The Application of the Articles on Responsibility of States for Internationally Wrongful Acts in the WTO Regime

In this short post, I consider the unique application of the International Law Commission’s Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA) to the special regime of the World Trade Organization, an organization that has had a variable relationship with international law over the years. Consistent with Article 55 of ARSIWA which privileges “special rules” of responsibility only to the extent that they seek to derogate from the general framework, a WTO panel in Korea – Government Procurement has confirmed the “residual” application of general international law norms, including ARSIWA, when it stated that they apply “to the extent there is no conflict or inconsistency, or an expression in a covered WTO agreement”.  The post considers first circumstances where WTO rules, as well as panels and (the erstwhile) Appellate Body interpreting them, contract out of the general framework of ARSIWA; it then sets out the circumstances in which ARSIWA has been directly or indirectly referenced and/or applied; and concludes with future areas in which the application of ARSIWA might arise at the WTO.

Contracting out of ARSIWA

Exceptionally for a regime in international law, WTO provisions disapply ARSIWA in at least two areas: prospective remedies and responsibility for non-wrongful acts.

First, under Article 31(1) of ARSIWA, an internationally wrongful act entails an obligation to afford retrospective reparation, whether in the form of restitution or compensation, such that the State to which the obligation is owed can be placed in the situation it would have been in had the breach not occurred. According to Articles 35 and 36(1) restitution constitutes the primary form of full reparation, with compensation being owed where restitution is materially impossible or involves “a burden out of all proportion to the benefit deriving from restitution instead of compensation.”

While WTO norms do not expressly opt out of the principle of full reparation and the subsequent obligation of restitution and/or compensation, Articles 3.7 and 22.1 of the Dispute Settlement Understanding (DSU) clarify that the respondent’s primary obligation following an adverse finding in a WTO dispute is to withdraw the WTO-inconsistent measure. As such, WTO adjudicatory bodies have consistently found that remedies under WTO law can only be prospective. Exceptionally, in Australia – Leather (21.5), a WTO panel held that “repayment in full of the prohibited subsidy” was necessary in order to “withdraw the subsidy” under Article 4.7 of the Agreement on Subsidies and Countervailing Measures (ASCM), in that case because subsidies consisting of one-time payments could not be properly withdrawn. While the panel’s remedy essentially reflects the principle of full reparation, its finding has remained of limited precedential value.

Second, WTO law provides a deviation from paragraph 4(c) of the General Commentary to ARSIWA which provides that ARSIWA does not govern attribution for non-wrongful acts.  Under WTO law, however, certain categories of WTO-consistent measures may be subject to dispute settlement, including “non-violation” claims under GATT Article XXIII:1(b) which allow WTO Members to initiate disputes “whether or not [they] conflict with the provisions of this Agreement.” Moreover, WTO Members may demand the withdrawal of subsidies which are not per se WTO-inconsistent (“prohibited”) yet cause “adverse effects” within the meaning of Article 5 of the ASCM (and are thus “actionable”).

Residual Application of ARSIWA

By contrast, in the realms of countermeasures and attribution of conduct, WTO adjudicatory bodies seem comfortable in directly referencing ARSIWA provisions.

First, as part of their interpretative exercise, panels and the Appellate Body have on several occasions read a proportionality requirement into WTO rules on countermeasures, basing themselves on Articles 49 and 51 of ARSIWA.  For instance, in  US – FSC,  in deciding whether certain countermeasures were “appropriate” under Article 4.10 of the ASCM, the panel referred to the Commentary on Article 51 of the ARSIWA, noting that “a negative formulation of proportionality that stipulates that countermeasures must not be disproportionate, as is the case of the [ASCM] provides a greater degree of latitude to the imposing country than a positive formulation”. Similarly, in US – Line Pipe, in interpreting Article 5.1 of the Safeguards Agreement which provides that safeguards shall only be applied “to the extent necessary to prevent or remedy serious injury and to facilitate adjustment”, the Appellate Body  referenced Article 51 to find that safeguard measures must observe a proportionality obligation such that they can only counter serious injury caused by imports but not injury caused by other unrelated factors.

Another area where ARSIWA provisions are often cited is attribution of conduct. Chapter II of ARSIWA (Article 4-11) has been invoked when examining measures taken by entities other than the central government of a WTO Member. Recently, in Saudi Arabia – Protection of IPRs noted that, in accordance with Article 4(1) of ARSIWA, a Member is responsible “for actions at all levels of government (local, municipal, federal) and for all actions taken by any agency within any level of government”. Citing Article 8, it went on to state that the conduct of a person or group of persons shall be considered an act of a State under international law “if the person or group of persons is in fact acting on the instructions of, or under the direction or control of, that State in carrying out the conduct”. As a result, “the fact that acts or omissions of private parties “may involve some element of private choice” did not negate the possibility of state attribution. Similarly, in US – Coated Paper (Indonesia), in response to an argument by Indonesia that certain debt buy-backs had been performed in violation of Indonesian law such that the individuals involved in the same could not bind Indonesia’s government, the panel held that it is “well established under international law that an action or conduct of a government official or entity is attributable to the State even where that action or conduct is contrary to national law”, citing Articles 4 and 7 of ARSIWA in support.

Contentious areas of overlap between ARSIWA and specific WTO norms

There are some areas where the application of the ARSIWA is less straightforward, but there is nonetheless an attempt to rely on them, with some caveats.

For instance, although ARSIWA provisions do not define the scope of primary norms of international law, WTO panels and Appellate Body have, sometimes controversially, referenced ARSIWA as part of an “interpretative” exercise when in fact they may been substituting the applicable primary norms with ARSIWA norms on attribution, thus arguably modifying the rights and obligations of WTO Members.  Most (in)famously, in US – AD/ CVD (China), China argued that certain of its state-owned enterprises and state-owned commercial banks were not “public bodies” within the meaning of Article 1.1(a)(1) of the ASCM, such that their support was not a “subsidy”. China argued that an entity granting a financial contribution may only be a public body if it is vested with “governmental authority”, and the mere exercise of “control” by a government would fall short of this requirement.  In referencing Article 5, the Appellate Body agreed with China, that “state ownership, while not being a decisive criterion, may serve as evidence indicating, in conjunction with other elements, the delegation of governmental authority.” The Appellate Body was careful to add, however, that the question was “not whether certain of the ILC Articles are to be applied, that is, whether attribution of conduct of the state-owned enterprises at issue to the Government of China is to be assessed pursuant to the ILC Articles instead of Article 1.1(a)(1) of the [ASCM].”

Another possible area of interest arises in the context of the ARSIWA framework regarding the “circumstances precluding wrongfulness”. Chapter V of the ARSIWA sets out the circumstances precluding wrongfulness, namely, consent, self-defence, countermeasures, force majeure, distress, and necessity (Articles 20-25).  It can be inferred, a contrario, from the text of Article 27(a) that the State would be under no obligation to make reparation for conduct incompatible with the obligation while the circumstance precluding wrongfulness lasts: after all, while the circumstance is in place, the State is not required to comply with that obligation. While it has been suggested that WTO norms provide enough regulatory discretion to render the rules on “circumstances precluding wrongfulness” unnecessary, WTO adjudicatory bodies have yet to pronounce on the issue. In Peru – Agricultural Products, the Appellate Body did not deem Peru’s defence of consent under Article 20 of ARSIWA relevant to the interpretation of the provisions at issue, and thus did not decide whether consent could serve to justify the additional duty to which Guatemala had allegedly consented by signing a free trade agreement with Peru.

Seeing that the applicability of Articles 20-25 of ARSIWA to the WTO covered agreements has not been completely discarded by WTO adjudicatory bodies, some scholars have emphasized the wording of the chapeau of Article XX GATT 1994 (“nothing in this Agreement shall be construed to prevent […]”) to suggest that if the WTO exception clauses applies, and there is a finding of no-breach, then there is no need to turn to the defences in the law of State responsibility. After all, the defences in the law of responsibility apply only where there is a prima facie breach of obligations under a treaty, and to establish this prima facie breach of the treaty it is necessary to ascertain whether any WTO-treaty exceptions are applicable.

Two areas where ARSIWA may have relevance in the future ?

Given the state of world affairs, it is not unlikely that ARSIWA might be invoked in WTO law in two circumstances.  First, Article 10 of ARSIWA provides that insurrection movements that become the new government is an act of State. While the provision has never been tested in a WTO dispute, international investment law has recently seen a series of disputes involving illegally annexed territories or measures taken by transitional governments. As international trade measures have been increasingly serving as a proxy for the advancement of broader geopolitical interests – consider for instance the current trade wars between the US and China -this may be an issue on the horizon.

A second area arises from the proliferation of multilateral development banks and the “normalization” of fiscal and monetary stimulus policies amidst the COVID-19 pandemic.  A WTO panel may be asked whether acts taken jointly by multiple Members under the aegis of an international organization, NGO or development fund give rise to joint or several responsibility. In Turkey – Textiles the panel cited the ILC Commentaries to ARSIWA to support its view that an organ common to states could be an act of each State whose common organ it is.  It is unclear whether a WTO adjudicatory body faced with the question of shared responsibility or shared attribution today will follow that approach, particularly in light of the ILC’s Draft Articles on the Responsibility of International Organizations, which contain special rules on shared attribution and responsibility for government-to-government international organizations.