ECJ Opens Door to Direct Applicability of WTO Rules in EC Law -- a Little

Since September 30, 2003, businesses sustaining losses in transatlantic trade disputes may now hope for the recovery of some damages if the EU fails to meet its obligations under the WTO agreements.

Two judgments handed down by the European Court of Justice in cases nos. C-93/02P and C-94/02P address the beef hormones dispute between the EU and the USA and Canada that has been going on ever since the eighties. The EU prohibited the import of hormone-treated cattle and beef from non-EU Member States. After the WTO agreements came into force, the USA and Canada filed a complaint that ended on February 13, 1998 with a ruling by the WTO Dispute Settlement Body. The WTO determined that the EU, by imposing the embargo, had infringed several provisions of the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement-LINK). The WTO gave the EU 15 months, ending May 13, 1999, to meet its obligations under the SPS Agreement but the EU failed to meet the deadline.

In 2000 Biret, a French meat and other foodstuffs trading company, and its majority shareholder filed actions for damages for losses sustained as a result of this import embargo with the EU Court of First Instance which dismissed the actions. The plaintiffs appealed to the European Court of Justice which also dismissed them. Its judgments contain, however, significant new information as to the effect of the WTO rules on Community law:

According to the ECJ's established practice, "the WTO agreements are not in principle among the rules in the light of which the Court is to review the legality of measures adopted by the Community institutions."

Despite harsh criticism, the ECJ accepted exceptions to this general rule in those limited circumstances where the EU intended to implement a particular obligation assumed in the context of the WTO, or where the EU measure refers expressly to the precise provisions of the WTO agreements. These exceptions are not clearly defined and seem very limited.

Now the ECJ would appear to accept a third exception allowing direct effect of WTO rules on Community law: In accordance with the opinion of Advocate-General Alber in these cases, the ECJ criticizes that the Court of First Instance did not take sufficient account of the DSB's decision of February 13, 1998.

In its examination of the case it concludes that the WTO rules cannot have any direct effect with regard to cases preceding the deadline for implementation of the award "without rendering ineffective the grant of a reasonable period for compliance with the DSB recommendations or decisions, as provided for in the dispute settlement system put in place by the WTO agreements".

For the period thereafter, on the other hand, it does not rule out the possibility that the WTO rules may have a direct effect, at least if the EU has indicated that it intended to comply with its WTO obligations as established in the award. Unlike Advocate-General Alber, however, who suggested remanding the cases back to the Court of First Instance, the ECJ did not specifically indicate that conclusion in its ruling, but dismissed the appeal on the grounds that there could be no question of the plaintiffs having sustained losses after May 13, 1999 anyway.

One can but welcome the ECJ's decisions because they strengthen the legal position of businesses and do not limit the Community's scope when it comes to implementing the WTO rulings. Evidently, the ECJ is prepared to waive the requirement of reciprocity and increase the pressure on the legislative organs of the EU in the future when it comes to implementing the DSB's decisions.

In cases such as the one at hand, it may become difficult in practice to prove damage because WTO arbitration procedures frequently stretch over several years, followed by generous time periods for implementation--as happened in the beef hormones case.

In cases where the damage results from countervailing measures of other WTO Members (e.g. from the U.S. measures in the Banana dispute) this does generally occur after the time periods for implementation have elapsed and will therefore trigger more frequent damage claims in the future.

  *   The author is the trade law specialist at Gleiss Lutz's Brussels office and actively involved in transatlantic trade disputes, such as the recent Banana War. Currently, he readies U.S. corporations for the sanctions threatened by the European Union for the United States export tax rebate program.

Cite as: Werner Berg, ECJ Opens Door to Direct Applicability of WTO Rules in EC Law--a Little, 12 German American Law Journal 2003, http://www.amrecht.com/berg1.shtml