by virtue of Community

law.17 However, they said, where the TRIPS Agreement applies and in respect of which the

Community has already legislated, domestic courts are obligated, when requested to apply

national rules ordering provisional measures for the protection of rights falling within such a

field, to do so as far as possible in the light of the wording and purpose of Article 50 of the

TRIPS Agreement.18

In a field in which the Community has not yet legislated and which consequently falls within

the competence of the Member States, there appears to be no such onus on Member States to

operate within the framework of the TRIPS Agreement. 19

Analysis

There has been much debate over whether the stance taken by the ECJ over the past number

of years was the correct one. Proponents consider the stance to be a display of strength,

16
Cases 300-302/98, Christian Dior SA v TUK Consultancy BV and Assco Gerüste GmbH and Rob van Dijk v Wilhelm Layher GmbH &
Co. KG and Layher BV.[2000] ECR I-11307, preliminary reference regarding the placement of counterfeit products bearing the Dior
trademark on the market in the Netherlands,
17
Cases 300-302/98, Christian Dior SA [2000] ECR I-11307at para 44
18
Cases 300-302/98, Christian Dior SA [2000] ECR I-11307at para 47
19
Cases 300-302/98, Christian Dior SA [2000] ECR I-11307at para 48

6
07772785

ensuring that the Community is not left in a position of disadvantage relative to other

contracting parties. Opponents,20 consider that the ECJ has been dragging its feet, reluctant to

clear the muddy waters surrounding the rights of individuals to challenge Community law

contravening WTO rules. The change in attitude of the ECJ when the power–based system of

GATT converted to the rule-based system of the WTO was miniscule. The same themes of

conditionality, flexibility and reciprocity were hauled out time and time again as the Court

found against those hoping to challenge Community law on the grounds of contravention of

WTO provisions.

Dispute Settlement Body

There have been efforts by the ECJ to clarify the situation somewhat since the development

of the Dispute Settlement Body. Rulings from the DSB, as discussed in Van Parys and

developed upon in Christian Dior, have removed some of the flexibility put forward by the

ECJ as the reason for the lack of direct effect of WTO law and have somewhat facilitated

greater clarity in decision-making. According to the ECJ in Christian Dior, if the Community

has legislated in regard to the TRIPS agreement, domestic courts must interpret legislation in

light of the Agreement. Does this now apply to all aspects of WTO law?

Other International Agreements

There is also the question of the differentiation by the ECJ between WTO law and other

international agreements. The application of harmonious interpretation called for in

20
Di Gianni and Antonini, “DSB Decisions and Direct Effect of WTO Law: Should the EC Courts be More Flexible when the Flexibility of
the WTO System has Come to an End?” (2006) 40(4) Journal of World Trade p777-793,

7
07772785

Commission v Germany, regarding the International Dairy Agreement, led the way for

Hermes, Christian Dior and others but why in this order? It is possible that, as a solitary

agreement is far less threatening than a global body, the ECJ was more inclined to concede to

requirements thereunder. Once the waters had been tested in this manner, the concession

could then be extended to WTO matters.

Conclusion

According to de Búrca and Scott,21 there is no question of the binding nature of WTO law in

the EC legal order. The choice is in the manner of implementation. The ECJ has proven itself

reluctant in the past to allow the individual to challenge a provision of EC law as

contravening WTO law. However, this will hopefully change little by little as the demands

for greater clarity and transparency grow louder. A balance between parity of negotiation

power with other contracting parties on the one hand and rights of individuals to challenge

the EC laws detrimentally affecting them on the other is vital in order for the situation to

evolve again.

21
De Búrca and Scott, “The Impact of the WTO on EU Decision-making” (2000) 06 Harvard Jean Monnet Working Paper

8
07772785