european union and the us trade disputes: the role of the wto

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European Union and the US trade disputes: The roleof the WTOMinoo Tehrani aa Gabelli School of Business, Roger Williams University, Bristol, RI, USAPublished online: 18 Jul 2012.

To cite this article: Minoo Tehrani (2008) European Union and the US trade disputes: The role of the WTO, OrganizationManagement Journal, 5:3, 135-148, DOI: 10.1057/omj.2008.15

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European Union and the US trade disputes:

The role of the WTO

Minoo Tehrani

Gabelli School of Business, Roger Williams

University, Bristol, RI, USA

Correspondence:Minoo Tehrani, Gabelli School of Business,Roger Williams University, Bristol,RI 08209, USA.

AbstractThe study discusses the role of the World Trade Organization (WTO) in disputeresolution and examines issues influencing its effectiveness. This paper

investigates the trade disputes between the US and the European Union,

focusing on the agricultural sector controversies over crops, beef, and bananasin addition to the conflict over the US government decision to impose tariffs on

imported low-cost steel. The final sections of the paper highlight some of the

structural factors that create limitation in the role of the WTO in resolution ofdisputes and provide analyses with the potential of enhancing the capabilities

of the WTO in resolving trade disputes.

Organization Management Journal (2008) 5, 135–148. doi:10.1057/omj.2008.15

Keywords: WTO; trade dispute; dispute resolution

IntroductionThe transatlantic trade of goods and services between the US andthe European Union (EU) is the largest in the world, 45% of globalservices and 38% of goods, which amounts to more than $750billion (Hocking and McGuire, 2002). Most EU and US firms tradeamicably across borders. However, in this era of economicintegration pacts, the complexity of international trade has gonebeyond the traditional transfer of capital, goods, and services.Special issues – the environment, consumer safety and health,supply networks, and maintaining the competitive advantage ofdomestic firms – have created complex factors influencingdomestic policies, trade barriers, and the definition of protection-ism, tax breaks, subsidies, and standards of health and safety.

In the US, trade policies are mostly drawn based upon the privatesector’s interests, with the influence of strong lobbying groups(Jacek, 2000). In the EU, the European Commission (EC) is thedeciding entity on policy making, with lobbying and specialinterest groups becoming more active (Hocking and McGuire,2002). With the growing power of lobbying and special interestgroups, international economic transactions are increasinglyintertwined with political and domestic issues beyond the tradi-tional concern for producer-protectionist measures.

In this paper, the role of the World Trade Organization in disputeresolution is analyzed in reference to two important areas of tradedisputes between the US and the EU – agriculture and steel. Thesecases exemplify the effectiveness of the WTO in settling various

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trade disputes. Furthermore, the paper highlightsstructural factors that limit the capabilities of theWTO in resolving disputes.

World Trade OrganizationThe General Agreement on Tariffs and Trade(GATT), the predecessor to the WTO, dealt withthe international trade disputes through a negotia-tion-based system and the decisions rendered bythe dispute resolution panel of GATT had to beadopted by all parties involved (Brewster, 2006).Such decisions could be negotiated by the disputingbodies. However, any party involved in a disputecould block the decision of the panel or prolongthe implementation of the decisions rendered bythe WTO (Brewster, 2006).

During the Uruguay Round of trade negotiationbetween 1986 and 1993, an agreement was reachedto establish the WTO with the ability to rule if acountry’s trade policies were discriminatory toforeign companies. The WTO has a systematicrule-based approach to resolution of disputes. Thedecisions rendered by the WTO cannot be blockedby the parties involved and the losing party ismandated to abide by the rulings of the WTO.

The WTO consists of the Dispute SettlementUnderstanding (DSU), which provides the rulesand regulations for trade disputes, the DisputingSettlement Body (DSB) with the power to establisha panel for the review of the disputes and to overseereports, rulings, and their implementation, a stand-ing Appellate Body and procedures to monitor theimplementation of the rulings and to oversee theamount of compensation and retaliation.

The DSU regulates the DSB’s activities. The DSBstarts negotiations for a settlement among thedisputing parties with a mandatory consultation.If the disputing parties cannot agree within acertain period of time, the complainant party canask the DSB for the establishment of a panel toreview the case. The panel’s decisions, based uponfact-finding and the policies of the WTO, are thenprovided in a report within 6 months. If neither ofthe parties agrees with the findings of the panel,they can then appeal the decision to the AppellateBody. The task of the Appellate Body is to reviewand interpret the panel’s findings based on the legalissues. The panel’s decisions can be upheld,reversed, or modified by the Appellate Body. Withthe Appellate Body’s decision, the losing party has30 days to comply or ask for a ‘‘reasonable period oftime,’’ preferably within 15 months, to comply.

In the case of non-compliance, the complainantcan ask the DSB for negotiation over compensation.If the defendant disputes the implementation ofthe compensation, the measures will be furtherreviewed by the DSB and retaliatory actions can beauthorized, usually in the form of punitive tariffs.

In the following sections, three cases of tradedisputes between the US and the EU that werebrought to the WTO are examined to demonstratethe extent of effectiveness and the capabilities ofthe WTO in settling trade disputes.

Agriculture IndustryTrade barriers on agricultural products are amongthe strictest policies enforced by governments. Theissues of food safety and related trade policies arethe sources of important disputes that have chal-lenged the WTO. The past decade has seen majortrade disputes between the US and the EU onagricultural products. Hormone-raised cattle, gene-tically engineered crops, and the banana disputeshave caused great controversy.

Hormone-treated beef disputeHormone-raised cattle compose more than 90% ofbeef produced in the US and Canada (Isaac, Banerji,and Woolcock, 2000). The history of the disputebetween the US and the EU on hormone-treatedbeef started in 1981 when the EC banned the meatof livestock raised with growth hormones in theirfeed due to alleged potential health issues for pre-pubescent children (Wuger, 2002). As a result, in1987, the US asked GATT for the establishment of ascientific group to investigate the EC ban. The ECrejected this request, and in 1988 it banned the useof all hormones in food products with the excep-tion of three natural hormones under specificconditions.

However, due to the threat of retaliation by theUS, the EC postponed the implementation of thisdecision for a year. After the EC ban went into effectin 1989, the US retaliated by putting a 100% tariffon eight agricultural products from the EU (Wuger,2002). In 1996, the US terminated its retaliationdue to the request by the EC and asked for a panelto address the ban by the EC. In 1997, the panelruled against the EC for the breach of the Sanitaryand Phytosanitary Standards (SPS) Agreement.Article 5 (7) of the SPS Agreement stipulates thatscientific proof must guide the standards of foodsafety and that precautionary measures can be usedonly temporarily to allow for the scientific informa-tion to be gathered.

Linking theory and practice Minoo Tehrani

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The follow-up appeal by the EC resulted in somelatitude by the Appellate Body. It allowed the EU tohave domestic health and safety protection stan-dards more stringent than the international mea-sures; however, the burden of the scientificjustification was put on the EC. In response to theWTO ruling, the EC posited that the scientificresearch in this area was not sufficient to cover thefuture and long-term risk of using hormones;therefore, beef produced using hormones couldpose unforeseen threats to the public health. Thefollow-up review by the WTO sided with the US andCanada and ruled that the EC did not provide anyscientific evidence contrary to the current researchand that its expectations for health standards wentbeyond the acceptable international requirements.

Despite this ruling, the EC kept the ban onhormone-treated beef and opted for a retaliatoryact. The US estimated the beef export to the EU tobe valued at $116.8 million annually and Canada’sestimate was $8.00 million (Kerr and Hobbs, 2002).As a result, the US and Canada put a 100% tariff onimported EU products such as truffles, cheese, andbottled water. The continuation of the dispute andthe decision of the US and Canada to keep thesuspension have resulted in formation of anotherpanel to review the matter (WTO, 2006, 2008).

Genetically modified crop disputeAnother source of trade controversy between theEU and the US is the case of genetically modified(GM) crops such as corn, soybeans, and cotton. GMcrops provide a genetic insecticide that eliminatesthe use of extensive chemicals to eradicate pests.The GM crops were to be used for animal feed onlysince the environmental impact and the potentialrisks to humans and other animals and cropsneeded further research. But GM corn found itsway in taco products across the globe (Hsin, 2002).In addition, Canadian government research on GMwheat and rapeseed and the potential of dispersionof pollens to wider areas raised the alarm about theintroduction of foreign genes into the ecosystem(Hsin, 2002).

In 1997, the EC approved the import of GMsoybeans and allowed cultivation of GM corn.However, the outbreak of mad cow disease andthe public furor over the failure of the Britishgovernment to regulate cattle feed resulted in theban of the import and cultivation of GM crops bythe EC (Hsin, 2002). According to the US govern-ment, this decision cost the US$600 million in cornexports to the EU (Hsin, 2002).

In 2000, the US and Canada agreed to the EC’sdemand to label their GM products. However, theEC used the same argument in banning hormone-treated beef, ‘‘precautionary principle,’’ to alsoreject GM crops. Even though the ‘‘precautionaryprinciple’’ can be used only temporarily until thegap in scientific information is filled, this principlehas been used as a means to permanently ban theunwanted products from entering the EU. Further-more, the EC, under pressure from environmentaland consumer groups, used the GATT’s labelingpolicy and declared the GM agricultural productsas ‘‘novel products.’’ As a result, US agriculturalproducts that did not specify ‘‘genetically modified’’on their labels were banned from entering the EU.

Moreover, in March 2003, the European agricul-tural ministers approved a strict food labeling policythat contained labeling of foods with even less than1% of GM ingredients. The US contended that thiscould be used as a tool for differentiation amongsuppliers and gaining competitive advantage overthe GM crop-producing farmers.

Similar to the hormone-treated beef case, con-sumer advocacy and environmental groups arguedthat the interests of the large corporations were thedriving force behind the GM crop technologies. Asan example, US-based Monsanto Corporation,which has control over gene modification technol-ogies, tried to acquire a patent on a technology thatwould prevent the seeds of GM crops from beingfertile. The outcry over this technology put thecorporation at odds with its claim that the GMcrops were the answer to solving the problem ofhunger in poor countries and provided ampleammunition for the anti-GM crop advocacy groups.

The special interest groups opposed to the GMcrops argue that the world produces enough food tocombat world hunger, but logistics, pricing, andlow productivity of land in poor countries aremajor underlying factors causing world hunger.Hence, the answer to world hunger does not lie inthe genetic modification of crops, but in improveddistribution and irrigation systems, ways toincrease the productivity of the land, and betterpricing strategies. Based upon the request by the USand Canada, a panel was established in 2004.However, the panel’s final report has been furtherdelayed (WTO, 2006, 2008).

Banana disputeThe banana dispute had its origin in the Treaty ofRome, which allowed Germany an annual quota forbananas based on the imports for 1956. However,


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the old colonies and the current overseas territoriesof the EU in the Caribbean, Africa, and the Pacificcould not compete with the Latin American bananaproducers as far as efficiency, price, and quality. In1975, in the Lome Convention, the Caribbean,African, and Pacific countries were given preferen-tial treatment by the EU and measures were takento assist them in improving their operations andmarketing activities (McMahon, 1998).

Despite the preferential treatment and jointassistance given to these countries, their bananaexports could still not compete against the LatinAmerican countries. Over the years, the discussionregarding uniformity of banana tariff and quotascontinued, and in 1993 the EC affirmed thetraditional favorable status of the Caribbean,African, and Pacific countries and set a quota forthe Latin American banana exporters.

The 1993 rules cut in half the EU market share ofthe major US banana-exporting company, Chiquita(formerly United Fruit). Over a period of 8 years,the Chiquita Company contested the preferentialtreatment of companies in the old and currentterritories of Britain, Spain, and France. Ultimately,the US, Mexico, Honduras, Guatemala, and Ecua-dor took their complaint to the WTO and arguedthat while the Lome rules allowed for preferentialtreatment of the Caribbean, African, and Pacificcountries at a certain level of banana export, the EUhad not only raised the level of imports from thesecountries, but had also assisted in enhancing theirmarketing, production, and other related activities,which could be considered forms of subsidies.Furthermore, they contended that the EU hadincluded countries not belonging to the traditionalfavorable status countries, such as Colombia, CostaRica, and Venezuela (McMahon, 1998).

Britain, Spain, and France supported the restric-tive quotas on bananas, but Belgium and Denmarkallowed imports from Latin America despite thetariff, and Germany kept a free market (Stein,2001). However, since production efficiency andprice competitiveness in the preferred territorieswere not good, the price of their bananas was muchhigher than the price of the bananas produced bycompanies located in Latin America (Stein, 2001).

In pursuing the battle with the EU, the WTOruled in favor of the US government and the LatinAmerican complainants, but the EU refused tochange its restrictive and preferential quota system.As a result, sanctions against the EU ensued,including the ban of products such as coffee makersand bath oils (Stein, 2001). In the summer of 2001,

in response to retaliatory actions against the EU,the restrictive and preferential quotas were abol-ished and a system was established very similar tothat prior to the quotas. According to this agree-ment, the favored countries’ share of the bananaexport to the EU would decrease by 100,000 tonsand the US and Latin American companies wouldhave a greater access to the EU market (Ierley,2002). In addition, the banana market is to begoverned by a general tariff system.

The outcome of the role of the WTO in resolvingthe banana dispute was to place an importantbarrier to the EU’s preferential treatment of parti-cular countries. A goal of the Treaty of Rome hasbeen the inclusion of developing countries intointernational trade and the improvement of theireconomies. However, 30 years of preferential treat-ment of the banana countries of the Caribbean,African, and Pacific have not helped in enhancingtheir trade competitiveness. The WTO rulings inthe banana case recognized this dilemma andrecommended inter-regional trade agreements suchas the one among the Caribbean nations.

Steel disputeIn 2001, the American Iron and Steel Institute,which is composed of 36 North American steelcompanies, complained to the US InternationalTrade Commission (ITC) about low-cost importedsteel and the dumping of such steel in the USmarket, which had reduced the market share for thedomestic companies and put their survival injeopardy. According to statistics provided by steelcompanies, 46,000 jobs had been lost in the steelindustry in a span of 5 years and more than 300,000would be lost due to low-cost imported steel(Martinez, 2002). Subsidies in the steel industry,as in the agricultural sector, are highly prevalentacross different countries. According to GATT, threeforms of subsidized assistance are allowed: researchand development, technologies to meet the newenvironmental standards, and social assistance,such as retirees’ health care cost (Cyert andFruehan, 1996). The US steel companies had adifficult time to compete against the foreign steeldue to the subsidies provided to these companies bytheir governments and also dumping of steel by someforeign companies, such as South Koreans, Taiwanese,and Canadians (Jesdanun, 1999; Levin, 1999).

In addition, the inefficiency of small steelmills and the huge cost of pension and healthcare of retired unionized steel employees wereadded factors to the bankruptcy and the financial


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difficulty of the US steel industry (Boselovic, 2001).As a result, the ITC recommended a tariff of 5–40%on 10 different categories of imported steel over a4-year period. Russia’s crude steel, Canada as aNorth American Free Trade Agreement (NAFTA)partner, and most developing countries due toinsignificant amounts of exports, would be exemptfrom this tariff. However, steel imports fromthe EU, Norway, Switzerland, Japan, South Korea,Taiwan, Brazil, China, and New Zealand would besubjected to the tariff. In addition, the US steelcompanies asked the government to subsidize thehuge deficit in the pension plan and health carecost of the retired employees (Boselovic, 2001).

In March 2002, the US government imposedtariffs, from 8 to 30%, on 14 categories of importedsteel with the support of both Democrat andRepublican representatives and senators from steelstates in the Midwest and the state of Pennsylvania.

Meanwhile, a strong opposition to steel tariffscame from domestic industries such as automakers,auto parts, molding, construction, and other cus-tomers of steel, and states such as Michigan, hometo the major auto manufacturing companies, andLouisiana, a major port of embarkation of goods.The steel-consuming industries argued that the USsteel plants could supply only 70–75% of thedomestic needs (Purchasing, 1999).

Hence, the tariff on steel would have a majornegative impact on downstream manufactures.By closing the borders to foreign steel, with thesubsequent shortage and higher prices of steel, thesteel customers, with 8.3 million production work-ers (Purchasing, 1999), would have no choice but torelocate or lose their competitive pricing and sales.As a result, thousands of jobs in these sectors wouldbe lost in order to protect approximately 200,000jobs in the steel industry. In addition, the threat ofretaliation by other countries, the costs of reloca-tion to the steel-consuming companies, and thedisruption of their production activities could costthe US economy billions of dollars.

Within 6 months of the imposed steel tariff, theprice of steel increased by 6%. Furthermore, due toa shortage of steel, the spot market price was raisedby 30% and the price for scrap steel, a main productfor auto parts and smaller components for indus-trial machinery, was raised by 15–20%. In early2003, the lobbying of auto companies and steelcustomers against the tariffs intensified. The Con-suming Industries Trade Action Coalition (CITAC)heavily lobbied for the elimination of all steeltariffs. Michigan’s Congressional Representative

introduced a resolution for the ITC to reviewthe consequences of the tariffs (Corbett, 2003).Meanwhile, the steel industry countered thatthe price focus of the auto companies wasthe major reason that steel companies were in suchtight spot.

The pressure to eliminate the tariffs on importedsteel continued through reports that 200,000domestic jobs in 2002 were lost as direct result ofimposing these tariffs (Phelps, 2003). In addition,the EU, Japan, and six other countries reacted byasking the WTO to arrange a consultation with theUS regarding the steel tariffs. Meanwhile, the ECprepared a list of 316 US products with a value of $2billion in case retaliation would be the final resort.The WTO spent 9 months investigating the com-plaint. In July 2003, the WTO ruled in favor of thecomplainants that the steel tariffs violated globaltrade agreements and that the revenues fromthese tariffs that went to the affected US steelcompanies constituted illegal trade practices sincethey were considered subsidies. The US positionwas that the safeguard accord of the Marrakech1994 world trade pact allowed countries to taketemporary measures to protect threatened domesticindustries.

However, the burden of proof that such indus-tries’ survival is threatened is with the countriesthat impose protectionist measures. In the case ofsteel, the WTO ruled that the US failed to prove itscase. Under pressure from the domestic steelcustomers, specifically the giant auto companies,and the threat of retaliation by the EU, the USgovernment did not appeal the WTO ruling andintroduced 178 exclusions to tariffs on the steelproducts. Even though this concession was a relieffor the domestic steel users and welcomed by theEU, it was not enough for the EU to stop the threatof trade retaliatory procedures. Ultimately, inDecember 2003, the US government decided torepeal the steel tariffs.

Issues impeding the success of the WTO as adispute resolution body

The WTO was created not only to reduce the periodof time that it took for GATT to deal with tradedisputes, but also to streamline the dispute settle-ment process. Under GATT, the losing party couldblock the panel’s ruling; under the WTO this optionis not available. However, the losing parties havefound different tactics, such as creative interpreta-tion of the WTO language, to delay or avoidadoption of the WTO’s rulings.


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In the following sections, this paper examines theissues and problems of the WTO that impede itssuccess in effectively resolving trade disputes. Theseissues and problems are grouped into three cate-gories that have varying degrees of complexity.These categories consist of technical issues, con-ceptual issues, and functional issues. The technicalissues include problems that are related to the rules,procedures, and the body of the language of theWTO. These issues entail a lesser degree of com-plexity to address and alleviate. The issues in thesecond category are related to the conceptualfoundation of the WTO – the economic andpolitical power differentials among the membercountries and the focus on supplier-related tradebarriers. These issues create more complicatedobstacles than the technical issues for effectiveoperations of the WTO.

The third category, the functional issues of theWTO, is associated with the role of the WTO as aunique international agency that can issue man-dates and interfere with the domestic laws ofmember countries. This category comprises themost complicated issues of the WTO.

Table 1 provides a list of the related issues undereach proposed category.

Technical issuesThe technical issues impeding the success of theWTO in resolving trade disputes can be furthercategorized as indicated in Table 1. These categoriesinclude issues related to WTO’s rules and proce-dures and the DSU or the body of the language ofthe WTO.

Rules, policies, and procedures. A concern with theWTO’s conflict resolution process is the delay inrendering decisions. The time frame for the panelto issue its reports is within 6 months. If the panelmisses this deadline, the second deadline is within9 months. However, meeting this timeline has beenan issue. Reviewing the timeline for 36 casesbrought to the panel from 1995 to 1999 indicatesthat the panel has met the 6-month deadline foronly six cases and the 9-month deadline for fivecases (Stewart and Karpel, 2000). These delays onone part are due to the length of the summaryreports, which according to the WTO policies aregenerated based upon the complaint of each partyinvolved in a dispute. The hormone-treated beefdispute reports, one for the US and one for Canada,were each over 400 pages (Stewart and Karpel,2000). Another reason for delay is requests of thedisputing parties for more time to conduct researchand prepare documents, as evident by the GM cropand the hormone-treated beef cases.

One more point of discord is the issue of secrecyand the lack of transparency in procedures, reports,and public dissemination of these reports by theWTO. According to the WTO rules, the disputingparties must be governmental agencies. The WTO’srejection of the efforts of the US and the EU toformalize the acceptance of unsolicited briefs byprivate entities has resulted in more contention(Hauser and Zimmermann, 2003). Hence, theWTO’s refusal in involvement of all interestedparties (e.g., environmental and consumer advo-cacy groups) and the tendency of the WTO to rejectunsolicited reports from the third parties and itsunresponsiveness to such reports have added tomore controversy over the decisions rendered bythe WTO (Wallach, 2000).

Another issue at the center of the controversyover the WTO procedures is that its rulings inproviding remedies are in the form of bilateralnegotiations since the WTO policies do not allowmultilateral negotiations. Another concern is thelack of permanency in the composition of thepanel. Reviewing the composition of the panel in51 cases brought to the WTO indicates that only

Table 1 Categorization of the issues impeding the success of the

WTO as a dispute resolution body

1. Technical issues:

a. Rules, policies, and procedures:K Time-lineK Summary reportsK SecrecyK Disputing partiesK Panel compositionK Bilateral negotiationsK Retaliatory acts

b. Language:K SPS AgreementK TBS AgreementK Implementation of rulings

2. Conceptual issues:

a. Inequality of power:K Developing countries

b. Foundation:K Supplier-specific focus

3. Functional issues:

a. International mandates:K International laws vs domestic laws

b. Standardization of the mandates:K Differentiation vs harmonization


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three people served on four to five panels, sevenpeople on three, and the rest did not serve on morethan two panels (Stewart and Karpel, 2000). Hence,the absence of permanency in the panel composi-tion, which results in the lack of in-depth experi-ence and expertise to deal with complicatedinternational and domestic trade laws, is an issuethat needs to be addressed.

Another concern in resolving the disputes underthe rules and procedures of the WTO is the standardof review for the panel and the Appellate Body.A controversy in this case is the appropriateapproach by the WTO panel and the AppellateBody in reviewing a case. Should the panel andthe Appellate Body defer and rely upon the factsprovided by the disputing parties in assessing thesituation or should they forge ahead with their ownindependent fact-finding and legal assessment ofthe compliance of the disputing members with theWTO rules and regulations (Oesch, 2003)?

Furthermore, a major contentious issue is thenature of retaliatory acts and specifically the‘‘carrousel retaliation’’ policy. When the losingparty opts not to abide by the rulings of theWTO, the winning party has the right to retaliatein the form of punitive tariffs. However, suchretaliatory acts are against industries that havenot been part of the dispute. For example, in thecase of hormone-treated beef, the US and Canadaretaliated against industries such as cheese, truffles,and bottled water. In addition, ‘‘carrousel retalia-tion’’ allows the winning party to change the list of‘‘sanctioned products’’ periodically, which againretaliates against other industries that are not at thecenter of the dispute.

Language. Other issues that impede the success ofthe WTO as a dispute resolution body are related tolanguage of the DSU that is open to interpretation.At the center of disputes over hormone-treatedbeef and GM crops was the interpretation ofthe standards of safety and health and the‘‘precautionary principles’’ of the SPS Agreementin addition to the concept of the ‘‘novel products’’of the Technical Barriers to Trade or StandardsCodes (TBS) Agreement. Since the inception ofGATT in 1947, international trade barriers in theform of tariffs have been lowered. However, morecomplex and sophisticated rules and regulationshave replaced tariffs. Some of these new regulationsare formalized internationally in the SPS and TBSarticles undertaken in the Uruguay Round

Agreement of 1994. They deal with internationalsafety standards for food items.

The SPS Agreement ensures enhancement of foodquality and safety internationally and allows gov-ernments to put trade protectionist measures inplace to safeguard humans, animals, and plants. Inaddition, the SPS Agreement recognizes nation-specific food health and safety regulations in regardto food additives. Meanwhile, the TBS Agreementdeals with food labeling, food composition, packa-ging, and quality requirements.

These safety and health standards have providedjustification for many more trade barriers. Amongthese barriers in the agriculture industry are newsafety and health regulations, environmentalconsiderations, animal cruelty issues, and barriersbased on ethical and moral grounds. These newforms of trade barriers can reduce internationalcompetition and create hurdles for foreign firmsentering a country, specifically firms from develop-ing countries. Complicating the matter further isthe decision of GATT through the TBS Agreementto require labeling the health risks for ‘‘novelproducts.’’ Canada and the US claimed that theEU’s demand for labeling information on GMagricultural products and hormone-treated beefdid not fall under the category of ‘‘novel products.’’They contended that the EU ban was not basedon sufficient scientific evidence, but was adisguised trade barrier under the auspices of healthstandards and that the EC had created a higherlevel of health standards than the internationalones without any scientific substantiation (Roberts,1998).

The language used in the SPS and the TBSAgreements is not clear as to the definitions ofrisk, ‘‘precautionary principles,’’ and the definitionof ‘‘novel products.’’ Under the SPS Agreement,there is no definition as to the acceptable level ofsafety risk. The vagueness of the language hasallowed different interpretations of the SPS and TBSarticles. The disputes over hormone-treated beefand GM crops are prime examples of differentinterpretations of the SPS and TBS provisions bydifferent parties.

Another issue related to the DSU language is theimplementation of the rulings of the WTO. Thelosing party’s intention to comply is taken as awillingness to implement the rulings; however, thetime frame and the actual implementation planare open to interpretation and compliance of thelosing and winning parties. The losing parties candefine the time needed to implement the rulings


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and not comply with the 15-month implementa-tion period.

Conceptual issuesThe conceptual underpinning of the WTO isanother issue that has created hurdles in itscapability to effectively address and resolve tradedisputes. These conceptual issues include theinequality of power among the member countriesand the constructional foundation of the WTO;namely, its supplier-specific focus.

Inequality of power. Another factor for measuringthe degree of effectiveness of the WTO in conflictresolution is the weight of economic and politicalpower of the complainants. The inequality ofeconomic and political power of developingcountries in imposing effective sanctions orretaliatory acts has been a sensitive and conten-tious issue. The lack of retaliatory power by deve-loping countries as evident in the banana casebetween Ecuador and the EU brought about aproposal by the developing countries for anaggregate retaliation power that would allow thewinning parties to collectively sanction products ofthe non-complying party. The WTO’s rejection ofthis proposal has fueled anger among thedeveloping countries and increased hostilitytoward the WTO.

Out of 140 members of the WTO, around two-thirds are developing countries; however, thedisproportional economic power between thesecountries and the developed countries has createdcontroversy over the fairness of the rules andprocedures of the WTO when applied to thedeveloping countries (Footer, 2001). The inequal-ities in the economic power of developing countriesvs the developed countries and their lack ofexpertise in dealing with complex internationallaws and the ineffectual retaliatory power haveadded to the controversy.

Ierley (2002) conducted interviews with nineWTO diplomat members from developing coun-tries. According to these members, the lack ofeconomic power and retaliatory muscle do notfavor conflict resolution if developing countries arethe complainants against super powers. They con-sider the WTO’s process a ‘‘power-based systemrather than a rule-based system’’ (Ierley, 2002). Anexample is the resolution of the banana disputewith the EU that happened when the US joinedforces with the Latin American co-complainants.Without the economic force of the US, the Latin

American countries did not have the economic orthe political clout to resolve this issue.

Foundation. The WTO’s role as the trade disputeresolution body dealing with the issues ofhormone-treated beef dispute and GM crops was adifficult one since precedent for such cases did notexist. GATT did not provide similar casebackground to allow established standards for theWTO to settle these disputes. As a result, the role ofthe WTO in resolving the disputes was clearlytested. A major hurdle in the ability of the WTO notonly to resolve the trade disputes, but also to ensurethe implementation of its rulings, is that thedirectives of the WTO and its predecessor, GATT,have been supply-driven processes. GATT dealt withtariff reduction policies; the WTO was established tolook at other protectionist policies, such as non-priced-based barriers, but the focus of the removal ofnon-priced-based barriers has been on barrierscreated for protection of domestic producers. TheWTO’s interpretation of the EC sanction againsthormone-treated beef from the US and Canada wasas a traditional producer-protectionist act againstthe scientific results (Kerr and Hobbs, 2002).However, the force behind banning hormone-treated beef and GM crops came from consumersand environmentalists in the EU. These forces in theEU have become influential enough for govern-ments to impose sanctions against products thatconsumers and environmentalists feel are unsafe.However, since the WTO does not have themechanisms to consider political and consumer-motivated disputes, it has failed to effectively resolvesuch trade disputes.

Functional issuesThe third category of issues that creates limitationsto the success of the WTO in dealing with disputesis related to the role of the WTO as an internationalentity. This category includes highly complicatedissues regarding international vs domestic laws andthe role of the WTO in prescribing standardizedmandates for the member countries.

International laws vs domestic laws. Theappropriateness of the standards that the paneland the Appellate Body of the WTO employ toreview the trade disputes can create tremendouscontroversy. These standards can be in conflict withthe national standards of the issues under dispute(Oesch, 2003). For example, in the case ofhormone-treated beef, the standards of review of


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the Appellate Body were in conflict with thenational standards. As Oesch (2003) notes, whichstandards should govern the decisions of thepanel – review of the findings at the domesticlevel or conducting an independent fact-findingassessment of the issues under dispute?

The rulings of the WTO can conflict with thedomestic laws of a country. According to US laws,there are two limitations to the power of a treaty: Atreaty ‘‘may not permit a change in the character ofthe government y and a treaty may not by itsterms or application violate the individual consti-tutional rights’’ (McBride, 2001: 666).

However, WTO rulings may infringe upon both ofthese areas. The US Congress approved and signedthe WTO laws in 1994. However, it annexed aprovision to its approval stating that WTO deci-sions or laws that are contrary to US laws, includingany laws dealing with the protection of humans,animals, plant life, health, and the environment,shall have no effect (McBride, 2001). According tothe US Constitution, the power of the governmentis not transferable to other parties, and the WTO isneither part of the US government nor accountableto it. However, the WTO is in a unique position thatcan issue mandates that might be contrary to acountry’s domestic laws such as tax laws.

Standardization of the mandates. The underlyingfactors in agricultural trade disputes between theUS and the EU are not just about hormone-treatedbeef, the banana tariff, or GM crops, butfundamental differences in political and social–cultural dimensions. The US and Canada haveextensive collaborative research in the area of GMand hormone-treated foods. As a result, the foodregulatory agencies in these countries have workedclosely for the approval of these products (Isaacet al., 2000). However, the EU directives regardingthe impact of new technologies on food andenvironmental safety allow for no risk. Inaddition, the EU member states are allowed toimpose unilateral trade barriers on items theyconsider to have potential health hazards.

In the EU, the consumers’ concern over GM andhormone-treated foods plays a much more pro-nounced role in the definition of safe agriculturalproducts. There is also a tremendous pressure byenvironmental groups that are politically moreinfluential in the EU than in many other regionsof the world. Furthermore, EU directives havemore detailed policies regarding consumer and

environmental protection than other economicintegration pacts such as NAFTA.

Therefore, the social–cultural differences invol-ving consumer and environmental factors and thehistoric political ties of several European countriesto their past colonies in addition to differences inpolitical philosophies provide a fertile ground fordisputes and the lack of incentives to resolve them.In addition, the vast differences between develop-ing and developed countries regarding the stan-dards of health and safety for consumers and thephysical environment do not lend themselves toequitable power and the willingness to abide bythe SPS and TBS Agreements and the rulings of theWTO. Adding to this dilemma is that the SPSAgreement recognizes nation-specific food healthand safety regulations in regard to food additives.Allowing differentiation in rules and regulations,such as the standards of health and safety, will putthe developing countries in danger of becoming atest or a dumping ground for the products con-sidered unsafe in developed countries. With thesocial–cultural, economic, technological, and poli-tical differences among the member countries, thequandary over the imposition of internationalmandates that may be against the domestic lawsof these countries, and the differentiation in theacceptance of such mandates, makes the task ofharmonizing international trade rules and regula-tions a colossal one.

AnalysisThe challenge for the WTO is how to be perceivedas an objective, equitable, and effective means fortrade dispute resolution while addressing the con-cerns of consumers, environmentalists, and devel-oping countries in addition to getting the morepowerful nations to implement its rulings. Table 2provides a list of the proposed recommendations toaddress the issues that were discussed in theprevious sections of this paper.

Analysis – technical issuesTo address the issues related to the technical issues,rules, procedures, and the body of the language ofthe WTO, several remedies are proposed as pre-sented in Table 2.

To reduce the duration of the process of reviewinga case and generating a report, the WTO needs toeliminate the time-consuming practice of provid-ing summarized reports of complaints to eachdisputing party. Another means to keep the statedtime-line is changing the status of the third parties


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and allowing them to join the main complainantsrather than filing separate similar complaints.Implementation of such a rule can also reduce thetime needed to process the paperwork and toreview the complaints.

A major criticism of the WTO is the lack oftransparency in its procedures. Allowing a countryto ask for the reports by other members andproviding public access to the reports (with theexemption of confidential parts) would be a steptoward making the WTO procedures more demo-cratic and less secretive. The recent decision of theWTO to provide access to such reports is a positivestep to address the criticism in regard to the lack oftransparency in its procedures.

As for the controversy over the standards utilizedin reviewing the facts by the panel and theAppellate Body in rendering a decision – based onthe facts provided by the disputing parties or theirnational laws vs the independent fact-finding andutilization of the WTO rules in legal reviews – aremedy would be to increase the appropriate levelof expertise of the members of the panel and theAppellate Body. In the review of the facts involvedin a dispute, the WTO panel should combine theexpertise of the panel members with the findings atthe national level in rendering a decision. In cases

that the disputing members do not have theadequate scientific resources in providing the facts,the expertise present in the WTO panel in con-junction with the expertise of appropriate interna-tional entities not involved in the dispute shouldprovide the standard of review.

For rendering the legal decisions by the AppellateBody, in reviewing the standards, the relevant legalnational entities should be consulted. As to thecountries that lack the expertise in understandingthe complex international laws and regulations,training and creating the legal expertise are verymuch needed.

Another issue regarding rules and policies isthat the WTO allows only bilateral negotiations.Replacement of bilateral negotiations with multi-lateral agreements and flexibility by recognizingpartial implementation of the remedies with theagreement of the parties involved in a disputecan reduce hostility and improve the stability andharmonization of trade relationships, therebyimproving the effectiveness of the WTO in resol-ving trade disputes.

An additional concern regarding WTO rulesand procedures is the composition of the reviewpanel and its lack of permanency that do not allowaccumulation of expertise in resolving trade dis-putes. Establishment of semi-permanent panels canaddress this issue and contribute to the enhance-ment of the expertise and the knowledge of thepanel members in dealing with complex tradedisputes.

Furthermore, the ambiguity of the body of thelanguage of the WTO is another technical issue thatneeds to be addressed. Clarification of the SPS andTBS articles on standards of health, degree of risk,‘‘precautionary measures,’’ and definition of ‘‘novelproducts’’ is imperative to address some of themajor issues that have risen in agricultural producttrade disputes as evident by the GM crop and thehormone-treated beef cases.

The distinction between utilization of the scien-tific proof guidelines of the SPS and TBS Agree-ments for the purpose of trade protectionism vs theutilization of these guidelines for the purpose ofcurrent and future protection of consumers, theenvironment, animals, and plants is a complexissue. This is specifically important since theagriculture industry has been one of the mostdifficult to bring under international policies andregulations. Most countries have protected theagricultural sector through various economic andpolitical policies such as subsidies, import barriers,

Table 2 Recommendations to address the issues of the WTO

1. Analysis – technical issues:K Elimination of summary reportK Third party involvementK Transparency in proceduresK Cooperative (national and WTO) standards of reviewK Multilateral negotiationsK Semi-permanent panelK Harmonization of standard of healthK Standardization of labeling of ‘‘novel products’’K Elimination of non-compliant party

2. Analysis – conceptual issues:K Aggregate retaliationK Monetary retaliationK TrainingK Sharing informationK Expansion beyond supplier focusK Formal representation of different interest groups

3. Analysis – functional issues:K Collaborative and transparent proceduresK Multilateral negotiationK Consensual partial implementation of the rulingsK Harmonization of rules and regulationsK Collaborative scientific research


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and tax breaks. In addition, other considerations(e.g., environmental, consumer safety, and culturalissues) have compounded the complexity of nego-tiating international policies and reducing thebarriers to trade for agricultural products.

The main focus of the Uruguay Round at Puntadel Este in September 1986 was to address tradeissues in agricultural sectors. Hence, clarificationand harmonization of standards of health forhumans, animals, and plants, and protection ofthe environment are of the utmost importance toensure that developing countries would not be usedfor testing and/or dumping of unsafe products inaddition to inhibiting different interpretations ofsuch standards and their utilization for supplier-protectionist measures.

Furthermore, clarification of the language oflabeling of food items and the concept of ‘‘novelproducts’’ of the TBS Agreement need to beaddressed. The major factors underlying the lackof detailed or uniform labeling of food products arethe diversity in the levels of education and aware-ness of consumers and the influence of environ-mental groups. Clarification of the definition of‘‘novel products’’ and standardization of labeling offood products are important steps to distinguishbetween measures taken by different countries toprotect the future health of consumers and theenvironment vs the supplier-protectionist acts.

A further technical issue hampering the effective-ness of the WTO as a trade dispute resolution bodyis implementation of its rulings. As discussedpreviously, such rulings can be open to interpreta-tion and non-compliance by the losing party. Toaddress this issue, creating penalties such aselimination of non-compliant countries fromfurther participation in the WTO dispute discussionprocess is a tool that can be used to mandate thatthe losing parties implement WTO’s rulings.

Analysis – conceptual issuesThe inequality of political and economic powerbetween the developed and developing countrieshas put a colossal burden on the WTO to beconsidered an objective international entity to dealwith trade disputes. The US and the EU haveenough equilibrium in cross-Atlantic trading tomake the threat of sanctions or retaliation a reality.However, such verdicts even if issued by the WTOcannot be implemented by any effective meanswhen the parties to a trade dispute do not have abalanced trade power. Even between the superpowers, the US and the EU, we have witnessed

trade disputes that have dragged on for a longperiod of time and on occasions without any realresolution.

Hence, the concern of the developing countriesas to their lack of retaliatory power is an importantmatter that the WTO needs to remedy. Severaldeveloping countries have proposed the replace-ment of sanctions and retaliatory acts with com-pensation and monetary damages and/or collectiveretaliatory actions. Either of these changes canassist in equalizing the retaliatory power of devel-oping countries and their ability to collect com-pensation. Replacement of trade sanctions withmonetary damages can be advantageous to boththe economy and the harmed industry, sinceretaliatory actions usually result in sanctionsagainst other industries than the industry underdispute (Wuger, 2002).

Another issue related to the inequality of tradepower between the developed and developingcountries is the developing countries’ lack of legalresources, knowledge, and expertise to deal withcomplex trade disputes and international laws.Training staff from developing countries to enablethem to work with the WTO policies and disputeresolution tactics can enhance the capabilities ofthese countries to deal with complex issues ofinternational trade disputes. In addition, sharinginformation to highlight international tradeviolations cannot only increase the level of exper-tise and knowledge regarding international tradedisputes, but it can also improve the lack of‘‘transparency’’ in the WTO procedures that waspreviously discussed.

Furthermore, a fundamental structural shortcom-ing in the conceptual underpinnings of the WTO isits concentration on producer-induced barriers. Thetraditional trade disputes have been usually basedon supplier-protectionist measures, such as imple-mentation of tariffs and quotas, as in the case of theUS steel and the banana disputes. In such cases,the quantification of the costs and benefits to theparties involved are not difficult. However, asmanifested in the cases of the hormone-treatedbeef and the GM crops, the new forms of tradedisputes are not necessarily based upon supplier-motivated trade barriers. Even though the calcula-tion of the costs to the US as far as the ban on itshormone-treated beef may be simple, the costs ofthe potential health risks and environmentaldamages are not as simple to quantify. Therefore,inclusion of new directives to deal with tradebarriers created for the protection of other entities,


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such as consumers, and recognition of the legiti-macy of the concerns of such groups is extremelyimportant for successful trade dispute resolutionsby the WTO and reducing hostility toward theorganization.

The acceptance of amicus curiae (friends of thecourt) briefs by the non-governmental environ-mental organizations by the WTO in the disputeover the GM products may be a way to admitreports by the non-governmental agencies to theWTO (Eckersley, 2007). Even though there was noindication that in the case of the GM productssuch reports influenced the decision of the WTOpanel, amicus curiae reports can be a mechanism toallow accountability to the public and civil sectorsin the WTO dispute resolution processes (Eckersley,2007).

Allowing interested non-governmental organiza-tions and companies in addition to disputingparties to attend meetings and have formal parti-cipation can bring multiple perspectives to adispute and facilitate rendering a more compre-hensive decision. The inclusion of all legitimateinterested parties can create more assimilatedrather than discordant groups of complainants,improve the transparency of procedures, expandthe WTO’s horizon beyond supplier-specific issues,and enhance the inclusiveness of the WTO as aninternational dispute resolution body.

Analysis – functional issuesThe issues related to the functional role of the WTOas a unique entity with the capability to issueinternational trade mandates against the domesticlaws of a country are more complicated to remedy.For the trading partners, powerful and less power-ful, it is the predictability and stability in traderelationships rather than volatility and instabilityin trade policies that should be considered as thebuilding block of international trade organizationssuch as the WTO. As discussed in the abovesections, implementation of transparency improve-ments, circulation of all reports to parties involved,sharing information to delineate the internationaltrade violations, allowing for multilateral negotia-tions and partial implementation of rulings, andinclusion of other entities and interest groups aresome of the measures that can facilitate tradeharmonization and more effective implementationof the rulings of the WTO, specifically when therulings of the WTO entail modification of anational law or a policy.

Another factor that has created major conflictswith domestic laws of countries is the ability of theWTO to issue international safety and healthdirectives. This issue has been at the center ofhostile and antagonistic demonstrations againstthe WTO. Countries such as Canada and the US arein the forefront of bioengineering technologies.Crops such as corn, canola, soybean, and cottonhave been GM for years in the US and Canada andaccount for more than half the production of thesecrops. With the current bioengineering research,there will be more varieties of crops added to thelist of GM agricultural products. Increases inproductivity through drought and pest resistance,modification and manipulation of the nutrientswithin crops, and developing to larger cattle aremajor incentives for the producers and suppliers ofagricultural products in private and public sectorsto research. However, the lack of decisive results ofresearch regarding the potential long-term impactsof the genetic modification of crops on plants,animal species, and the physical environment inaddition to the long-term impact of hormone-treated beef consumption on humans, specificallychildren below the age of puberty, are factors thathave made consumers and environmental groupsraise serious concerns about the development ofGM crops and hormone-treated beef.

The benefits of the GM crops for droughtresistance and added nutrients can alleviate someof the problems of the lack of irrigation andadequate nutrition in poor countries, but thelong-term impact of such gene modification onthe food chain, environment, humans, and otheranimal and plant species should be thoroughlyresearched. The WTO needs to create and facilitateavenues that allow the disputing parties to partici-pate in joint scientific research, which can lessendelays in gathering scientific information andenhance better collaboration and understandingamong the disputing parties.

ConclusionReview of the cases brought to the WTO indicatessuccessful dispute resolution of the cases that weremotivated by economic and/or political issues toprotect suppliers and where the impact or damageswere not difficult to quantify. The banana and steeldisputes are examples of such cases. In these cases,calculation of the damages was more straightforward and also the underlying economic andpolitical factors were not abstract and philosophi-cally intangible constructs; as a result, these


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disputes were successfully resolved without a longand exhaustive process. However, in the GM cropand hormone-treated beef cases, in addition toeconomic and political issues, other factors such associal–cultural and philosophical differences, con-cerns regarding the protection of the physicalenvironment and consumers, and the potentialfuture impacts of new technologies were themotivating factors underlying the disputes. In thesecases, with environmentalists and consumers com-prising the major interest groups, the WTO had todeal with complicated philosophical issues thatwere difficult to measure, quantify, and resolve tothe satisfaction of all parties involved.

In the current global trade arena, in addition tothe governments, other special interest groups canhave a major impact on trade negotiations. At thistime, the policies of the WTO, like those of itspredecessor, GATT, are mostly based on supply-driven concepts. However, in the cases of GM cropsand hormone-treated beef, the composition of thespecial interest groups was very different fromsupplier-protectionist cases. Hence, the challengeto global trade policies is how to incorporate

abstract ideologies into a field that has traditionallyand historically dealt with numbers and figures,without encroaching upon the sensitive social–cultural, environmental, health and safety, andethical principles and laws of a country.

As previously discussed, there are several tacticsthat can enhance the potential of conflict resolu-tion of the WTO (e.g., transparent process, changein remedial avenues, and inclusion of otherparties). However, with the new biotechnologicaladvents, international health standards and riskassessment should be a major building block fordealing with trade barriers. Such standards shouldbe set through international collaborative scientificresearch funded by international agencies with theparticipation of scientists from a variety of nations.Furthermore, successful resolution of disputes inthis era is not only a matter of cooperation amonggovernments, private businesses, and special inter-est groups, but also of the utmost importance is thepossession of in-depth information regarding inter-national trade and specific issues under discussionby the individuals acting as the consultants orintermediaries between these parties and the WTO.

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About the authorMinoo Tehrani is a Professor of Management andInternational Business and the Director of Interna-tional Business Major at the Gabelli School ofBusiness, Roger Williams University. Her researchis in the areas of competitive strategies, strategicalliances, and international business.


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european union and the us trade disputes: the role of the wto

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