India's Proposal on Cross-Retaliation

India has submitted a comprehensive proposal to the facilitator of the informal discussions on reforming the World Trade Organization’s dispute settlement system, Mario Molina, Paraguay's deputy trade envoy. India is pressing for a waiver on the draft text's provisions against cross-retaliation, revealed an unnamed source.

India seems to have taken issue with the draft provisions stating:

1. Suspending trade concessions or other obligations in the same sector or agreement where the violation occurred (pertaining to cross-sectoral and cross-agreement retaliation) isn't "practicable or effective."
2. The circumstances must be "grave enough" to seek suspension of concessions under a different agreement from where the violation was discovered (cross-agreement retaliation).

India's suggestion includes introducing a "new paragraph 3 bis" in Article 22 of the WTO's dispute settlement understanding. The paragraph proposed by India states: "Despite the principles and procedures in paragraph 3, in a dispute where the complaining party is a developing country and the other party (having failed to align its measures with the Covered Agreements) is a developed country, the complainant should have the right to request permission to suspend concessions or other obligations across any sectors or covered agreements."

Concerns about the Process

With the U.S. seemingly keen on dismantling the Appellate Body and rendering the DSS ineffective, observers are waiting to see how the facilitator’s process evolves and if he can instill confidence in the proceedings, mentioned another unnamed source.

India reportedly circulated its proposal amid suspicions of bias and a lack of inclusivity during the drafting process. Ambassador Molina, it seems, allowed a European Union drafter online access while maintaining that drafters should be physically present, barring virtual participation from their respective capitals, an African trade diplomat stated off the record.

Indonesia has also voiced concerns, suggesting that the discussions "be led by the Dispute Settlement Body and/or the General Council transparently and inclusively, open to all members." They further recommended that all member submissions be accessible on a dedicated WTO webpage.

Understanding the Covered Agreements

According to a document viewed by WTD, India contends that if a nation doesn't adhere to a panel or the Appellate Body's ruling and no compensatory adjustments are made within 20 days post the ‘reasonable period’ expiration, the aggrieved member may, under Article 22.2 of the DSU, request the Dispute Settlement Body for authorization to retaliate by suspending trade concessions or obligations.

Article 22.3 of the DSU details the retaliation principles. India asserts that, according to DSU Article 22.3(a), the aggrieved country should primarily aim to suspend concessions in the same sector where the violation was observed. The term ‘sector’ has specific meanings, which India further elaborated, especially in contexts like trade in services (GATS) and intellectual property (TRIPS).

For disputes under GATS, which has 12 sectors like business services and communication services, retaliation should first occur within the specific violated sector. However, under DSU Article 22.3(b), cross-sectoral retaliation within the same agreement is permissible if retaliation within the original sector isn't feasible or is detrimental to the complaining nation.

India further elaborated on scenarios where retaliation might adversely affect the aggrieved nation more than the violator, offering the example from the US-Upland Cotton case.

Cross-Agreement Retaliation

India points out that Article 22.3(c) allows cross-agreement retaliation if the complainant deems cross-sector retaliation impractical or ineffective, and the situation is dire enough.

Due to the challenges of cross-retaliation, India believes that retaliating within the same sector or agreement might either be infeasible or ineffective. The EC-Bananas III case highlighted the complexities surrounding the interpretation of DSU Articles 22.3(b) and 22.3(c).

India concludes by stressing the issues developing countries might face, especially when considering cross-agreement retaliation, which demands an even higher burden of proof from the complainant country.