The Brazilian government will use an arsenal to apply unilateral retaliation against countries that were convicted of illegal measures on Brazilian exports, but use tricks to maintain restrictions, Valor has learned.
A provisional measure already approved in ministerial meetings, and currently in the Chief of Staff Office, authorizes the federal government to retaliate proportionally and unilaterally, in cases of litigation victories at the WTO, when the losing country makes the so-called “appeal in the void”.
This is what happened this week with India in the sugar dispute and with Indonesia at the end of 2020 in a dispute involving barriers to entry of chicken meat. Both countries appealed to the Appellate Body knowing that the mechanism is inoperative and cannot decide; hence the term “appeal in the void”. With that, in practice, they stop the Brazilian victory and maintain the measures considered illegal by the panel, which cost millions of dollars in losses to Brazilian producers.
India and Indonesia are thus potentially the first to be threatened when the provisional measure comes into force. Retaliation takes the form of surcharges on goods and services from the targeted countries, or suspension of intellectual property rights.
Sarquis JB Sarquis, secretary of Foreign Trade and Economic Affairs at the Foreign Affairs Ministry, known as Itamaraty, emphasized that “the current paralysis of the WTO Appellate Body is at the origin of the initiative conceived by Itamaraty, which aims both to protect the country’s legitimate commercial interests within the framework of the multilateral trading system and to promote the full functioning of the system based on the rules and fundamental principles of the WTO”.
“Once the WTO Appellate Body is back to normal, the initiative will have served its purpose,” he added.
In the same vein, the secretary of Foreign Trade at the Economy Ministry, Lucas Ferraz, stated: “We understand that it is a very important mechanism to face the current situation of appeals in a void. The Brazilian government is committed to the WTO reform process, as well as the timely restoration of its Appellate Body. We cannot condone the opportunistic use of the current situation, in clear detriment to our productive sector.”
Current WTO rules allow a country to apply trade retaliation if the convicted country fails to implement the recommendations of the Appellate Body, a kind of supreme court for international trade.
However, the Appellate Body is paralyzed, without any of its seven permanent judges, because Washington blocks the appointment of new arbitrators. As long as this legal fact (which no one had foreseen) persists, WTO members have the possibility to circumvent the condemnations established by the panel and avoid changing the measures considered irregular.
Brazil will now follow the example of the European Union, with the unilateral retaliation mechanism. As long as the Appellate Body does not function, and the convicted country does not participate in a parallel arbitration mechanism, Brasília will impose what negotiators call the precautionary principle to protect the interests of domestic producers.
A group of 25 WTO members, including the European Union (27 countries), tried to alleviate the problem of the Appellate Body blockade by creating a plurilateral parallel arbitration system. The disputes between its participants thus have a final decision. For example, the most recent dispute opened by Brazil, against the European Union, involving barriers to chicken meat in the European market, is guaranteed to have a decision implemented, because both participate in this plurilateral mechanism.
India and Indonesia do not participate in this plurilateral mechanism. In 2019, when Brazil denounced India for illegal policies to support the sugar sector, which affect international prices, the Itamaraty mentioned that expert estimates pointed to losses of up to $1.3 billion for Brazilian exporters per year.
In the case of Indonesia, calculations are that Brazil could sell up to 3,000 tonnes of chicken meat a year in the initial phase, if restrictions were lifted. But the Indonesian government has resisted for years.
Brazil won, without actually seen results, a dispute against the Asian country in 2017. A WTO panel found Brazil right that year. Indonesia had until July 2018 to implement the judges’ recommendations. It made some changes that Brazil considered insufficient.
Another panel was then formed to examine the implementation of the judges’ recommendations, and Brazil won again by proving that Indonesia maintained restrictions on Brazilian exports. Indonesia then appealed “to the void” in December 2020, knowing that the WTO Appellate Body does not work.
India and Indonesia are now among the countries that most subsidize agriculture in the world. And the paralysis of the WTO Appellate Body actually ends up benefiting them. “Brazil continues to work actively for the re-establishment of the Appellate Body and for the full development of WTO rules and reform, including in agriculture and subsidy disciplines, in accordance with terms and mandates established since the Uruguay Round,” said Mr. Sarquis.
The paralysis of the Appellate Body caused by the Americans “is very serious, it gives the impression that the U.S. no longer wants the WTO, as a system of rules and multilateral disciplines, agreed upon, applied, with a litigation process which obliges the losing party to comply” with the decision, notes Pascal Lamy, former WTO director-general.
He recalls that this obligation to respect decisions, under penalty of retaliation, is what distinguished the WTO from other organizations whose rules are more or less applied and in which the countries, when they lose a case before the International Court of Justice in The Hague, for example, keep the sovereignty to apply or not the result.
In Mr. Lamy’s view, the U.S. is obsessed with China and wants to be able to strike unilaterally without being tied to WTO rules and decisions of its Appellate Body. This American absence causes a degradation of the multilateral system, and more countries seek unilateral arsenals.
Source: Valor international