LAW 2013/10 Department of Law The Establishment of a GATT Office of Legal Affairs and the Limits of ‘Public Reason’ in the GATT/WTO Dispute Settlement System Ernst-Ulrich Petersmann European University Institute Department of Law The Establishment of a GATT Office of Legal Affairs and the Limits of ‘Public Reason’ in the GATT/WTO Dispute Settlement System Ernst-Ulrich Petersmann EUI Working Paper LAW 2013/10 This text may be downloaded for personal research purposes only. Any additional reproduction for other purposes, whether in hard copy or electronically, requires the consent of the author(s), editor(s). If cited or quoted, reference should be made to the full name of the author(s), editor(s), the title, the working paper or other series, the year, and the publisher. ISSN 1725-6739 © Ernst-Ulrich Petersmann, 2013 Printed in Italy European University Institute Badia Fiesolana I – 50014 San Domenico di Fiesole (FI) Italy www.eui.eu cadmus.eui.eu Abstract: The article offers an ‘insider story’ of the establishment of the Office of Legal Affairs in the General Agreement on Tariffs and Trade (GATT 1947) in 1982/83 and of its increasing involvement in assisting GATT dispute settlement panels and the Uruguay Round negotiations on a new World Trade Organization with compulsory jurisdiction for the settlement of trade disputes (Sections I and II). The transformation, within only one decade, of the anti-legal pragmatism in GATT 1947 into the compulsory WTO dispute settlement system amounted to a ‘revolution’ in international law. But the ‘public reason’ governing the GATT/WTO dispute settlement system remains limited, notably by (1) the domination of GATT/WTO decision-making by governments interested in limiting their own legal, democratic and judicial accountability vis-à-vis citizens for their often welfare-reducing trade restrictions and distortions; (2) the deliberate neglect for the customary law requirements of interpreting treaties and settling related disputes ‘in conformity with principles of justice and international law’, including ‘human rights and fundamental freedoms for all’; (3) the treatment of citizens as mere objects of GATT/WTO law and institutions rather than as ‘democratic principals’ of all governance institutions, ‘agents of justice’ and main economic actors; and (4) the deliberate neglect for the GATT/WTO legal obligations of ‘consistent interpretation’, ‘judicial comity’ and ‘access to justice’ in domestic courts in the ‘dispute settlement system of the WTO’ (Sections III and IV). Keywords: DSU; GATT; public reason; trade law; WTO. TABLE OF CONTENTS Introduction: From ‘Rule by Law’ to ‘Rule of Law’ in the World Trading System? .................... 1 I. The Establishment of a GATT Office of Legal Affairs in 1982/1983: A Constitutional Lawyer’s Perspective ....................................................................................................................... 5 II. From ‘Conciliation’ to ‘Due Process of Law’ and ‘Third Party Adjudication’ in GATT Dispute Settlement Practices during the 1980s .............................................................................. 7 III. Lack of ‘Democratic Public Reason’ in GATT/WTO ‘Diplomats Jurisprudence’? Need for Taking the Customary Rules of Treaty Interpretation More Seriously ..................................... 9 How to Justify GATT/WTO Rules vis-à-vis Citizens as ‘Agents of Justice’? ................................... 10 How to Interpret GATT/WTO Rules for the Benefit of Citizens? ..................................................... 11 The ‘Diplomatic Capture’ of UN and WTO Institutions Serves the Self-Interests of the Rulers ..... 13 IV. Diplomatic Failures to Protect the ‘Multilateral Trading System’ and ‘Dispute Settlement System of the WTO’ as Cosmopolitan Legal Systems ................................................................ 15 Access to Justice in GATT/WTO Law? ............................................................................................ 15 The Lack of ‘Cosmopolitan Public Reason’ Undermines the Legitimacy, Effectiveness and Decentralized Coordination of the Rules-Based World Trading System ......................................... 16 The ‘Dispute Settlement System of the WTO’ Requires Multilevel Judicial Protection of Transnational Rule of Law for the Benefit of Citizens ..................................................................... 18 Reasonableness vs. Rationality: Cosmopolitan Conceptions of International Law Require ‘Struggles for Justice’ also in International Trade Law .................................................................. 19 Justifying WTO Law in Terms of Cosmopolitan Justice Could Enable ‘Piecemeal Reforms’ also through Domestic Courts as ‘Community Courts’ ........................................................................... 20 1 THE ESTABLISHMENT OF A GATT OFFICE OF LEGAL AFFAIRS AND THE LIMITS OF ‘PUBLIC REASON’ IN THE GATT/WTO DISPUTE SETTLEMENT SYSTEM Ernst-Ulrich Petersmann* Introduction: From ‘Rule by Law’ to ‘Rule of Law’ in the World Trading System? Since constitutional republicanism in ancient Greece, legal systems continue to evolve in response to ‘struggles for justice’ and civil society claims that law and governance must be justifiable in terms of justice and individual rights, including rights of producers, investors, traders and consumers engaging in mutually beneficial economic cooperation. The spread of republicanism (e.g. from Greece to Italy and to the ‘Hanseatic League’ in Northern Europe) promoted transnational commercial law throughout Europe based on freedom of contract, private property rights, convertibility of currencies, transnational banking and commercial arbitration. The lex mercatoria was not only a private law merchant; it remained embedded into national and transnational regulation and trade agreements that evolved into a multilevel legal system since the European system of bilateral trade agreements following the Cobden-Chevallier trade agreement (1860) between England and France.1 The transformation of free trade areas and customs unions into cosmopolitan constitutional systems – first among German states during the 19th century (e.g. the German Zollverein 1834-1919) and, since the 1950s, among the today 31 member states of the European Economic Area (EEA) – illustrated the potential significance of transnational economic cooperation for constructing ‘cosmopolitan peace’ through ‘cosmopolitan constitutional law’, as predicted in I. Kant’s blueprint for ‘Perpetual Peace (1795). It is from this ‘constitutional perspective’ that - having served as first ‘legal officer’ hired by the Secretariat of the General Agreement on Tariffs and Trade (GATT 1947) in 1981 and as legal secretary of the Uruguay Round Negotiating Group elaborating the ‘Dispute Settlement Understanding’ (DSU) of the World Trade Organization (WTO) - this author interprets and evaluates the creation of an Office of Legal Affairs in 1982/83 inside the GATT Secretariat as a turning point for the emergence of a ‘rule of law’ system in worldwide trade relations aimed at strengthening the ‘legalization’ of world trade (e.g. resulting from the 1979 Tokyo Round Agreements) so as to further ‘depoliticize’ intergovernmental trade politics, reduce transaction costs and provide ‘security and predictability to the multilateral trading system’, as required by Article 3 of the DSU (cf. Sections I to II). Upon my arrival and first contacts inside the GATT Secretariat, many colleagues told me that – in their view – the Secretariat should never have an Office of Legal Affairs; lawyers should not participate in GATT dispute settlement proceedings, and – as repeatedly stated by the EU Commissioner for Trade Policy - GATT should never become a tribunal. When accepting the job offer from the GATT Secretariat (and declining a financially more attractive job offer from the World Bank’s Office of Legal Affairs with then more than 100 lawyers), I had hoped that my appointment as a ‘legal officer’ was a sign of the rediscovery by diplomats of the role of law in international trade, * Emeritus Professor of International and European law and former head of the Law Department of the European University Institute, Florence. Former professor at the University of Geneva and its Graduate Institute of International Studies. Former legal adviser in the Germany Ministry of Economic Affairs (1978-1980), in the GATT Secretariat (1981-1990), legal consultant in GATT/WTO (1990-2012) and secretary, member or chairman of numerous GATT/WTO dispute settlement panels. The author wishes to thank Gabrielle Marceau for constructive criticism. This contribution was written for a special issue on the ‘GATT/WTO Legal Affairs Division at 30’ of the International Organizations Law Review 2013. 1 Cf. E.U.Petersmann, Principles of World Trade, in: R. Bernhardt (ed.), Encyclopedia of Public International Law, Instalment No. 8 (1985), 530 – 539. 1 Ernst-Ulrich Petersmann similar to my own discovery – during my studies of international law at the University of Geneva – that, in the words of the genius loci Jean-Jacques Rousseau, ‘it is to law alone, that men owe justice and liberty’ (Discourse on Political Economy, 1750). The fact that all GATT contracting parties had adopted national constitutions (written or unwritten) seemed to prove their ‘constitutional insight’ that people can constrain their rational egoism (cf. Thomas Hobbes: homo homini lupus est) only through self-commitment to constitutional rules and institutional ‘checks