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    European Union Jean Monnet Chair

    THE JEAN MONNET PROGRAM

    Professor J.H.H.Weiler

    European Union Jean Monnet Chair

    Jean Monnet Working Paper 04/08

    Sungjoon Cho

    Constitutional Adjudication in the World Trade Organization

    NYU School of Law New York, NY 10012

    The Jean Monnet Working Paper Series can be found at:

    www.JeanMonnetProgram.org

    All rights reserved.

    No part of this paper may be reproduced in any form

    without permission of the author.

    ISSN 1087-2221

    ? Sungjoon Cho 2008

    New York University School of Law

    New York, NY 10012

    USA

    Publications in the Series should be cited as:

    AUTHOR, TITLE, JEAN MONNET WORKING PAPER NO./YEAR [URL]

    Constitutional Adjudication in the World Trade Organization

    ;By Sungjoon Cho

Abstract

    Although a court, as a judicial organ, usually fulfils its mission by resolving specific disputes brought to it, it occasionally goes beyond this simple dispute-resolving function and more actively engages in building policies which define, and “constitute,” the very polity to which the

    court belongs, as was seen in Brown v. Board of Education. If this “constitutional adjudication” is an integral function of any domestic high court, could (and should) an international tribunal, in particular the World Trade Organization (WTO) tribunal, also play such a distinctive role? This paper contends that the WTO tribunal has in fact assumed such role by having recently struck down a hoary antidumping practice called “zeroing” which tends to inflate dumping

    margins and thus is a central vehicle for contingent protection embedded in the antidumping mechanism. The paper observes that the recent proliferation of antidumping measures as a new protectionist instrument has motivated the AB‟s hermeneutical departure from the past

    interpretation which had endorsed the practice. This, it argues, is a “constitutional” turn of the

    WTO which a positivist, inter-governmental mode of thinking, as is prevalent in other international organizations such as the United Nations, cannot fully expound. Critically, this turn originates from bold ideas which envision, and thus “constitute,” new institutional meaning

; Associate Professor of Law, Chicago-Kent College of Law, Illinois Institute of Technology (scho1@kentlaw.edu).

    I extend my deepest gratitude to Professor Joseph H. H. Weiler for his extraordinary mentorship without which this article would have never come to light. I also thank Harold Koh, Bruce Ackerman, Benedict Kingsbury, Jeffrey Dunoff, David Trubek, Charles Irish, Heinz Klug, John Ohnesorge, Jason Yackee, Sumudu Atapattu, Claire Kelly, Arthur Pinto, Samuel Murumba and participants in the Guest Lecture co-sponsored by the East Asian Legal Studies Center and the Global Legal Studies Center at University of Wisconsin (Madison) Law School, the International Legal Theory Colloquium at New York University Law School, the International Economic Law Forum at Brooklyn Law School, and the 2008 Standford/Yale Junior Faculty Forum for their valuable comments and suggestions on earlier drafts. Maribel Nash provided excellent research assistance. All errors are mine.

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and possibilities within the WTO. In other words, the AB‟s exegesis is anchored firmly by a

    discernible purpose of cabining trade distortive/restrictive consequences from the use of zeroing which have long been left unchecked. Finally, WTO members, the paper maintains, must preserve the anti-zeroing jurisprudence as constitutional norms in the absence of extraordinary circumstances tantamount to a constitutional amendment. In particular, it must not be a subject of political bargaining in the trade negotiation.

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    Table of Contents

I. Introduction .............................................................................................................................4

    II. From Legal to Illegal: The Jurisprudential Transformation on Zeroing.................................. 10 A. Dumping, Antidumping and Zeroing ................................................................................ 10 B. The GATT Jurisprudence: Zeroing Upheld ....................................................................... 12 C. The WTO Jurisprudence: Zeroing Zeroed ......................................................................... 14

    1. EC Bed Linen (2001) .................................................................................................. 14

    2. U.S. Softwood Lumber V (2004) ................................................................................ 15

    3. U.S. Zeroing (EC) (2006) ........................................................................................... 16

    4. U.S. Softwood Lumber V (Article 21.5 Canada) (2006) ........................................... 17

    5. U.S. Zeroing (Japan) (2007)........................................................................................ 18

    6. U.S. Zeroing (Mexico) (2008) ..................................................................................... 20 III. Evaluating the WTO Jurisprudence on Zeroing ................................................................... 21 A. Discontents on the New Jurisprudence on Zeroing: Judicial Legislation, Contract and

    Sovereignty ........................................................................................................................... 21

    B. Defending the AB’s Adjudication: Three Fundamental Questions ..................................... 23

    1. The Nature of International Adjudication: Is It a Mere Mechanical Application of Treaty

    Provisions? ........................................................................................................................ 24

    2. The Nature of WTO Bargain: Is It a Mere Contract? (If So, What Kind of Bargain?) ..... 28

    3. The Nature of Sovereignty: Should It Remain Antiquated? ............................................ 31 IV. Embracing Constitutional Adjudication in the WTO ........................................................... 34 A. Putting the Zeroing Jurisprudence in Constitutional Perspectives ...................................... 34

    1. What Is Constitutional Adjudication?: Theorizing Constitutional Adjudication .............. 34

    2. Why Constitutional Adjudication?: Interpreting the AB’s Interpretation ........................ 37

    B. Normative Ramifications of Constitutional Adjudication on Zeroing ................................ 41

    1. Could WTO Members Overturn Constitutional Adjudication? ....................................... 41

    2. Could a Lower Tribunal (Panel) Reject Constitutional Adjudication? ............................ 44 C. The Sustainability of the WTO’s Constitutional Adjudication on Zeroing ......................... 46

    1. Exogenous (Political) Tests to the Sustainability ............................................................ 46

    2. Endogenous (Legal) Foundations for the Sustainability ................................................. 49 V. Conclusion: Constitutional Culture in the WTO .................................................................... 51

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Introduction

     How much could an international tribunal contain member states’ behaviors, especially

    when a treaty fails to enunciate any clear prescription on these behaviors? Under public

    12international law along the lines of the Lotus case and the principle of in dubio mitius, an

    international tribunal might be inclined to grant a maximum level of deference to sovereign

    3states. As far as a tribunal established by the World Trade Organization (WTO), such as the

    Appellate Body (AB), is concerned, this presupposition appears even more plausible, in particular when the tribunal addresses a domestic government’s trade remedies, i.e., antidumping

    measures. Article 17.6 (ii) of the WTO Antidumping Agreement stipulates that when a provision “admits of more than one permissible interpretation” a WTO tribunal shall validate a domestic

    4authority’s antidumping measure “if it rests upon one of those permissible interpretations”

     Surprisingly, however, the AB, in a series of high-profile decisions, has recently struck

    5down an antidumping measure (“zeroing”), despite the fact that WTO provisions do not

    explicitly prohibits such measure. The AB would simply have stuck to the textual ambiguity of the Antidumping Agreement as to zeroing and thus would have endorsed it under Article 17.6 (ii). Even a panel under the old General Agreement on Tariffs and Trade (GATT) had previously

    6upheld the same measure. In a normal situation, the AB would simply have followed such pro-

     1 SS Lotus (France v. Turkey) (1927), PCIJ Ser. A., No. 10, at 18-19 (stating that sovereign states enjoy “a wide

    measure of discretion which is only limited in certain cases by prohibitive rules.”).

    2 What is preferred under international law is “the less onerous meaning to the party which assumes the obligation, or which interferes less with the territorial and personal supremacy of a party, or involves less general restrictions upon the parties.” 1 OPPENHEIM'S INTERNATIONAL LAW (Robert Jennings & Arthur Watts eds., 9th ed. 1992).

    3 Marrakech Agreement Establishing the World Trade Organization, April 15, 1994, Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations [hereinafter WTO Agreement], LEGAL

    INSTRUMENTSRESULTS OF THE URUGUAY ROUND [hereinafter RESULTS OF THE URUGUAY ROUND], 6, 6-18; 33

    I.L.M. 1140, 1144-1153 (1994).

    4 Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, WTO Agreement, supra note _, Annex 1A, art. 17.6 (ii) (emphasis added) [hereinafter AD Agreement].

    5 See infra pt. II, ? C.

    6 EC Anti-Dumping Duties on Audio Tapes in Cassettes Originating in Japan, ADP/136, Apr. 28, 1995 (unadopted) [hereinafter EC Cassettes].

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    7zeroing GATT case law, which would have been a “useful guidance” for its opposite ruling.

    Given these adverse circumstances, how could one justify the AB’ such ostensibly

    uncharacteristic stance?

    “Zeroing” refers to an asymmetrical calculative methodology in obtaining final dumping margins which omits any negative results occurring when export prices exceed normal values (such as home prices) and instead includes only positive results occurring when home prices

    8exceed export prices. According to one study, zeroing tends to inflate dumping margins nearly

    9by 90%. The AB has viewed that this unfair result from zeroing renders any pro-zeroing interpretation of the Antidumping Agreement as “impermissible” even under Article 17.6 (ii) of

    10the Antidumping Agreement.

    The AB’s daring position against zeroing has sparked harsh criticisms. The United States government, which was a defendant repetitively in these anti-zeroing decisions, has viewed the position as an unacceptable form of judicial legislation since it “[made] up rules that the U.S.

    11never negotiated.” Others have condemned the AB’s position as judicial activism in that the

    AB has violated the sovereignty-preserving standard of review enshrined under Article 17.6 (ii) of the WTO Antidumping Agreement. They contend that this Article, modeled after the U.S.’

    1213Chevron doctrine, grants a wide range of deference to domestic antidumping authorities.

    7 Japan - Taxes on Alcoholic Beverages, Appellate Body Report adopted on November 1 1996, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R [hereinafter Shochu II]; WTO Agreement, supra note _, art. XVI, para. 1 (“[T]he

    WTO shall be guided by the decisions, procedures and customary practices followed by the CONTRACTING PARTIES to GATT 1947 and the bodies established in the framework of GATT 1947”).

    8 See generally Sungjoon Cho, The WTO Appellate Body Strikes Down the U.S. Zeroing Methodology Used in Antidumping Investigations, ASIL INSIGHTS (May 4, 2006).

    9 Daniel Ikenson, Antidumping Reformers Rejoice, Cato@Liberty, Dec. 18, 2006.

    10 See infra _

    11 U.S. Sen. Comm. on Finance, News Release: U.S. Trade Laws and WTO, Sep. 27, 2002, at:

    http://finance.senate.gov/press/pr092702.pdf.

    12 467 U.S. 837 (1984).

    13 See e.g., Roger P. Alford, Reflections on U.S. Zeroing: A Study in Judicial Overreaching by the WTO Appellate Body, 45 COLUM. J. TRANSNAT'L L. 196, 200-02 (2006).

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    Therefore, according to them the AB should have upheld the zeroing practice which domestic regulators view was permissible under the Antidumping Agreement. One frustrated U.S.

    14politician even condemned the WTO tribunal as a “kangaroo court.”

     This paper responds to these criticisms and advocates the AB’s rulings on zeroing, out of

    which it also attempts to theorize “constitutional adjudication” through interpreting the AB’s

    interpretation. Admittedly, the AB’s departure from the old GATT case law might be neither

    inevitable nor spectacular. Not all such interpretive shifts, even if they are engineered by a teleological interpretation to overcome a textual interpretation, they would not necessarily deserve the “constitutional” label in and of itself. Critically, however, it is not the shift itself but

    the nature of the shift which should draw our attention in this case. Both the subject-matter and the unique topicality of zeroing tend to characterize the AB’s jurisprudential shift as

    “constitutional adjudication.”

     First, despite the lack of the Constitution the capital C constitution , in order to

    achieve its ultimate object and purpose, such as free trade, the WTO may still need to re-configure the power allocation between itself and its members in certain matters, such as zeroing, which seriously restrict trade with no justifiable grounds. To that extent, WTO’s fundamental

    (constitutional) norms should discipline any protectionist domestic politics. The unparalleled institutional evolution over a half century from a provisional pact among a limited number of contracting parties (GATT) to a full-blown multilateral trading system as a public good (WTO) also tends to support such constitutional function. Second, in undertaking this paramount task, the AB may depart from a conventional role of a triadic settler (arbiter) of disputes through neutral application of rules, and instead assume a new role of a constitutional court so as to design a right system via a creative hermeneutics. Therefore, any normative implications of such constitutional adjudication naturally reach all WTO members beyond parties concerned in a

    specific dispute. Third, a unique background against which the AB has issued its rulings on zeroing, such as legislative proposals to codify zeroing and counter-proposals to reverse them, helps illustrate an institutional self of the WTO. Controversies and debates over the AB’s

    adjudication offer rich narratives within the WTO, which attempt to “constitute,” on their own

     14 See Gary G. Yerkey, Sen. Baucus Calls WTO „Kangaroo Court‟ with Strong „Bias' Against the United States, 19

    INT'L TRADE REP. (BNA) 1679 (2002); Congressional Record, S4308-26 (online ed., 14 May 2002).

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    terms, desirable institutional paradigms re-configuring the subtle power allocation between the WTO and its members.

    This “topicality” of zeroing is essential in fully capturing the AB’s constitutional

    jurisprudence on zeroing which the paper conceptualizes. The use of antidumping remedies have recently skyrocketed as conventional trade barriers, such as tariffs and quotas, have subsided through rounds of negotiations for trade liberalization. WTO members have nowadays invoked trade remedies competitively to an alarming level in both frequency and intensity. Since the launch of the WTO in 1995, WTO members have initiated about 3,100 antidumping

    15investigations. In stark contrast, GATT contracting parties had initiated only 1,600 investigations for four decades by the 1980’s. More demoralizing is the antidumping measures

    16highly contagious nature. In what appears to be a defensive attack, new globalizers, such as India, Brazil, and China, have now begun to imitate the developed countries’ penchants for

    17antidumping suits for the former’s own protectionist purposes.

    These new developments within the global trading system, the paper argues, have prompted the AB to cultivate a new hermeneutics on the Antidumping Agreement which envisions new institutional meanings and possibilities within the WTO in accordance with its

    18telos, i.e., free trade and global market integration. This critical choice was based on the AB’s

    firm consciousness of immediate and powerful normative consequences which its adjudication would engender to the future of the WTO. To wit, the AB was well aware that its adjudication would “constitute” the WTO, at least as far as this particular issue (zeroing) is concerned. This is why the nature of the AB’s hermeneutical shift on zeroing might be coined constitutional. The

    logical corollary of constitutional adjudication on zeroing is that WTO members might not effortlessly overturn the AB’s zeroing rulings through mere political bargaining in the trade negotiation. On the contrary, the paper contends that WTO members should cement (codify) such constitutional jurisprudence.

     15 Regarding the antidumping statistics, see the antidumping section of the WTO website,

    http://www.wto.org/english/tratop_e/adp_e/adp_e.htm [hereinafter WTO AD Website].

    16 Id.

    17 Major developing countries have increasingly used the antidumping measures since the launch of the WTO. See id.

    18 See Kenneth W. Abbott, “Economic” Issues and Political Participation: The Evolving Boundaries of

    International Federalism, 18 CARDOZO L. REV. 971, 974 (1996) (trenchantly submitting that political structures are not “corporeal” things whose existence derives from “constitutive ideas”).

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    My thesis of constitutional adjudication in the WTO unfolds in the following sequence. Part II documents a jurisprudential transformation on the zeroing practice from the old GATT to the new WTO. It demonstrates how the AB has managed to establish an authoritative jurisprudence in this high-profile regulatory area in a train of decisions. At first glance, the AB may have taken a traditionally unassuming interpretive methodology based on “ordinary meanings’ of relevant provisions, which would have obscured its constitutional undertaking. Yet

    its exegesis is nonetheless anchored firmly by a discernible purpose of cabining trade distortive/restrictive consequences from the use of zeroing against the broader backdrop of a recent surge of antidumping measures. In other words, the AB has predicated its decisions on “teleological” grounds, such as avoiding unfairness from an undue inflation of dumping margins, and minimizing uncertainty in administering antidumping measures. Methodologically, the use of interstitial norms, such as fairness, tends to furnish the AB with maneuvering room for this

    19teleological interpretation.

    Part III then defends the AB’s new jurisprudence on zeroing. It first introduces various

    criticisms against the AB’s case law on zeroing, and more broadly on antidumping measures in

    general. It subsequently challenges the critics’ positions on the multiple grounds that they

    misconstrue the nature of the WTO and its adjudication, not to mention the nature of sovereignty itself. First, international tribunals, as in domestic courts, often engage in judicial rule-making via construction beyond mere mechanical application of treaty provisions. As a matter of fact, a common law style judicial legislation has been a hallmark of the GATT/WTO jurisprudence. Second, the WTO’s evolution into a full-blown legal system from an old contract model under

    the GATT also tends to substantiate this enhanced judicial role by the WTO tribunal. Finally, any “disarticulated” concept of sovereignty mobilized to foreclose necessary discussions in this

    area does not do justice to the contemporary status of global market integration under the WTO

     19 Vaughan Lowe, The Politics of Law-Making: Are the Method and Character of Norm Creation Changing?, in

    THE ROLE OF LAW IN INTERNATIONAL POLITICS: ESSAYS IN INTERNATIONAL RELATIONS AND INTERNATIONAL LAW

    207, 212-21 (M. Byers ed., 2000) (observing that tribunals employ interstitial norms “not because those norms are obligatory as a matter of law, but because they are necessary in order that legal reasoning should proceed”). These interstitial norms function as “standards” vis-à-vis “rules” in an adjudicative setting. See Joel Trachtman, The

    Domain of WTO Dispute Resolution, 40 HARV. INT'L L.J. 333, 350-55 (1999) [hereinafter Trachtman, The WTO‟s

    Domain].

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