Non-violation nullification of benefits
Encyclopedia
Non-violation nullification of benefits (NVNB) claims are a species of Dispute settlement in the World Trade Organization arising under World Trade Organisation multilateral and bilateral trade agreements. NVNB claims are controversial in that they are widely perceived to promote the social vices of unpredictability and uncertainty
Uncertainty
Uncertainty is a term used in subtly different ways in a number of fields, including physics, philosophy, statistics, economics, finance, insurance, psychology, sociology, engineering, and information science...

 in international trade law
International trade law
International trade law includes the appropriate rules and customs for handling trade between countries. However, it is also used in legal writings as trade between private sectors, which is not right. This branch of law is now an independent field of study as most governments has become part of...

. Other commentators have described NVNB claims as potentially inserting corporate competition policy into the World Trade Organisation Dispute Settlement Understanding (DSU).

Location of NVNB claims

NVNB claims are directly referred to in Article 26 of the World Trade Organisation DSU, Article XXIII of the General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...

 1994 (GATT 1994) Article XXIII of the General Agreement on Trade in Services
General Agreement on Trade in Services
The General Agreement on Trade in Services is a treaty of the World Trade Organization that entered into force in January 1995 as a result of the Uruguay Round negotiations...

 (GATS) and Article 64 of the Agreement on Trade-Related Aspects of Intellectual Property Rights
Agreement on Trade-Related Aspects of Intellectual Property Rights
The Agreement on Trade Related Aspects of Intellectual Property Rights is an international agreement administered by the World Trade Organization that sets down minimum standards for many forms of intellectual property regulation as applied to nationals of other WTO Members...

 (TRIPS).
In GATT jurisprudence, NVNB complaints appear to have originally been designed to counter the capacity of countries to avoid relatively simple obligations and specific tariff concessions in multilateral trade agreements, by making ambiguous domestic regulatory arrangements.

NVNB claims provisions also exist in many bilateral trade agreements. In the Australia-United States Free Trade Agreement
Australia-United States Free Trade Agreement
The Australia – United States Free Trade Agreement is a preferential trade agreement between Australia and the United States modelled on the North American Free Trade Agreement . The free trade agreement was signed on 18 May 2004, ratified by the U.S. House of Representatives on 14 July 2004 by a...

(AUSFTA) article 21.2 (c) provides an NVNB claim:

Australia-United States Free Trade Agreement Article 21.2 Scope of Application

Except as otherwise provided in this Agreement or as the Parties otherwise agree, the dispute settlement provisions of this Section shall apply with respect to the avoidance or settlement of all disputes between the Parties regarding the interpretation or application of this Agreement or wherever a Party considers that:
(a) a measure of the other party is inconsistent with its obligations under this Agreement
(b) the other Party has otherwise failed to carry out its obligations under this Agreement; or
(c) a benefit the Party could reasonably have expected to accrue to it under Chapters Two (National Treatment and Market Access for Goods [including Annex 2C on pharmaceuticals]), Three (Agriculture), Five (Rules of Origin), Ten (Cross-Border Trade in Services), Fifteen (Government Procurement) or Seventeen (Intellectual Property Rights) is being nullified or impaired as a result of a measure that is not inconsistent with this Agreement.

The Australian academic Thomas Alured Faunce
Thomas Alured Faunce
Thomas Alured Faunce is an Associate Professor jointly in the College of Law and Medical School at the Australian National University at Canberra Australia...

 has argued that by expressly applying to Annex 2C on pharmaceuticals, the NVNB claim in article 21.2(c) of the AUSFTA may have been responsible for lobbying by United States negotiators around the constructive ambiguity
Constructive ambiguity
Constructive ambiguity is a term generally credited to Henry Kissinger, said to be the foremost exponent of the negotiating tactic it designates. It refers to the deliberate use of ambiguous language on a sensitive issue in order to advance some political purpose. Constructive ambiguity is often...

 of reward of innovation
Innovation
Innovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...

 (through the Medicines Working Group established by article 2C of the AUSFTA) that influenced Australian legislative changes impacting on reference pricing under the Pharmaceutical Benefits Scheme
Pharmaceutical Benefits Scheme
The Pharmaceutical Benefits Scheme or PBS is a program of the Australian Government that provides subsidised prescription drugs to residents of Australia. The PBS ensures that all Australians have affordable and reliable access to a wide range of necessary medicines.-History:The PBS was established...

. He maintains that such pressure from NVNB claims is most likely to arise from ‘behind doors’lobbying
Lobbying
Lobbying is the act of attempting to influence decisions made by officials in the government, most often legislators or members of regulatory agencies. Lobbying is done by various people or groups, from private-sector individuals or corporations, fellow legislators or government officials, or...

 using threats of cross retaliation (threatening a trade dispute in one trade area to obtain a result in a different sector) if planned or existing domestic policy is perceived to breach the ‘spirit’ of the relevant bilateral trade agreement. Formal dispute resolution proceedings may never be initiated or be intended to commence if such lobbying
Lobbying
Lobbying is the act of attempting to influence decisions made by officials in the government, most often legislators or members of regulatory agencies. Lobbying is done by various people or groups, from private-sector individuals or corporations, fellow legislators or government officials, or...

 is persuasive.. If this hypothesis is correct it represents a disturbing example of regulatory capture
Regulatory capture
In economics, regulatory capture occurs when a state regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating. Regulatory capture is a form of government failure, as it can act as...

 and has worrying implications for democratic sovereignty
Sovereignty
Sovereignty is the quality of having supreme, independent authority over a geographic area, such as a territory. It can be found in a power to rule and make law that rests on a political fact for which no purely legal explanation can be provided...

. The Australian Government, however, strenuously denies such claims.

Operation of NVNB claims

Under such NVNB provisions, the full range of dispute resolution mechanisms may be invoked whether or not a breach of any specific provision is alleged or substantiated. The precondition is that a ‘reasonably expected’ ‘benefit’ accruing under the relevant trade agreement, has been ‘nullified or impaired’ by a ‘measure’ applied by a WTO Member.In the 50-year history of the GATT and WTO, there have been less than ten cases where panels have substantially discussed NVNB claims.

Five requisite elements of a NVNB claim arguably have been identified by Dispute Resolution Panels:

1. That a ‘measure’ has been applied by a party subsequent to the entry into force of the relevant trade agreement;

2. That a ‘benefit’ was reasonably expected by the other party as being negotiated in return for some textual agreement; and

3. That as a result of the application of the measure that benefit has been ‘nullified or impaired.’

4. That the nullification or impairment was contrary to the legitimate or reasonable expectations of the complainant at the time of the negotiations

5. That such claims will only be used in extremely rare circumstances (for example proven bad faith during negotiations), due to their capacity to upset the certainty of the international trading order.

Debate about NVNB claims

Article 3.2 of the World Trade Organisation DSU requires panels to clarify existing provisions of agreements in accordance with customary rules of interpretation of public international law. This leads to consideration of how the NVNB principle interacts with Article 26 of the Vienna Convention on the Law of Treaties
Vienna Convention on the Law of Treaties
The Vienna Convention on the Law of Treaties is a treaty concerning the international law on treaties between states. It was adopted on 22 May 1969 and opened for signature on 23 May 1969. The Convention entered into force on 27 January 1980. The VCLT has been ratified by 111 states as of November...

, incorporating the principle of pacta sunt servanda
Pacta sunt servanda
Pacta sunt servanda , is a brocard, a basic principle of civil law and of international law.In its most common sense, the principle refers to private contracts, stressing that contained clauses are law between the parties, and implies that nonfulfilment of respective obligations is a breach of the...

: “Every treaty in force is binding upon the parties to it and must be performed by them in good faith.” NVNB claims appear to undermine this fundamental principle of international law by subsequent reinterpretations based on the ‘spirit’ of the agreement.

Both the United States and European Economic Community have argued before a GATT 1994 panel that recourse to NVNB claims should remain ‘exceptional’ otherwise ‘the trading world would be plunged into a state of precariousness and uncertainty. Dispute this, however, the United States has inserted NVNB claims in many bilateral trade agreements.

The Appellate Body in the WTO EC - Asbestos Case agreed with the Panel in the WTO Japan – Film Case, stating that the non-violation nullification or impairment remedy in GATT Article XXIII:1(b): “should be approached with caution and treated as an exceptional concept. The reason for this caution is straightforward. Members negotiate the rules that they agree to follow and only exceptionally would expect to be challenged for actions not in contravention of those rules.

The governments of Canada, the Czech Republic, the European Communities, Hungary and Turkey have stated at the World Trade Organisation that “the uncertainty regarding the application of such non-violation complaints needs to be resolved so as to minimize the possibility of unintended interpretation.”

Contemporary controversy over NVNB claims and proceedings arises in large part from their potential to allow a WTO Member to threaten a trade dispute if a wide and largely undefined range of domestic regulatory components are not altered, or compensation organised. It may facilitate a WTO dispute settlement process involving deliberate diplomatic ‘gaming’ of trade ‘rules,’ breaking of finely balanced textual truces and dispute panel interpretations that more an act of ongoing negotiation, than judicial analysis.

WTO Moratorium on NVNB Claims

At the WTO meeting in Hong Kong in December 2005, as mentioned, the United States delegation pushed hard behind the scenes for trade concessions in return for its acquiescence to the moratorium on the use of NVNB provisions under TRIPS. The resultant Ministerial Declaration left the position of NVNB claims under TRIPS extremely uncertain.

"45. We take note of the work done by the Council for Trade-Related Aspects of Intellectual Property Rights pursuant to paragraph 11.1 of the Doha Decision on Implementation-Related Issues and Concerns and paragraph 1.h of the Decision adopted by the General Council on 1 August 2004, and direct it to continue its examination of the scope and modalities for complaints of the types provided for under subparagraphs 1(b) and 1(c) of Article XXIII of GATT 1994 and make recommendations to our next Session. It is agreed that, in the meantime, Members will not initiate such complaints under the TRIPS Agreement."

Circumscribing NVNB Claims in Trade Law Dispute Resolution Panels

One way of circumscribing NVNB claims so they don’t conflict with the obligation to act in good faith, or with other rules of treaty interpretation under Articles 31 and 32 of the Vienna Convention on the Law of Treaties
Vienna Convention on the Law of Treaties
The Vienna Convention on the Law of Treaties is a treaty concerning the international law on treaties between states. It was adopted on 22 May 1969 and opened for signature on 23 May 1969. The Convention entered into force on 27 January 1980. The VCLT has been ratified by 111 states as of November...

is to restrict their operation to ensuring ‘transparency and openness’ in the negotiating process. In consequence, in NVNB disputes, the inquiry to be made by a dispute resolution Panel is whether the complaining party was induced into error during negotiations by the other treaty Party about a fact or situation, that the former could not reasonably have foreseen.
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