International Trade Disputes and EU Liability 9781107333116, 9781107009660

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International Trade Disputes and EU Liability The European Union has become the respondent of several international trade disputes. This book examines the right to compensation for damage resulting from retaliatory measures imposed under the system of the World Trade Organization in disputes triggered by the EU. Anne Thies evaluates the implications of the EU’s membership in the WTO for its domestic system of rights and judicial protection. Emphasising the necessity of maintaining EU standards of protection independently of the external dimension of EU action, the book offers suggestions on how the current gap of protection could be filled while upholding the scope for manoeuvre of the EU institutions on the international plane. In addition, it places the issue in its broader context of the relationship between international law and EU law on the one hand, and the discretion of the EU as a global actor and standards of individual rights protection under EU law on the other. Anne Thies has been a lecturer in European and international law at the University of Reading since 2007. Her research focuses on the interrelationship between international law, EU external relations law and EU constitutional law.

Cambridge Studies in European Law and Policy This series aims to produce original works which contain a critical analysis of the state of the law in particular areas of European law and set out different perspectives and suggestions for its future development. It also aims to encourage a range of work on law, legal institutions and legal phenomena in Europe, including ‘law in context’ approaches. The titles in the series will be of interest to academics; policy makers; policy formers who are interested in European legal, commercial and political affairs; practising lawyers, including the judiciary; and advanced law students and researchers. Joint Editors Professor Dr. Laurence Gormley University of Groningen Professor Jo Shaw University of Edinburgh Editorial advisory board Professor Richard Bellamy, University College London Professor Catherine Barnard, University of Cambridge Professor Marise Cremona, European University Institute, Florence Professor Alan Dashwood, University of Cambridge Professor Dr Jacqueline Dutheil de la Roche`re, Universite´ de Paris II, Director of the Centre de Droit Europe´en, Paris Dr Andrew Drzemczewski, Council of Europe, Strasbourg Sir David Edward, KCMG, QC, former Judge, Court of Justice of the European Communities, Luxembourg Professor Dr Walter Baron van Gerven, Emeritus Professor, Leuven and Maastricht, and former Advocate General, Court of Justice of the European Communities Professor Daniel Halberstam, University of Michigan Professor Dr Ingolf Pernice, Director of the Walter Hallstein Institut, Humboldt University Michel Petite, Former Director-General of the Legal Service, Commission of the European Communities, Brussels Professor Dr Sinisa Rodin, University of Zagreb Professor Neil Walker, University of Edinburgh

Books in the series EU Enlargement and the Constitutions of Central and Eastern Europe Anneli Albi Social Rights and Market Freedom in the European Constitution: A Labour Law Perspective Stefano Giubboni The Constitution for Europe: A Legal Analysis Jean-Claude Piris The European Convention on Human Rights: Achievements, Problems and Prospects Steven Greer European Broadcasting Law and Policy Jackie Harrison and Lorna Woods The Transformation of Citizenship in the European Union: Electoral Rights and the Restructuring of Political Space Jo Shaw Implementing EU Pollution Control: Law and Integration Bettina Lange The Evolving European Union: Migration Law and Policy Dora Kostakopoulou Ethical Dimensions of the Foreign Policy of the European Union: A Legal Appraisal Urfan Khaliq The European Civil Code: The Way Forward Hugh Collins State and Market in European Union Law Wolf Sauter and Harm Schepel The Ethos of Europe: Values, Law and Justice in the EU Andrew Williams The European Union’s Fight Against Corruption: The Evolving Policy Towards Member States and Candidate Countries Patrycja Szarek-Mason

The Lisbon Treaty: A Legal and Political Analysis Jean-Claude Piris New Governance and the Transformation of European Law: Coordinating EU Social Law and Policy Mark Dawson The Limits of Legal Reasoning and the European Court of Justice Gerard Conway International Trade Disputes and EU Liability Anne Thies

International Trade Disputes and EU Liability Anne Thies

CAMBRIDGE UNIVERSITY PRESS

Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sa˜o Paulo, Delhi, Mexico City Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9781107009660 Ó Anne Thies 2013 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2013 Printed and bound in the United Kingdom by the MPG Books Group A catalogue record for this publication is available from the British Library Library of Congress Cataloguing in Publication data Thies, Anne, 1975– International trade disputes and EU liability / Anne Thies. pages cm. – (Cambridge studies in European law and policy) Includes bibliographical references and index. ISBN 978-1-107-00966-0 1. Foreign trade regulation – European Union countries. 2. International commercial arbitration – European Union countries. 3. International and municipal law – European Union countries. 4. World Trade Organization – European Union countries. 5. European Union countries – Foreign economic relations. I. Title. KJE6791.T44 2013 3820 .5094–dc23 2012034996 ISBN 978-1-107-00966-0 Hardback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

Contents

Series editors’ preface Preface List of abbreviations Table of cases Table of legislation

page xi xiii xv xvii xxviii

Introduction 1

2

1

Setting the scene: WTO disputes, retaliation and the EU courts’ reception of WTO law 1.1 Relevant international trade disputes so far: the Hormones and Bananas cases brought before the WTO 1.2 Overview of existing EU jurisprudence 1.3 EU conduct under review 1.4 Conclusions Liability for unlawful conduct: the role of the legal remedy and conditions of the right to compensation in the EU legal order 2.1 Background 2.2 Independence and complementarity of legal actions in the EU legal order 2.3 EU liability for unlawful conduct 2.4 EU liability in the absence of unlawfulness 2.5 Conclusions

vii

6

7 19 37 42

44 45 47 50 78 80

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3

4

5

6

Enforceability of the EU’s WTO law obligations in the EU legal order: EU liability due to WTO law infringement 3.1 Unlawfulness of EU conduct in breach of WTO law 3.2 Sufficiently serious breach 3.3 ‘Conferral of rights’: ‘right holders’ or ‘beneficiaries’? 3.4 Further conditions 3.5 Conclusions The impact of EU general principles on the EU’s liability regime I: liability due to infringement of EU general principles 4.1 Liability for breaches of general principles of EU law 4.2 Effect of the external dimension of EU conduct on the applicability of general principles of EU law 4.3 Effect of the external dimension of EU conduct on the scope of general principles of EU law 4.4 Scope of the general principles of EU law invoked by retaliation victims 4.5 Conclusions The impact of EU general principles on the EU’s liability regime II: liability in the absence of (invokable) unlawfulness in international trade disputes or ‘no-fault liability’ 5.1 Existence of the liability principle in the absence of unlawfulness under EU law 5.2 Application of the liability regime to the situation of retaliation victims 5.3 Conclusions The current situation of retaliation victims and how to fill the gap in judicial protection while further respecting the EU institutions’ international scope for manoeuvre 6.1 WTO law and the position of individuals 6.2 EU constitutional law and retaliation victims

81 82 112 114 119 124

126 127

128 138 140 147

148 149 159 172

173 173 187

contents

6.3

Concluding remarks: the EU as a global actor, the international legal order and individual rights

Bibliography Index

ix

195 200 218

Series editors’ preface

Trade disputes are often bitter, long-lasting, contorted and sagas from which few emerge with credit. The European Union has over the years been embroiled in a number of such sagas, prompting the distinguished German jurist and former Judge at the Court of Justice to ask whether Europe would slip on bananas.1 That dispute has now mercifully finally been resolved, officially ending in November 2012 after more than 20 years. At the level of States, trade disputes can be difficult enough, but for individuals affected by them they can spell disaster, both financially and otherwise. The rights of those affected are often trodden upon and quickly forgotten, and it can be notoriously difficult to obtain adequate remedies. The sense of injustice is manifest, and it might be expected that in a European Union governed by the rule of law there should be adequate remedies available to victims of international trade disputes. But the inadequacy of judicial remedies at EU level is distinctly unimpressive. Anne Thies’s timely book is an extremely important contribution to the debate on remedies in EU law, as well as to the literature on trade disputes. She makes an extremely convincing argument that successful compensation actions on the basis of a breach of WTO law do not require EU acts to be declared wholly or partially void. She argues further that liability should not be denied in principle only because the financial burden could be so large as to restrict the political institutions in their political discretion provided under the WTO system. This book is a call to the judiciary to reassess its case-law: it is a good example of detailed and systematic analysis leading to a very clear

1

U. Everling, ‘Will Europe Slip on Bananas?’ (1996) 33 CMLRev. 401.

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series editors preface

indication of the inadequacy of the case-law. But it goes further than dealing merely with inadequacy: it makes clear and well-argued suggestions for improvement. For these reasons we very much welcome Anne Thies’s book in the Cambridge Studies in European Law and Policy series. Laurence Gormley Jo Shaw

Preface

This book entails a study of rights and remedies under the European legal order of natural and legal persons hit by the consequences of international trade disputes triggered by the European Union (EU). It analyses the legal situation established by the European treaties and the case law of the EU courts regarding the right to compensation of those who have allegedly suffered damage because of retaliatory measures imposed lawfully by other World Trade Organization (WTO) members. The book evaluates the implications of the EU’s membership of the WTO for the EU’s domestic system of rights and judicial protection. In the course of its enquiry, it demonstrates that the current approach of the European courts has left ‘retaliation victims’ without any judicial protection. Emphasising the necessity under EU law to maintain standards of rights and judicial protection independently of the external dimension of EU action, the book addresses the role and implications of EU fundamental rights and general principles for compensation actions. It makes suggestions on how the current protection gap could be filled while upholding the international scope for manoeuvre of the political institutions, and places the issue in its broader context of the relationship between international and EU law on the one hand, and the discretion of the EU as a global actor and standards of individual rights protection under EU law on the other hand. This book is based on my doctoral thesis, which I submitted to the Ludwig-Maximilians-Universita¨t in spring 2009, and the writing of which had been supported with a gratefully received two-year scholarship from the Hanns-Seidel Foundation. I would like to express my warmest thanks to my supervisor and mentor, Bruno Simma, who has supported me over many years with his valuable advice. Looking back at the significant period of time during which I travelled with my research project and xiii

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preface

combined it with other commitments, I would like to thank colleagues, family and friends for their support, encouragement and patience at different stages of this project. Many thanks to Deborah Z. Cass, who encouraged me to start, and Susan Marks, who encouraged me to end my doctoral studies. I am also grateful for the advice I received from Gisela Elsner, Michael Hahn, Julia Legleitner, Werner Meng and Torsten Stein during the early stages of my research undertaken in Saarbru¨cken. My particular thanks go to Thomas Cottier and Piet Eeckhout, whose continuous advice and feedback were crucial for the progress of my work. I would like to thank Marco Bronckers and Pieter-Jan Kuijper for engaging with my ideas at conferences and in writing, which was not only enjoyable but also – so I hope – beneficial for the development of my arguments. I would like to thank my second examiner, Horst Krenzler, and Rudolf Streinz, who helped to make the final stages of my doctoral studies in Munich go so smoothly, my colleagues at the University of Reading – in particular Alison Bisset, Chris Hilson, Stuart Lakin, Patricia Leopold and Ronan McCrea – and at the European University Institute – in particular Marise Cremona and Miguel Maduro – for their support during the final stages of this project. I dedicate this book to my parents, Helga and Erich Thies, whose continuous support, love and faith in me made the undertaking and completion of this project possible. Anne Thies, July 2012

List of abbreviations

AB AG AJIL Ao¨R Brook. J. Int’l L. Cal. W. Int’l L.J. CFI CML Rev DSB DSU EC ECJ ECL Rev EC Treaty EJIL ELJ EL Rev EU Treaty EuR EuZW EWS FS Geo. J. Int’l L GYIL HILJ ICJ Int. T.L.R. JIEL

Appellate Body Advocate General American Journal of International Law Archiv des o¨ffentlichen Rechts Brooklyn Journal of International Law California Western International Law Journal Court of First Instance Common Market Law Review Dispute Settlement Body Dispute Settlement Understanding European Community European Court of Justice European Constitutional Law Review Treaty Establishing the European Community European Journal of International Law European Law Journal European Law Review Treaty on European Union Europarecht Europa¨ische Zeitschrift fu¨r Wirtschaftsrecht Europa¨isches Wirtschafts- und Steuerrecht Festschrift Georgetown Journal of International Law German Yearbook of International Law Harvard International Law Journal International Court of Justice International Trade Law and Regulation Journal of International Economic Law xv

xvi

list of abbreviations

JPLRes JuS JWT JZ LIEI LQR MJ MJIL Max Planck UNYB OJ RabelsZ RGDIP RIW RMC RMUE RTDE TEU TFEU TILJ U.S.C USTR WTO YEL ZEuS

Japanese Law Resources Juristische Schulung Journal of World Trade Juristenzeitung Legal Issues of European Integration The Law Quarterly Review Maastricht Journal of European and Comparative Law Michigan Journal of International Law Max Planck Yearbook of United Nations Law Official Journal Rabels Zeitschrift fu¨r ausla¨ndisches und internationales Privatrecht Revue Ge´ne´rale de Droit International Public Recht der Internationalen Wirtschaft Revue du Marche´ Commun Revue du Marche´ Unique Europe´en Revue trimestrielle de droit europe´en Treaty on European Union Treaty on the Functioning of the European Union Texas International Law Journal United States Code United States Trade Representative World Trade Organization Yearbook of European Law Zeitschrift fu¨r Europarechtliche Studien

Table of cases

In chronological order European Court of Justice Case 8/55, Fe´de´ration Charbonnie`re de Belgique v. High Authority [1954–56] ECR 245 53 Joined Cases 9 and 12/60, Socie´te´ commerciale Antoine Vloeberghs SA v. High Authority of the European Coal and Steel Community [1961] ECR 197 56 Cases 14, 16, 17, 20, 24, 26 and 27/60 and 1/61, Meroni v. High Authority [1961] ECR 161 55 Case 25/62, Plaumann v. Commission [1963] ECR 95 47, 74 Case 26/62, Van Gend en Loos [1963] ECR 1 46, 59, 119 Case 29/63, Laminoirs de la Providence v. High Authority [1965] ECR 911 121 Joined Cases 5, 7 and 13–24/66, Kampffmeyer et al. v. Commission [1967] ECR 245 50, 57, 70, 114, 121 Case 4/69, Lu¨tticke v. Commission [1971] ECR 325 47 Case 9/69, Claude Sayag et S.A. Zu¨rich v. Jean-Pierre Leduc etc. [1969] ECR 329 50 Joined Cases 19, 20, 25 and 30/69, Richez-Parise and others v. Commission [1970] ECR 325 119 Case 22/70, Commission v. Council (ERTA) [1971] CMLR 335 53 Case 5/71, Aktien-Zuckerfabrik Scho¨ppenstedt v. Council [1971] ECR 975 48, 50, 52, 53, 57, 70, 114 Joined Cases 9 and 11/71, Compagnie d’Approvisionnement de Transport et de Cre´dit SA et Grands Moulins de Paris SA v. Commission [1972] ECR 391 47, 48, 52, 160, 170 Case 92/71, Interfood v. Hauptzollamt Hamburg-Ericus [1972] ECR 231 21 Joined Cases 21–4/72, International Fruit Company NV and others v. Produktschap voor Groenten en Fruit [1972] ECR 1219 19, 22, 62, 84 xvii

xviii

table of cases

Case 43/72, Merkur v. Commission [1973] ECR 1055 47, 49 Cases 63–9/72, Werhahn Hansamu¨hle and others v. Council [1973] ECR 1229 52 Case 4/73, Nold [1974] ECR 491 140, 141 Case 9/73, Schlu¨ter v. Hauptzollamt Lo¨rrach [1973] ECR 1135 19, 22 Case 153/73, Holtz & Willemsen GmbH v. Council and Commission [1974] ECR 675 47 Case 181/73, Haegeman v. Belgian State [1974] ECR 449 61, 175 Case 6/74, Costa v. ENEL [1964] ECR 585 46 Case 26/74, Roquette Fre`res v. Commission [1976] ECR 677 58, 160 Cases 56–60/74, Kampffmeyer [1976] ECR 711 119 Case 74/74, Comptoir National Technique Agricole (CNTA) SA v. Commission [1975] ECR 533 52, 128, 143, 145 Case 43/75, Defrenne v. Socie´te´ anonyme belge de navigation ae´rienne (Sabena) [1976] ECR 455 21 Case 87/75, Bresciani [1976] ECR 129 62 Opinion 1/76 [1977] ECR 741 53 Joined Cases 64 and 113/76, 167 and 239/78, 27, 28 and 45/79, Dumortier Fre`res v. Council [1982] ECR 3091 58, 121, 122 Joined Cases 83 and 94/76, 4, 15 and 40/77, HNL [1978] ECR 1209 45, 57, 128 Joined Cases 117/76 and 16/77, Ruckdeschel v. Hauptzollamt Hamburg-St Annen [1977] ECR 1753 169 Joined Cases 124/76 and 20/77, Moulins et Huileries de Pont-a`-Mousson and Another v. Office Interprofessionnel des Ce´re´ales [1977] ECR 1795 169 Joined Cases 103/77 and 145/77, Royal Scholten-Honig v. Intervention Board for Agricultural Products [1978] ECR 2037 169 Case 112/77, To¨pfer v. Commission [1978] ECR 1019 145 Case 125/77, Koninklijke Scholten-Honig v. Hoofdproduktschap voor Akkerbouwprodukten [1978] ECR 1991 169 Case 238/78, Ireks-Arkady v. Council and Commission [1979] ECR 2955 57, 119 Joined Cases 241, 242, 245–50/78, DGV v. Council and Commission [1979] ECR 3017 57 Joined Cases 261 and 262/78, Interquell Sta¨rke-Chemie GmbH & Co. KG and Diamalt AG v. Council and Commission [1979] ECR 3045 57 Case 4/79, Socie´te´ Coope´rative ‘Providence Agricole de la Champagne’ v. ONIC [1980] ECR 2823 49 Case 44/79, Hauer v. Land Rheinland-Pfalz [1979] ECR 3727 140, 141 Case 145/79, Roquette Fre`res SA v. France [1980] ECR 2917 49 Case 66/80, International Chemical Corporation v. Ammistrazione delle Finanze dello Stato [1981] ECR 1191 176

table of cases

xix

Case 127/80, Grogan v. Commission [1982] ECR 869 145 Joined Cases 256/80, 257/80, 265/80, 267/80 and 5/81, Birra Wu¨hrer and others v. Council and Commission [1982] ECR 85 57, 160 Case 270/80, Polydor [1982] ECR 329 62 Case 17/81, Pabst-Richarz [1982] ECR 1331 62 Case 26/81, Oleifici Mediterranei v. EEC [1982] ECR 3057 51 Case 51/81, De Franceschi v. Council and Commission [1982] ECR 117 160 Case 104/81, Hauptzollamt Mainz v. C.A. Kupferberg & Cie KG a.A. [1982] ECR 3641 60, 61, 62, 63, 88 Case 266/81, Societa` Italiana per l’Oleodotto Transalpino v. Ministero delle finanze et al. (SIOT) [1983] ECR 731 19, 22 Cases 267 to 269/81, Amministrazione delle finanze dello Stato v. Societa` Petrolifera Italiana (SPI) and Michelin Italiana (SAMI) [1983] ECR 801 20, 22 Case C-289/81, Mavridis v. Parliament [1983] ECR 1731 145 Case 267/82, De´veloppement SA and Clemessy v. Commission [1986] ECR 1907 150, 160, 190 Case 59/83, Biovilac [1984] ECR 4057 123, 150, 153, 161, 162, 190 Case 112/83, Socie´te´ de Produits de Maı¨s v. Administration des Douanes [1985] ECR 719 49 Case 240/83, Procureur de la Re´publique v. ADBHU [1985] ECR 531 140, 141 Case 294/83, Les Verts v. European Parliament [1986] ECR 1339 46 Cases 71 and 72/84, Surcouf and Vidou [1985] ECR 2925 51 Case 175/84, Krohn v. Commission [1986] ECR 753 48 Case 281/84, Zuckerfabrik Bedburg v. Council and Commission [1987] ECR 49 52, 128 Case 265/85, Van den Bergh en Jurgens v. Commission [1987] ECR 1155 52 Cases 281, 283–5 and 287/85, Germany v. Commission [1987] ECR 3203 53 Case 12/86, Meryem Demirel v. Stadt Schwa¨bisch Gmu¨nd [1987] ECR 3719 61, 62, 63 Case 50/86, Grand Moulins [1987] ECR 4833 52 Case 81/86, De Boer Buizen v. Council and Commission [1987] ECR 3677 36, 78, 150, 160, 190 Case C-120/86, Mulder v. Minister van Landbouw en Visserij (Mulder I) [1988] ECR 2321 141, 145 Cases 46/87 and 227/88, Hoechst v. Commission [1989] ECR 2859 21 Case 70/87, Fediol v. Commission, [1989] ECR 1781 21, 22, 32, 105, 175 Case 265/87, Schra¨der HS Kraftfutter [1989] ECR 2237 198 Case C-308/87, Grifoni v. European Atomic Energy Community [1994] ECR I-341 52, 119 Case 5/88, Wachauf [1989] ECR 2609 198

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table of cases

Case C-119/88, AERPO v. Commission [1990] ECR I-2189 128 Case C-152/88, Sofrimport v. Commission [1990] ECR I-2477 145 Case C-69/89, Nakajima All Precision Co. Ltd. v. Council, [1991] ECR I-2069 21, 22, 28, 32, 105, 108, 175 Joined Cases C-104/89 and C-37/90, Mulder and others v. Council of the EU and Commission of the EC [2000] ECR I-203 119, 121, 143 Case C-192/89, Sevince [1990] ECR 3461 27, 62, 88, 95, 96 Case C-260/89, Elliniki Radiophonia Tielorassi v. Dimotiki Etairia Pliroforis (ERT) [1991] ECR I-2925 21 Case C-309/89, Codorniu [1994] ECR I-1853 141 Joined Cases C-6/90 and C-9/90, Francovich and others [1991] ECR I-5357 48, 75, 76, 178 Case C-18/90, Kziber [1991] ECR I-199 88 Cases C-38, 151/90, R v. Lomas [1992] ECR I-178 49 Case C-55/90, Cato v. Commission [1992] ECR I-2533 51 Case C-177/90, Ku¨hn v. Landwirtschaftskammer Weser-Ems [1992] ECR I-35 145, 198 Case C-282/90, Vreugdenhil [1992] ECR I-1937 52, 57 Case C-286/90, Anklagemindigheden v. Poulsen and Diva Navigation [1992] ECR I-6019 21, 62 Case C-358/90, Compagnia Italiana Alcool v. Commission [1992] ECR I-2457 121 Opinion 1/91 on the Draft Agreement relating to the creation of the EEA, [1991] ECR I-6079 29, 94, 100 Case C-146/91, KYDEP v. Council and Commission [1994] ECR I-4199 51 Case C-327/91, French Republic v. Commission [1994] ECR I-3641 60 Case C-228/92, Roquette Fre`res SA v. Hauptzollamt Geldern [1994] ECR I-1445 49 Cases C-46/93 and 48/93, Brasserie du Peˆcheur SA v. Bundesrepublik Deutschland and The Queen v. Secretary of State for Transport, ex parte: Factortame Ltd. and others [1996] ECR I-1029 45, 51, 55, 156 Case C-58/93, Yousfi [1994] ECR I-1353 88 Case C-280/93, Germany v. Council (Bananas) [1994] ECR I-4973 20, 22, 88, 142, 198 Case C-392/93, British Telecommunications [1996] ECR I-1631 55 Case C-469/93, Amministrazione delle finanze dello Stato v. Chiquita Italia SpA [1995] ECR I-4533 20, 22, 89 Opinion 2/94 [1996] ECR I-1759 21, 53, 127 Opinion 3/94 [1995] ECR I-4577 23 Case C-5/94, Hedley Lomas [1996] ECR I-2553 52 Case C-22/94, Irish Farmers Association and others v. Minister for Agriculture, Food and Forestry, Ireland and the Attorney General [1997] ECR I-1809 198

table of cases

xxi

Case C-61/94, Commission v. Germany (International Dairy Arrangement) [1996] ECR I-3989 21, 62, 110 Case C-70/94, Werner v. Germany [1995] ECR I-3189 21, 111 Case C-83/94, Leifer and others [1995] ECR I-3231 21, 111 Case C-103/94, Krid [1995] ECR I-719 88 Cases C-153 and C-205/94, Faroe Seafood and others [1996] ECR I-2465 141 Joined Cases C-178/94, C-179/94, C-188/94, C-189/94 and C-190/94, Dillenkofer and others [1996] ECR I-4845 55 Case C-122/95, Germany v. Council [1998] ECR I-973 23 Case C-126/95, Hallouzi-Choho [1996] ECR I-4807 88 Case C-183/95, Affish BV v. Rijksdienst voor de keuring van Vee en Vlees [1997] ECR I-4315 23 Case C-341/95, Gianni Bettati v. Safety Hi-Tech Srl [1998] ECR I-4355 21 Case C-362/95 P, Blackspur DIY and others v. Council and Commission [1997] ECR I-4775 160 Joined Cases C-364 and 365/95, T. Port GmbH & Co. v. Hauptzollamt Hamburg-Jonas (T. Port III) [1998] ECR I-1023 23, 169 Case C-53/96, Herme`s International v. FHT Marketing Choice BV [1998] ECR I3603 21, 23, 24, 111 Case C-149/96, Portugal v. Council [1999] ECR I-8395 20, 21, 24, 25, 32, 62, 63, 84, 85, 90, 103, 105, 115, 139, 175, 177, 180 Case C-162/96, A. Racke GmbH & Co v. Hauptzollamt Mainz [1998] ECR I-3655 60, 94 Case C-352/96, Italy v. Council [1998] ECR I-6937 24 Case C-416/96, El Yassini [1999] ECR I-1209 88 Case C-104/97 P, Atlanta v. European Community [1999] ECR I-6983 30, 32, 84, 99, 145, 150, 170 Case C-113/97, Babahenini [1998] ECR I-183 88 Case C-37/98, Savas [2000] ECR I-2927 62 Case C-237/98 P, Dorsch Consult v. Council and Commission [2000] ECR I-4549 36, 79, 150, 152, 159, 160, 190 Cases C-300/98 and 392/98, Parfums Christian Dior SA v. Tuk Consultancy BV, Assco Geru¨ste GmbH and Rob van Dijk v. Wilhem Layher GmbH & Co. KG and Layher BV [2000] ECR I-11307 21, 25, 27, 84, 85, 111 Case C-352/98 P, Laboratoires Pharmaceutiques Bergaderm and Goupil v. Commission [2000] ECR I-5291 51, 52, 55, 56, 112, 127 Case C-377/98, Netherlands v. Parliament and Council [2001] ECR I-7079 20, 25, 62, 84 ,85 Case C-18/99, Kziber [1991] ECR I-199 62 Case C-63/99, Gloszczuk [2001] ECR I-6369 62, 88

xxii

table of cases

Case C-89/99, Schievin-Nijstad vof and others [2001] ECR I-5851 111 Case C-235/99, Kondova [2001] ECR I-6427 62, 88 Case C-257/99, Barkoci and Malik [2001] ECR I-6557 62, 88 Case C-268/99, Aldona Malgorzata Jany and others [2001] ECR I-8615 62, 88 Order in Case C-307/99, OGT Fruchthandelsgesellschaft mbH v. Hauptzollamt Hamburg-St. Annen [2001] ECR I-3159 20, 24, 25, 84, 85, 109 Opinion 2/00 [2001] ECR I-5713 53 Cases C-27/00 and C-122/00, Omega Air and others [2002] ECR I-2569 20, 21, 25, 84, 85 Case C-50/00 P, Unio´n de Pequen˜os Agricultores v. Council [2002] ECR I-6677 46, 74, 191 Case C-76/00 P, Petrotub SA and Republica SA v. Council [2003] ECR I-73 20, 21, 24, 25, 26, 110 Case C-112/00, Schmidberger v. Austria [2003] ECR I-5659 55, 127 Case C-162/00, Land Nordrhein-Westfalen v. Beata Pokrzeptowicz-Meyer [2002] ECR I-1049 62 Case C-312/00 P, Commission v. Camar and Tico [2002] ECR I-11355 52, 112 Case C-438/00, Kolpak [2003] ECR I-4135 62 Case C-472/00 P, Commission v. Fresh Marine [2003] ECR I-7541 53 Case C-76/01 P, Eurocoton v. Council [2003] ECR I-10091 57 Case C-160/01, Karen Mau [2003] ECR I-4791 52 Case C-171/01, Wa¨hlergruppe [2003] ECR I-4301 62 Case C-192/01, Commission v. Denmark [2003] ECR I-9693 95 Case C-224/01, Ko¨bler [2003] ECR I-10239 47, 48, 49, 75, 76, 77, 118 ,178 Case C-23/02, Alami [2003] ECR I-1399 88 Cases C-37 and C-38/02, Di Lenardo Adriano and Dilexport v. Ministero del Commercio con l’Estero [2004] ECR I-6911 142 Cases C-93/02 P and C-94/02, Biret International SA et al. v. Council [2003] ECR I-10497 and 10565 32, 33, 49, 79, 84, 85, 89, 96, 97, 98, 99, 100, 109, 110, 137, 149, 166 Case C-234/02, Frank Lamberts v. European Ombudsman [2004] ECR II-2803 48 Case C-245/02, Anheuser-Busch v. Budvar [2004] ECR I-10989 22, 95 Case C-263/02, Commision v. Je´go-Que´re´ [2004] ECR I-3425 46 Case C-286/02, Bellio F.lli [2004] ECR I-3465 62 Case C-377/02, Van Parys [2005] ECR I-1465 20, 27, 28, 33, 84, 85, 99, 103, 113, 139, 176 Case C-265/03, Simutenkov [2005] ECR I-2579 62, 88 Case C-295/03 P, Alessandrini and others v. Commission [2005] ECR I-5673 198 Case C-459/03, Commission v. Ireland [2006] ECR I-4635 61 Case C-311/04, Algemene Scheeps Agentuur Dordrecht [2006] ECR I-609 62

table of cases

xxiii

Case C-344/04, IATA and ELFAA [2006] ECR I-403 61, 62, 63 Case C-351/04, Ikea Wholesale Ltd. [2007] ECR I-7723 29, 84, 100, 139 Case C-502/04, Ergu¨n Torun [2006] ECR I-1563 62, 88, 95, 96 Case C-97/05, Mohamed Gattoussi v. Stadt Ru¨sselsheim [2006] ECR I-11917 62, 88 Case C-305/05, Ordre des barreaux francophones et germanophone and others [2007] ECR I-5305 127 Joined Cases C-402/05 P and C-415/05 P, Yassin Abdullah Kadi and Al Barakaat International Foundation v. Council [2008] ECR I-6351 61, 128, 133, 134, 136, 137, 197, 198 Case C-431/05, Merck Gene´ricos-Produtos Farmaceˆuticos Ldª v. Merck & Co. Inc. and Merck Sharp & Dohme Ldª [2007] ECR I-7001 27, 61, 62 Cases C-120 and 121/06 P, FIAMM et al. [2008] ECR I-6513 2, 3, 36, 37, 42, 79, 80, 84, 85, 96, 103, 104, 106, 112, 115, 120, 124, 127, 128, 130, 134, 135, 139, 141, 142, 143, 148, 149, 150, 152, 153, 155, 156, 158, 160, 162, 165, 167, 169, 170, 171, 176, 177, 178, 180, 189, 190, 191, 192, 193, 194, 195, 198 Case C-308/06, The Queen on the Application of: International Association of Independent Tanker Owners (Intertanko) and others v. Secretary of State for Transport [2008] ECR I-4057 62, 63, 69, 104, 115, 131, 132 Case C-414/08 P, Sviluppo Italia Basilicata SpA v. European Commission [2010] ECR I-2559 159, 190 Court of First Instance (now the General Court) Case T-472/93, Campo Ebro [1995] ECR II-421 52 Case T-481/93 and T-484/93, Verenigung van Exporteurs v. Commission [1995] ECR II-2941 52, 128, 144 Case T-489/93, Unifruit Hellas v. Commission [1994] ECR II-1201 144 Case T-514/93, Cobrecaf v. Commission [1995] ECR II-621 123 Case T-521/93, Atlanta [1996] ECR II-1707 30, 143, 145, 150 Case T-571/93, Lefebvre and others v. Commission [1995] ECR II-2379 145 Case T-572/93, Odigitria v. Council and Commission [1995] ECR II-2025 123 Case T-575/93, Koelman v. Commission [1996] ECR II-1 58, 160 Case T-108/94, Candiotte v. Council [1996] ECR II-87 57, 160 Case T-175/94, International Procurement Services v. Commission [1996] ECR II-729 51 Case T-201/94, Kusterman v. Council and Commission [2002] ECR II-415 48 Case T-261/94, Schulte v. Council and Commission [2002] ECR II-441 48 Case T-267/94, Oleifici Italiani v. Commission [1997] ECR II-1239 57, 160 Case T-99/95, Stott v. Commission [1996] ECR II- 2227 160 Case T-184/95, Dorsch Consult v. Council and Commission [1998] ECR II-667 58, 79, 122, 150, 160, 161, 169

xxiv

table of cases

Joined Cases T-198/95, T-171/96, T-230/97, T-174/98 and T-225/99, Comafrica and Dole Fresh Fruit Europe v. Commission [2001] ECR II-1975 52 Case T-79/96, Camar Srl [2000] ECR II-2193 119 Case T-105/96, Pharos v. Commission [1998] ECR II-285 145 Case T-113/96, Dubois et Fils v. Council and Commission [1998] ECR II-125 51 Case T-290/97, Mehibas Dordtselaan v. Commission [2000] ECR II-15 144 Joined Cases T-33/98 and T-34/98 Petrotub and Republica v. Council [1999] ECR II-3837 26 Case T-99/98, Hameico Stuttgart GmbH v. Council and Commission [2003] ECR II-2195 48, 57 Case T-178/98, Fresh Marine Company SA v. Commission [2000] ECR II-3331 48 Case T-3/99, Bananatrading v. Council [2001] ECR II-2123 31, 69, 84, 115 Case T-18/99, Cordis Obst und Gemu¨se Großhandel v. Commission [2001] ECR II-913 31, 64, 69, 84, 108, 115 Case T-30/99, Bocchi Food Trade International v. Commission [2001] ECR II-943 31, 69, 84, 108, 115 Case T-52/99, T. Port GmbH & Co. KG v. Commission [2001] ECR II-981 31, 69, 84, 108, 115 Case T-70/99, Alpharma v. Council [2002] ECR II-3495 144 Case T-155/99, Dieckmann v. Commission [2001] ECR II-3143 51 Case T-196/99, Area Cova and others v. Council and Commission [2001] ECR II3597 57, 150 Joined Cases T-3/00 and T-337/04, Athansios Pitsiorlas v. Council and ECB [2007] ECR II-4779 49, 51, 52, 57, 58 Case T-69/00, FIAMM and FIAMM Technologies [2005] ECR II-5393 2, 3, 34, 35, 36, 38, 62, 64, 71, 78, 79, 84, 120, 124, 128, 129, 136, 142, 143, 144, 145, 149, 151, 152, 155, 159, 161, 163, 167, 175, 187, 189 Case T-151/00, Le Laboratoire du Bain [2005] ECR II-23* 2, 34, 35, 64, 78, 84, 129, 146, 149, 151, 167, 175, 189 Case T-170/00, Fo¨rde-Reederei [2002] ECR II-515 162, 170 Case T-174/00, Biret International SA v. Council [2002] ECR II-17 31, 32, 33, 64, 84, 85, 88, 95, 105, 109, 110, 145, 150 Case T-301/00, Fremaux [2005] ECR II-25* 2, 34, 35, 64, 78, 84, 129, 146, 149, 151, 167, 175, 189 Case T-320/00, CD Cartondruck AG [2005] ECR II-27* 2, 34, 35, 64, 78, 84, 129, 142, 143, 144, 145, 146, 149, 151, 167, 175, 189 Case T-383/00, Beamglow Ltd. [2005] ECR II-5459 2, 14, 16, 34, 35, 64, 78, 84, 120, 129, 142, 143, 144, 145, 149, 151, 167, 189 Case T-19/01, Chiquita Brands and others [2005] ECR II-315 27, 28, 34, 84, 85, 99, 113, 139, 176

table of cases

xxv

Joined Cases T-64 and 65/01, Afrikanische Frucht-Compagnie et al. v. Commission [2004] ECR II-521 161,170 Case T-135/01, Giorgio Fedon & Figli S.p.A., Fedon S.r.l. and Fedon America USA Inc. [2005] ECR II-29* 35, 64, 78, 84, 120, 149, 151, 167, 189 Case T-306/01, Yusuf et al. v. Council [2005] ECR II-3533 61, 94, 132, 133, 136 Case T-315/01, Kadi v. Council and Commission [2005] ECR II-3649 61, 94, 132, 133, 136 Case T-333/01, Meyer v. Commission [2003] ECR II-117 58 Case T-274/02, Ritek and Prodisc Technology v. Council [2006] ECR II-4305 29 Case T-193/04, Tillack v. Commission [2006] ECR II-3995 52, 56, 57, 58 Case T-231/04, Greece v. Commission [2007] ECR II-63 94 Case T-264/07, CSL Behring GmbH v. Commission and European Medicines Agency (EMA) [2010] ECR II-4469 144 World Trade Organization Japan – Taxes on Alcoholic Beverages II, Panel Report of 11 July 1996, WT/ DS8/R, WT/DS10/R, WT/DS11/R, adopted 1 November 1996, as modified by the Appellate Body Report, WT/DS8/AB/R, WT/DS10/AB/R, WT/ DS11/AB/R, DSR 1996:1, 125 92 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds8_e.htm) European Communities – Regime for the Importation, Sale and Distribution of Bananas (Bananas), Complaints by Ecuador, Guatemala and Honduras, Mexico and the United States, Panel Reports of 22 May 1997, WT/ DS27/R/ECU, GTM, HND, MEX, USA, adopted 25 September 1997, as modified by the Appellate Body Report of 9 September 1997, WT/ DS27/AB/R, DSR 1997:II, 695, 783; III,1085 13, 94, 108, 151, 174 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds27_e.htm) European Communities – Measures Concerning Meat and Meat Products (Hormones), Complaints by Canada and the United States, Panel Reports of 18 August 1997, WT/DS26/R/CAN and WT/DS48/R/US, adopted 13 February 1998, as modified by the Appellate Body Report of 16 January 1998, WT/DS26,48/AB/R, DSR 1998:II, 235; III, 699 1, 9, 10, 31, 94, 151, 174 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds26_e.htm and www.wto.org/english/tratop_e/dispu_e/cases_e/ds48_e.htm) European Communities – Measures Concerning Meat and Meat Products (Hormones) – Arbitration under Art. 21.3(c) of the DSU, Award of the Arbitrator, WT/DS26/15 and WT/DS48/13, 29 May 1998, DSR 1998:V, 1833 10 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds26_e.htm and www.wto.org/english/tratop_e/dispu_e/cases_e/ds48_e.htm)

xxvi

table of cases

European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, Decision by the Arbitrators of 9 April 1999, WT/DS27/ ARB 1, 107, 174 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds27_e.htm) European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of the DSU by Ecuador, Report of the Panel of 12 April 1999, WT/DS27/RW/ECU, adopted 6 May 1999, DSR 1999:II, 803 107 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds27_e.htm) European Communities – Measures Concerning Meat and Meat Products (Hormones) – Recourse to Arbitration by the European Communities under Art. 22.6 of the DSU, Original Complaint by the United States, Decision by the Arbitrators of 12 July 1999, WT/DS26/ARB, DSR 1999:III, 1105 1, 10, 174, 175 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds26_e.htm) European Communities – Anti-dumping Duties on Cotton-Type Bed Linen from India (Bed linen), Panel Report of 30 October 2000, WT/DS141/R, adopted 12 March 2001, as modified by the Appellate Body Report of 1 March 2001, WT/DS141/AB/R, DSR 2001:VI, 2077 29 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds141_e.htm) United States – Final Anti-Dumping Measures on Stainless Steel from Mexico, Panel Report of 20 December 2007, WT/DS344/R, adopted 20 May 2008, as modified by the Appellate Body Report of 30 April 2008, WT/ DS344/AB/R 92 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds344_e.htm) United States – Continued Existence and Application of Zeroing Methodology, Panel Report of 1 October 2008, WT/DS350/R, adopted on 19 February 2009, as modified by the Appellate Body report of 4 February 2009, WT/DS350/AB/R 92 (www.wto.org/english/tratop_e/dispu_e/cases_e/ds350_e.htm) Canada – Continued Suspension of Obligations in the EC-Hormones Dispute, Panel Report of 31 March 2008, WT/DS321/R, adopted 14 November 2008, as modified by the Appellate Body Report of 16 October 2008, WT/DS321/AB/R 11, 12, 110 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds321_e.htm) United States – Continued Suspension of Obligations in the EC-Hormones Dispute, Panel Report of 31 March 2008, WT/DS320/R, adopted 14 November 2008, as modified by the Appellate Body Report of 16 October 2008, WT/DS320/AB/R 11, 12, 110 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds320_e.htm)

table of cases

xxvii

European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of the DSU by the United States, WT/DS27/ AB/RW/USA, and European Communities – Regime for the Importation, Sale and Distribution of Bananas – Second Recourse to Article 21.5 of the DSU by Ecuador, WT/DS27/AB/RW2/ECU, Reports of the Panel of 7 April (ECU) and 19 May (USA) 2008, adopted on 11 (USA)/22 (ECU) December 2008, as modified/upheld by Report of the Appellate Body of 26 November 2008 17, 18 (see www.wto.org/english/tratop_e/dispu_e/cases_e/ds27_e.htm)

Table of legislation

In chronological order Council Directive 81/602/EEC concerning the prohibition of certain substances having a hormonal action and of any substances having a thyrostatic action of 31 July 1981, OJ 1981 L 222/32 8, 31, 174 Council Directive 88/146/EEC prohibiting the use in livestock farming of certain substances having a hormonal action of 7 March 1988, OJ 1988 L 70/16 8, 31, 174 Council Directive 88/299/EEC on trade in animals treated with certain substances having a hormonal action and their meat, as referred to in Article 7 of Directive 88/146/EEC, of 17 May 1988, OJ 1988 L 128/36 8 Council Regulation (EEC) No 404/93 on the common organization of the market in bananas of 13 February 1993, OJ 1993 L 47/1 (‘the COM for bananas’) 13, 109, 174 Council Decision 94/800/EC of 22 December 1994 approving the results of the Uruguay Round on behalf of the Community, OJ 1994 L 336/1 1, 7, 22, 23, 175 Council Directive 96/22/EC concerning the prohibition on the use in stockfarming of certain substances having a hormonal or thyrostatic action and of ß-agonists, and repealing Directives 81/602/EEC, 88/146/ EEC and 88/299/EEC, 29 April 1996, OJ 1996 L 125/3 8, 31, 109, 110, 174 Council Regulation (EC) No 2320/97 of 17 November 1997 imposing definitive anti-dumping duties on imports of certain seamless pipes and tubes of iron or non-alloy steel originating in Hungary, Poland, Russia, the Czech Republic, Romania and the Slovak Republic, repealing Regulation (EEC) No 1189/93 and terminating the proceeding in respect of such imports originating in the Republic of Croatia, OJ 1997 L 322/1 26

xxviii

table of legislation

xxix

Council Regulation (EC) No 1637/98 of 20 July 1998 amending Regulation (EEC) No 404/93 on the common organisation of the market in bananas, OJ 1998 L 210/28 14, 108 Commission Regulation (EC) No 2362/98 of 28 October 1998 laying down detailed rules for the implementation of Council Regulation (EEC) No 404/93 regarding imports of bananas into the Community, OJ 1998 L 293/32 14, 108 Directive 2005/35/EC of the European Parliament and of the Council of 7 September 2005 on ship-source pollution and on the introduction of penalties for infringements, OJ 2005 L 255/11 131

Introduction

In recent years, the European Union (EU)1 has become the respondent of several international trade disputes, which have been dealt with within the framework of the World Trade Organization (WTO).2 In the Bananas and Hormones cases, the EU’s continuous non-compliance with WTO law has justified the imposition of retaliatory measures by other WTO members to counter their economic disadvantage and/or to enforce compliance by the EU.3 This has led to, inter alia, the USA lawfully imposing retaliatory measures in accordance with the WTO Dispute Settlement Understanding (DSU), choosing a variety of products being imported from EU Member States to the USA, such as batteries, bed linen and paperboard boxes, to be levied with a 100 per cent ad valorem duty when entering the USA.4 All ‘retaliation victims’ in the Bananas and 1

2

3

4

The EU has legal personality – Article 47 Treaty on European Union (TEU) – and succeeded the European Communities. This book uses the name ‘EU’ when referring to the EU in its current form and when referring to the European Communities prior to the adoption of the Lisbon Treaty, unless otherwise specified. The EU has been a member of the WTO since 1 January 1995: see Council Decision 94/800/EC of 22 December 1994, OJ 1994 L 336, p. 1, and Article XI, para. 1 Marrakesh Agreement Establishing the WTO. For a list of disputes in which the EC/EU has been a respondent, see wto.org/english/tratop_e/dispu_e/find_dispu_cases_e.htm#results. European Communities – Measures Concerning Meat and Meat Products (Hormones), WT/DS26, WT/DS48, WT/DS320, WT/DS321; and European Communities – Regime for the Importation, Sale and Distribution of Bananas (Bananas), WT/DS27. See Article 22(6) Dispute Settlement Understanding (DSU); EC-Bananas, Minutes of DSB meeting, WT/DSB/M/59, Doc. No. 99–2233, 3 June 1999; EC-Hormones, Minutes of DSB meeting, WT/DSB/M63, Doc. 99–2799, 6 July 1999; EC-Bananas, WT/DS27/ARB, Decision by the Arbitrators (retaliation authorised by the Dispute Settlement Body (DSB) on 19 April 1999); EC-Hormones, WT/DS26/ARB, Decision by the Arbitrators (retaliation authorised by DSB on 26 July 1999). See also USTR Office, Press Release 99–35, 9 April 1999, ‘USTR Announces Final Product List in Bananas Dispute’ (products included: bath preparations, handbags, wallets and similar articles, felt paper and paperboard boxes,

1

2

introduction

Hormones cases have thus been operating in sectors different from those concerned by the EU measures that had been held to be non-compliant with WTO law – i.e. EU legislation on the banana market or the beef market. As a consequence, affected traders brought compensation actions before the EU courts, requiring them to deal with the interrelationship between international and European law as well as the availability of judicial remedies under EU law.5 The EU’s non-compliance with, on the one hand, its WTO law obligations and adopted WTO rulings, and, on the other hand, its tolerating of some traders being hit by retaliation without establishing any internal compensation mechanism give rise to complex legal questions, which are often of constitutional significance. These questions can be roughly divided into two interlinked groups: (1) those concerning the effect and enforceability of the EU’s WTO law obligations within the EU legal order, in particular the EU courts’ legality review of EU conduct; and (2) those concerning the availability of judicial remedies, in particular with regard to (a) the scope of EU liability for breaches of ‘pure’ EU law (such as the general principles of EU law) and (b) the existence and scope of a liability principle in the absence of unlawfulness for particularly severe consequences as a result of the conduct of the EU for some. The decision of the European Court of Justice (ECJ) in FIAMM et al. has clarified the Court’s position on the scope of EU liability and denied the right to compensation in the particular context of international retaliation under the WTO system.6 The author of this book does

5

6

lithographs, bed-linen, batteries and coffee or tea makers) – Federal Register/Vol. 64, No. 74/Monday, 19 April 1999/Notices, 19209ff. (http://frwebgate.access.gpo.gov/cgi-bin/ getdoc.cgi?dbname=1999_register&docid=99–9703-filed.pdf); USTR Office, Press Release 99–60, 19 July 1999, ‘USTR Announces Final Product List in Beef Hormones Dispute’ (products included: pork, Roquefort cheese, onions, truffles, dried carrots, goose liver, fruit juice, chicory and mustard) – Federal Register/Vol. 64, No. 143/Tuesday, 27 July 1999/Notices, 40638ff (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi? dbname=1999_register&docid=99–19174-filed.pdf). For notification of actions, see: Case T-69/00, FIAMM SpA and FIAMM Technologies Inc. v. Commission and Council, OJ 2000 C 135/30; Case T-151/00, Le Laboratoire du Bain v. Council and Commission, OJ 2000 C 247/54; Case T-301/00, Groupe Fremaux and Palais Royal Inc. v. Council and Commission, OJ 2000 C 355/32; Case T-320/00, CD Cartondruck GmbH & Co. KG v. Council and Commission, OJ 2000 C 355/39; Case T-383/00, Beamglow Ltd. v. Council et al., OJ 2001 C 61/21; Giorgio Fedon & Figli S.p.A., Fedon S.r.l. and Fedon America USA Inc. v. Commission and Council, OJ 2001 C 275/10. Case T-297/00, Claude-Anne de Sole`ne v. Council, OJ 2000 C 355/30, was removed from the register on 2 April 2003 and Case T-109/03, Arran Aromatics Ltd. and others v. Commission, OJ 2003 C 135/33, was removed from the register on 13 July 2006. Cases C-120 and 121/06 P, FIAMM et al. [2008] ECR I-6513.

introduction

3

not agree with the Court on all counts and therefore puts forward a detailed critique of the Court’s position, in particular with regard to the following issues: (1)

(2)

(3)

The EU courts’ approach has not left much room for hope for applicants challenging EU measures in the light of WTO law and rulings for some time now. It is questioned here, however, whether the courts have provided sufficient legal reasoning when requiring ‘direct effect’ of WTO law in the particular context of compensation actions. The courts’ reasoning for not differentiating between compensation actions and those actions dealing with the validity of EU measures provides justification for further evaluation of its validity and critical assessment.7 The courts’ complete denial of retaliation victims’ right to compensation in FIAMM et al. has left natural and legal persons who are negatively affected as a result of EU conduct without any judicial protection. Such a severe consequence justifies a re-examination of the scope of protection of rights and remedies under EU law. This entails a critical assessment of the focus of the [now] General Court (GC) on the external dimension of EU conduct in the context of international trade disputes when dealing with compensation actions.8 Given that even the ECJ in FIAMM et al. seems to have left open to what extent general principles of EU law might justify a right to compensation, it is considered significant to assess their potential applicability in the context of international trade disputes for future cases.9 Furthermore, the ECJ’s denial of the existence of an EU law liability principle based on severe consequences of EU conduct – rather than on the unlawfulness of the conduct itself – calls for a critique. More specifically, because of the Court’s focus on Member States’ principles on liability for legislative activity, it failed to assess the existence and scope of principles dealing exclusively with compensation for severe consequences of such activity. In this context, the Court did not even address the resulting gap of judicial protection, despite the comprehensive analysis and suggestions of Advocate General Maduro, which preceded the ECJ’s judgment.10

As the above introduction of core issues of the present critique already suggests, this book does not deal with the EU’s external responsibility towards other WTO members – a topic that has already been the 7 8 10

See for detailed discussion Chapters 3 and 6. 9 Case T-69/00, FIAMM and FIAMM Technologies [2005] ECR II-5393. See Chapter 4. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., Opinion of 20 February 2008. For a detailed discussion, see Chapter 5.

4

introduction

subject of much academic writing.11 The aim of this book is rather to analyse and critically evaluate the current status of EU law on internal responsibility – as developed by the EU courts in their case law on EU liability under (now) Article 340(2) of the Treaty on the Functioning of the European Union (TFEU)12 – for EU conduct with an external dimension and, more specifically, EU liability for conduct in the context of international trade disputes. This evaluation comprises an assessment of the effect of WTO law and its infringements on the EU legal system, with a particular focus on the legality review of EU courts in the course of compensation actions. Within the context of this critique, adjustments of the courts’ approach in the specific context of international trade disputes are suggested. Therein, fundamental rights and general principles of EU law are taken into account, placing the issues in question into the context of EU constitutional law. This book thus brings together the strand of the law on EU liability under Article 340(2) TFEU with the issues of effect and enforceability of international trade law within the EU legal order. It assesses the EU courts’ approach with regard not only to the interrelationship between the WTO and the EU legal order but also the role of ‘pure’ EU law for identifying a right to compensation of retaliation victims. Conclusions are drawn on how the EU courts could and should offer judicial protection to those individuals being damaged as a consequence of political decisions made in the general interests of the EU. It is argued that the external dimension of EU conduct in the context of international trade disputes should not diminish in principle the scope of judicial review and fundamental rights protection. 11

12

See, e.g., C. Carmody, ‘Remedies and Conformity under the WTO Agreement’, Journal of International Economic Law, 5(2) (2002), 307–29; T. Cottier, ‘Dispute Settlement in the World Trade Organization: Characteristics and Structural Implications for the European Union’, Common Market Law Review, 35(2) (1998), 325–78; J. Kearns and S. Charnovitz, ‘Adjudicating Compliance in the WTO: A Review of DSU Article 21.5’, JIEL, 5(2) (2002), 331–52; B. Martenczuk, ‘Decisions of Bodies Established by International Agreements and the Community Legal Order’ in V. Kronenberger (ed.), The EU and the International Legal Order: Discord or Harmony? (The Hague: Asser Press, 2001), pp. 141–63; A. Rosas, ‘Implementation and Enforcement of WTO Dispute Settlement Findings: An EU Perspective’, JIEL, 4(1) (2001), 131–44; S. Charnovitz, ‘An Analysis of Pascal Lamy’s Proposal on Collective Preferences’, JIEL, 8(2) (2005), 449–72; P. Eeckhout, ‘Remedies and Compliance’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds.), The Oxford Handbook of International Trade Law (Oxford University Press, 2009), pp. 438–59. According to Article 340(2) TFEU, ‘the Union shall, in accordance with the general principles common to the laws of the Member States, make good any damage caused by its institutions or by its servants in the performance of their duties’.

introduction

5

The book is structured as follows. After providing the case history and context of the research undertaken (Chapter 1), the legal basis and general scope of EU liability is assessed, taking into account the impact of international law in this context and suggesting a waiver of the requirement of direct effect in the context of compensation actions (Chapter 2). Subsequently, the book assesses the right to compensation for infringements of WTO law by analysing the EU courts’ current approach in cases in which applicants tried to enforce the EU’s WTO law obligations (Chapter 3). It then turns to the potential right to compensation for infringements of ‘pure EU law’ by evaluating the reach or implications of general principles of EU law, taking into account the external dimension of EU conduct in the context of international trade disputes (Chapter 4). The impact of EU general principles on the EU’s liability regime is further evaluated by looking at a right to compensation in the absence of unlawfulness, which would be based on the severe consequences of the EU’s conduct rather than its unlawfulness; this includes a critique of the ECJ’s denial of the existence of such a liability principle under EU law (Chapter 5). In its final chapter, the book draws together conclusions reached in previous chapters and thereby articulates its overall argument, illustrating the weaknesses of the current state of law. Placing the issues addressed in their international and constitutional law context, the chapter includes recommendations on how to improve the current situation of retaliation victims with regard to the availability and scope of judicial protection before the EU courts (Chapter 6).

1

Setting the scene: WTO disputes, retaliation and the EU courts’ reception of WTO law

The aim of this chapter is to provide the basis for analysis and critical assessment in the subsequent chapters of the EU courts’ approach and reasoning regarding EU liability in the context of international trade disputes. Presenting the international dimension or context of the legal issues in question, this chapter starts with providing an overview of the so-called Hormones and Bananas cases brought against the EU before the WTO DSB. It is those disputes under international law that triggered retaliation that allegedly caused damage to traders later asking for compensation from the EU. Subsequently, the chapter turns to the domestic EU law dimension of this topic and discusses the EU courts’ case law on the effect of WTO law and rulings within the EU legal order, looking in particular at the scope of the courts’ legality review of EU conduct against the benchmark of WTO law. The analysis includes judgments rendered in the context of actions aiming at the annulment of EU measures by the EU courts. Even though it is submitted that these should not be directly relevant for the assessment of compensation actions, an analysis of the pertinent case law helps to understand the historical development of the courts’ approach regarding the overall implications of the EU’s WTO law obligations. This background will allow for a contextual analysis of the more specific case law on EU liability in Chapter 3. The overview in the present chapter also covers the most recent judgments dealing specifically with EU liability for damage allegedly occurring in the context of the Hormones and Bananas disputes. However, as the aim of this chapter is to provide the factual starting point for this research, the presentation of case law is limited to the courts’ actual conclusions; the evaluation and critique of the courts’ reasoning as well as some suggestions for modification are provided in subsequent chapters. 6

setting the scene

7

As stated in the Introduction and indicated above, the research presented in this book entails an analysis of the interrelationship between the European and WTO legal regimes, the identification of challengeable EU conduct and the legal position of affected individuals. The damage suffered by retaliation victims admittedly occurred as a consequence of another (non-EU) WTO member’s imposition of retaliatory measures. However, retaliation is nevertheless triggered by EU conduct, which – as discussed in more detail in Chapters 4 and 6 – in principle has to be in compliance with the entire body of EU law and thus needs to be reviewable in the light of it, independently of its compliance with WTO law. However, the (now) General Court (GC) in FIAMM ended its review of EU legislation once it had denied the enforceability of WTO law as a benchmark for the lawfulness of EU conduct. In response to the GC’s approach, the third section of this chapter disentangles the different aspects of EU conduct in the context of international trade disputes, identifying their legal bases and the body of law to be complied with by the EU institutions. This is meant to contribute to the further clarification of the appropriate scope of legality review undertaken by the EU courts where the conduct of EU institutions is relevant under or possibly regulated by more than one legal regime. It also provides the basis for a more detailed assessment in Chapter 4 of the scope and applicability of general principles of EU law where the EU courts are asked to review EU conduct that has an international dimension (i.e., where it is not limited to domestic EU effects but also affects the EU’s international trade relations).

1.1 Relevant international trade disputes so far: the Hormones and Bananas cases brought before the WTO On 1 January 1995, the Agreement Establishing the World Trade Organization (hereinafter the ‘WTO Agreement’) and, inter alia, the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), the Agreement on Sanitary and Phytosanitary Measures (hereinafter the ‘SPS Agreement’), the Agreement on Technical Barriers to Trade (hereinafter the ‘TBT Agreement’) and the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) entered into force for the EU.1 Thus, not only all Member States of the EU, but also the EU

1

Council Decision 94/800/EC of 22 December 1994, OJ 1994 L 336/1.

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itself has since become a WTO member.2 Because of the EU’s exclusive competence in most trade matters (see Article 207 TFEU),3 the EU represents all Member States at the WTO4 and is itself (see Article 47 TEU)5 party to disputes before the WTO DSB.6

1.1.1 The Hormones case When the WTO Agreement entered into force for the EU, three EU Directives from 1981 and 1988 prohibited the importation of hormonetreated meat and meat products.7 A further Council Directive ‘concerning the prohibition on the use in stockfarming of certain substances having a hormonal . . . action’ came into force in 1996 and repealed the former Directives, but maintained the import ban and extended it to another hormone.8 The EU claimed that the legislation was motivated by public health, environmental and consumer protection concerns.9 In January 1996, the USA requested consultation with the EU, claiming that measures taken under the Directive restricted or prohibited imports of meat and meat products from the USA and other WTO members and therefore infringed several provisions of the GATT, the 2 3

4

5

6

7

8

9

Article XI(1) of the WTO Agreement. For detailed commentary on (now) Article 207 TFEU, see R. Bierwagen in H. Smit, P. Herzog, C. Campbell and G. Zagel (eds.), Smit & Herzog on the Law of the European Union, Vol. 3 (Newark, NJ: Lexisnexis Matthew Bender, 2010); M. Hahn, ‘Commentary on Article 207 TFEU’ in C. Callies and M. Ruffert (eds.), EUV/AEUV, 4th edn (Munich: C. H. Beck Verlag, 2011), pp. 2013–78. For a general overview on ‘the EU and the WTO’, see: http://ec.europa.eu/trade/creatingopportunities/eu-and-wto/index_en.htm. For a detailed commentary on Article 47 TEU, see G. Zagel in H. Smit, P. Herzog, C. Campbell and G. Zagel (eds.), Smit & Herzog on the Law of the European Union, Vol. 1 (Newark, NJ: Lexisnexis Matthew Bender, 2010). The EU has already been a complainant of disputes with Argentina, Australia, Brazil, Canada, Chile, China, India, Republic of Korea, Mexico, the Philippines, Thailand and the USA. The EU has already been a respondent of disputes with Argentina, Australia, Brazil, Canada, Colombia, Ecuador, Guatemala, Honduras, India, Republic of Korea, Mexico, Norway, Panama, Peru, Taiwan (Chinese Taipei), Thailand, Uruguay and the USA. See disputes by country on www.wto.org/english/tratop_e/dispu_e/ dispu_by_country_e.htm and http://trade.ec.europa.eu/wtodispute/search.cfm?code=1 and code=2. Council Directive 81/602/EEC of 31 July 1981, OJ 1981 L 222/32; Council Directive 88/146/ EEC of 7 March 1988, OJ 1988 L 70/16; Council Directive 88/299/EEC of 17 May 1988, OJ 1988 L 128/36. Council Directive 96/22/EC of 29 April 1996, OJ 1996 L 125/3, 23 May 1996 (effective as of 1 July 1996). T. Cottier and M. Oesch, International Trade Regulation – Law and Policy in the WTO, the European Union and Switzerland (Berne: Staempfli Publishers Ltd., and London: Cameron May Ltd., 2005) 782.

setting the scene

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SPS Agreement and the TBT Agreement, as well as the Agreement on Agriculture.10 On request of the USA of April 1996, a panel was established in May and composed in July 1996.11 After Canada’s request for consultation with the EU in June 1996,12 Canada requested the establishment of a panel in September,13 which was established by the DSB in October and composed in November 1996.14 In November 1996, the EU and Canada agreed that the composition of the latter panel would be identical to the composition of the panel established at the request of the USA.15 The panel found in both cases – its reports were circulated in August 1997 – that the EU ban on imports of meat and meat products from cattle treated with any of six specific hormones for growth promotion purposes was inconsistent with the provisions of the SPS Agreement.16 An appeal of the EU brought in September 199717 was unsuccessful; the Appellate Body partly upheld the finding of the panel in January 1998 and held that the EU was required to lift the hormone ban in the absence of any scientific risk assessment of harm.18 On 13 February 1998, the DSB adopted the Appellate Body report and the panel report,

10

11

12

13

14

15

16

17

18

See European Communities – Measures Concerning Meat and Meat Products (Hormones (US)), Request for Consultations by the United States, WT/DS26/1, Doc. No. 96–0359, 31 January 1996; the USA referred to Article III or XI GATT, Articles 2, 3 and 5 SPS Agreement, Article 2 TBT Agreement and Article 4 Agreement on Agriculture; for a summary of the dispute before the WTO, see www.wto.org/english/tratop_e/dispu_e/ cases_e/ds26_e.htm. EC-Hormones (US), Request for the Establishment of a Panel by the US, WT/DS26/6, Doc. No. 96–1664, 25 April 1996; EC-Hormones (US), Constitution of a Panel – Note by the Secretariat, WT/DS/26/7, Doc. No. 96–2686, 9 July 1996. European Communities – Measures Concerning Meat and Meat Products (Hormones (Canada)), Request for Consultations by Canada, WT/DS48/1, Doc. No. 96–2602, 8 July 1996. EC-Hormones (Canada), Request for the Establishment of a Panel by Canada, WT/DS48/5, Doc. No. 96–3680, 17 September 1996. EC-Hormones (Canada), Constitution of a Panel – Note by the Secretariat, WT/DS48/6, Doc. No. 96–4791, 12 November 1996. See EC-Hormones (US and Canada), Report of the Appellate Body, WT/DS26/AB/R and WT/ DS/48/AB/R, Doc. No. 98–0099, 16 January 1997, first paragraph of the Introduction: Statement of the Appeal. See EC-Hormones (US), Complaint by the US – Report of the Panel, WT/DS26/R/USA, Doc. No. 97–3368, 18 August 1997; and EC-Hormones (Canada), Complaint by Canada – Report of the Panel, WT/DS48/R/CAN, Doc. No. 97–3371. The panel found the (then) EC measure to be inconsistent with Articles 3.1, 5.1 and 5.5 SPS Agreement. See EC-Hormones (US and Canada), Notification of an Appeal by the EC under Paragraph 4 of Article 16 of the DSU, WT/DS/26/9, Doc. No. 97–4084, and WT/DS48/7, Doc. No. 97–4091, 25 September 1997. See EC-Hormones (US and Canada), Report of the Appellate Body, WT/DS/26/AB/R and WT/DS48/AB/R, Doc. No. 98–0099, 16 January 1998.

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as modified by the Appellate Body, holding the EU import ban to be in violation of the SPS Agreement.19 Subsequently, an arbitrator granted the EU a ‘reasonable period of time’ (Article 21.3(c) DSU,20 until 13 May 1999) to comply with the DSB reports.21 After the expiry of this ‘grace period’ – and the failure of the EU to comply with the DSB reports – the USA and Canada requested authorisation to impose retaliatory measures against the EU by suspending concessions (Articles 22.2, 22.6 DSU).22 The original panel was asked by the DSB to arbitrate on the level of suspension of concessions and determined the level of nullification suffered by the USA to be equal to US$116.8 million23 and the level of nullification suffered by Canada to be equal to CDN$11.3 million.24 On 26 July 1999, the DSB authorised the suspension of concessions to the EU by the USA and Canada in the respective amounts determined by the arbitrators as being equivalent to the level of nullification suffered by them.25 The USA and Canada suspended concessions to the EU and imposed duties on goods being exported from the EU and imported to the USA or Canada.26 In October 2003, the EU communicated to the DSB that, with the new Directive (2003/74/EC) in force, it had fully implemented the recommendations and rulings of the DSB; as a consequence, the suspension of concessions to the EU by the USA and Canada were no longer justified.27 However, neither the USA nor Canada acceded to the request of the EU.28 In November 2004, the EU filed a request for consultations with the USA and Canada, asserting that these countries should have removed 19

20 21

22

23

24

25

26

27

28

EC-Hormones (US and Canada), WT/DS26/13 and WT/DS48/11, Doc. No. 98/0587, 19 February 1997. Annex 2 to the WTO, OJ 1994 L 336/324. EC-Hormones (US and Canada), Arbitration under Art. 21.3(c) of the DSU, Award of the Arbitrator, WT/DS26/15 and WT/DS48/13, Doc. No. 98–2227, 29 May 1998. EC-Hormones (US and Canada), Recourse to Art. 22(2) DSU, WT/DS26/19, Doc. No. 99–2091, 19 May 1999 and WT/DS48/17, Doc No. 99–2097, 20 May 1999. EC-Hormones (US), WT/DS26/ARB, Doc. No. 99–2855, 12 July 1999, paras. 79, 83, 84, Annex 1. EC-Hormones (Canada), WT/DS48/ARB, Doc. No. 99–2860, 12 July 1999, paras. 68, 72, 73, Annex 1. See a summary of the disputes: www.wto.org/english/tratop_e/dispu_e/cases_e/ ds26_e.htm; www.wto.org/english/tratop_e/dispu_e/cases_e/ds48_e.htm. See WTO Arbitrators Decisions of 12 July 1999 (notes 23 and 24 above), Annex II for products lists. EC-Hormones (US and Canada), WT/DS26/22, WT/DS48/20, Doc. No. 03–3759, 28 October 2003. See a summary of the disputes: www.wto.org/english/tratop_e/dispu_e/cases_e/ ds26_e.htm; www.wto.org/english/tratop_e/dispu_e/cases_e/ds48_e.htm.

setting the scene

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their retaliatory measures because it had complied with the DSB recommendations and rulings; it also criticised the unilateral determination of the USA and Canada that the new EU Directive was a continued violation of WTO law; further, it claimed that the USA and Canada had failed to follow Article 21.5 DSU procedures to adjudicate the matter.29 In January 2005, the EU requested the establishment of a panel,30 which was established in February 2005 and composed in June.31 On 31 March 2008, the panel reports were circulated to members, in which the panel concluded that the USA and Canada had made procedural violations: (1) by continuing the suspension of concessions or other obligations subsequent to the notification of the EU implementing measure (Directive 2003/74/EC) without having recourse to, and abiding by, the rules and procedures of the DSU (breach of Article 23.1 DSU); and (2) by making a determination to the effect that a violation had occurred without having recourse to dispute settlement in accordance with the DSU (breach of Article 23.2(a) DSU). The panel also concluded that the EU legislation in question was still inconsistent with the SPS Agreement. It recommended that the DSB request the USA and Canada to bring their measures into conformity with their obligations under the DSU. The panel further suggested that, in order to implement its findings under Article 23 and in order to ensure the prompt settlement of this dispute, the USA and Canada should have recourse to the rules and procedures of the DSU without delay.32 On 29 May 2008, the EU notified its decision to request the Appellate Body to review certain issues of law covered in the panel reports and certain legal interpretations developed by the panel, which was complemented by the appeal notifications of the USA and Canada on 10 June 2008. The Report of the Appellate Body was released on 16 October 2008. The Appellate Body reversed the findings of the panel with regard to the infringement by the USA and Canada of procedural obligations and concluded that states imposing retaliatory measures are entitled to keep them in place as long as the WTO member suffering from those 29

30

31

32

US/Canada – Continued Suspension of Obligations in the EC – Hormones Dispute – Request for Consultations by the European Communities (Hormones – Continued Suspension), WT/320/1, Doc. No. 04–4762 and WT/DS321/1, Doc. No. 04–4776, 10 November 2004. US/Canada – Hormones – Continued Suspension, WT/DS320/6, Doc. No. 05–0191 and WT/ DS321/6, Doc. No. 05–0184, 14 January 2005. US/Canada – Hormones – Continued Suspension, Note of the Secretariat, WT/DS320/7, Doc. No. 05–2290 and WT/DS 321/7, Doc. No. 05–2317, 7 June 2005. US/Canada – Hormones – Continued Suspension, WT/DS320/R and WT/DS321/R.

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measures does not show that it has complied with its obligations under WTO law. While criticising the panel for assessing the continuous inconsistency of EU legislation with the SPS Agreement, the Appellate Body held that it was not in a position to ‘complete the analysis’ and to decide on this matter in substance. It recommended that the DSB request the USA, Canada and the EU ‘to initiate Article 21.5 proceedings without delay in order to resolve their disagreement as to whether the European Communities has removed the measure found to be inconsistent in EC – Hormones and whether the application of the suspension of concessions by the United States/Canada remains legally valid’.33 The DSB adopted the reports of the panel, as modified by the Appellate Body Report, on 14 November 2008.34 On 25 September 2009, the EU and the USA notified the DSB of their ‘Memorandum of Understanding regarding the importation of beef from animals not treated with certain growth-promoting hormones and increased duties applied by the United States to certain products of the European Communities’, which had been agreed on 13 May 2009, in relation to this dispute.35 According to the Memorandum of Understanding, the USA continued to impose retaliatory measures at a reduced level only for a certain period of time and agreed not to impose so-called carousel sanctions;36 in exchange, the EU improved market access for (hormone-free) high-quality beef and both parties agreed not to request the constitution of a compliance panel for the first eighteen months.37 On 17 March 2011, Canada and the EU also agreed on a Memorandum of Understanding and notified the DSB on the same day.38 Accordingly, Canada suspended sanctions and the EU has extended its duty-free tariff-rate quota of high-quality beef; this was meant to provide the basis for assessing the possibility of settling the case permanently.39 33 34

35

36

37 38 39

US/Canada – Hormones – Continued Suspension, WT/DS320/AB/R and WT/DS321/AB/R. For a summary of the disputes, regular updates and links to all related documents, see: www.wto.org/english/tratop_e/dispu_e/cases_e/ds321_e.htm; www.wto.org/english/ tratop_e/dispu_e/cases_e/ds321_e.htm. WT/DS26/28 (http://trade.ec.europa.eu/doclib/docs/2009/november/tradoc_145411. pdf); see also www.wto.org/english/tratop_e/dispu_e/cases_e/ds26_e.htm. Regular changes of affected products might ‘increase the economic effect of retaliation’ by ‘inducing greater uncertainty about tariff levels’; see S. Charnovitz, ‘Should the Teeth Be Pulled? An Analysis of WTO Sanctions’ in D. M. Kennedy and J. D. Southwick (eds.), The Political Economy of International Trade Law: Essays in Honor of Robert Hudec (Cambridge University Press, 2002), pp. 602–35, 619ff, note 98. http://trade.ec.europa.eu/doclib/docs/2009/may/tradoc_143163.pdf. www.wto.org/english/tratop_e/dispu_e/cases_e/ds48_e.htm. http://trade.ec.europa.eu/doclib/press/index.cfm?id=685.

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On 27 May 2011, the USA announced the termination of the imposition of sanctions in the context of the Hormones dispute, while continuing the monitoring of the EU implementation of the Memorandum of Understanding and other developments.40 On 29 July 2011, Canada repealed its sanctions.41 On 14 March 2012, the European Parliament approved the regulation on the EU import quota increase from animals not treated with hormones, which allowed for an end of the trade dispute.42

1.1.2 The Bananas case At the time the WTO Agreement entered into force for the EU, Title IV of the EU Regulation on the common organisation of the market in bananas43 contained preferential provisions for bananas originating in certain African, Caribbean and Pacific (ACP) states which were co-signatories of the Fourth ACP–EEC Convention44 signed at Lome´ on 15 December 1989. Following complaints lodged with the DSB by several WTO members, including Ecuador and the USA, the constituted panel as well as the Appellate Body of the WTO found the EU legislation to be in breach of WTO law.45 Consequently, the DSB adopted the reports of the panel and the Appellate Body on 25 September 1997.46 On 16 October 1997, the EU informed the DSB, pursuant to Article 21.3 DSU, that it would fully respect its international obligations with regard to this matter, but stated that it would, in view of the complexity of the matter at issue, require a reasonable period of time in which to examine all the options to meet its international obligations.47 On 7 January 1998, following the initiated arbitration

40

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43

44 45

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Federal Register/Vol. 76, No. 103/Friday, 27 May 2011, Notices, 30987–9; see www. gpo.gov/fdsys/pkg/FR-2011-05-27/pdf/2011-13282.pdf. General overview of active WTO Dispute Settlement cases involving the EU as complainant or defendant and of active cases under the Trade Barriers Regulation, 9; see http://trade.ec.europa.eu/doclib/docs/2007/may/tradoc_134652.pdf. See G. Reilhac, ‘Vote Ends EU-U.S. Hormone-Treated Beef Row’, Reuters, 14 March 2012, www.reuters.com/article/2012/03/14/eu-trade-beef-idUSL5E8EE50620120314. Regulation (EEC) No 404/93 on the common organisation of the market in bananas, adopted by the Council on 13 February 1993, OJ 1993 L 47/1 (‘the COM for bananas’). OJ 1991 L 229/3. European Communities – Regime for the Importation, Sale and Distribution of Bananas (Bananas), Complaint by Ecuador, Guatemala and Honduras, Mexico and the United States, WT/ DS27/R/ECU, GTM, HND, MEX, USA, Panel Reports of 22 May 1997; WT/DS27/AB/R, Appellate Body Report of 9 September 1997. See EC-Bananas, WT/DS27/12; see also Minutes of the DSB Meeting WT/DSB/M/37 (circulated 4 November 1997). WT/DSB/M/38, p. 3.

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proceeding, the EU was requested to bring its pertinent legislation into conformity with the WTO Agreement before 1 January 1999.48 On 20 July 1998, the EU Council amended the regime governing the trade in bananas with third countries by adopting a new regulation.49 Therein the Council articulated the need to meet ‘the [EU’s] international commitments under the [WTO] and to the other signatories of the Fourth ACP-EU Convention . . . whilst achieving at the same time the purposes of the [COM for bananas]’ by changing Title IV of the former regulation. On 28 October 1998, the Commission adopted detailed rules for the implementation of this Council Regulation.50 Ecuador, Guatemala, Honduras, Mexico and the USA considered the new banana import regime to ‘preserve the unlawful elements of the previous regime’51 – and thus to be in breach of WTO law and the DSB’s decision of September 1997 – and requested consultations and later recourse to the original panel in order to oblige the EU to comply with the reports by 1 January 1999.52 In the course of the ongoing dispute between the involved WTO members, the USA published in the Federal Register on 10 November 1998 a provisional list of products originating in Member States of the EU with regard to which the USA was considering suspending tariffs and sought public comment.53 After a public hearing on 9 December, the USA published a revised list on 21 December54 and, on 29 December, sought public comment on the possible addition of two products to the list.55 On 14 December 1998, the EU referred to the announcement of the USA to introduce trade sanctions, ‘rejected’ the ‘unilateral determination’ of the USA ‘that the [EU] implementing measures fail to implement the DSB recommendations’ and requested the establishment of a panel according to Article 21.5 DSU ‘with the mandate to find that . . . the

48 49 50 51

52

53 55

See Award of the Arbitrator, WT/DS27/15, para. 20. Regulation (EC) No 1637/98, OJ 1998 L 210/28. Regulation (EC) No 2362/98, OJ 1998 L 293/32. As formulated by the former Court of First Instance, now the GC, in, e.g., Case T-383/00, Beamglow Ltd. [2005] ECR II-5459, para. 26. EC-Bananas, WT/DS27/18, Doc. No. 98–3333, 31 August 1998, Surveillance of Implementation of Recommendations and Rulings, Request for Consultations by Ecuador, Guatemala, Honduras, Mexico and the United States; EC-Bananas, Recourse to Article 21.5 DSU, WT/DS27/21, Doc. No. 98–3460, 9 September 1998; for an overview of the steps taken by the USA, see: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi? dbname=1999_register&docid=99-9703-filed.pdf. 63 FR 63099. 54 www.ustr.gov, Press Release 98–113. 63 FR 71665; www.ustr.gov, Press Release 99–01.

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implementing measures of the European Communities must be presumed to conform to WTO rules unless their conformity had been duly challenged under the appropriate DSU proceedings’.56 However, the panel concluded that the ‘failure, as of a given point in time, of one Member to challenge another Member’s measure cannot be interpreted to create a presumption that the first Member accepts the measures of the other Member as consistent with the WTO Agreement’.57 Following Ecuador’s request, the panel held on 12 April 1999 that the new import regime was still contrary to provisions of the WTO Agreement and listed several options of the EU for bringing its banana import regime into conformity with WTO rules.58 Already on 14 January 1999, the USA had requested ‘authorization from the DSB to suspend the application to the EU, and Member States thereof, of tariff concessions and related obligations under the GATT, covering trade in an amount of US $520 million’59 and had indicated its intention to ‘implement this suspension . . . by directing the U.S. Customs Service to impose duties in excess of bound rates on the products listed in the attachment to this request’. Following the request of the EU,60 an arbitration panel was composed (Article 22.6 DSU), which on 9 April 1999 set the level of nullification or impairment suffered by the USA at US$191.4 million per year and held that the USA was entitled under Article 22.4 DSU to suspend concessions and related obligations under the GATT 1994 up to the same amount.61

56

57

58

59

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EC-Bananas, Request for the Establishment of a Panel by the European Communities, WT/DS/27/40, Doc. No. 98–5063, 15 December 1998. EC-Bananas, Recourse to Article 21.5 by the European Communities, Report of the Panel, WT/DS/27/RW/EEC, Doc. No. 99–0151, 12 April 1999, paras. 4.13ff. EC-Bananas, Recourse to Article 21.5 by Ecuador, Report of the Panel, WT/DS/27/RW/ ECU, Doc. No. 99–1443, 12 April 1999, paras. 6.160ff. According to the Panel, the EU ‘could choose to implement a tariff-only system for bananas, without a tariff-quota’, ‘a tariff-only system for bananas, with a tariff quota for ACP bananas covered by a suitable waiver’ or ‘maintain its current bound and autonomous MFN tariff quotas, either without allocating any country-specific shares of allocating such shares by agreement with all substantial suppliers consistently with the requirements of the chapeau to Article XIII:2’. EC-Bananas, Recourse by the United States to Article 22.2 of the DSU, WT/DS/27/43, Doc. No. 99–0150, 14 January 1999. EC-Bananas, Request by the European Communities for Arbitration under Article 22.6 of the DSU, WT/DS27/46, Doc. No. 99–0395, 3 February 1999. EC-Bananas, Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, Decision by the Arbitrators, WT/DS/27/ARB, Doc. No. 99–1434, 9 April 1999, p. 43, para. 8.1.

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The DSB authorised the USA on 19 April 1999 to levy customs duties in respect of trade amounting up to US$191.4 million per year originating in the EU.62 Consequently, the United States Trade Representative (USTR) determined that ‘effective April 19, 1999, a 100 per cent ad valorem rate of duty shall be applied to [certain] articles that are of the products of certain [EU] member States’,63 following which the port directors were instructed to assess 100 per cent duties on those products, and accordingly 100 per cent duty deposits were required at the time of entry from 19 April 1999.64 The selected products were: (i) bath preparations, other than bath salts; (ii) plastic handbags; (iii) plastic pocketbooks; (iv) felt paper and paperboard; (v) folding cartons; (vi) lithographs, (vii) cotton bed-linen; (viii) lead-acid storage batteries; and (ix) coffee or tea makers (except for those from Italy).65 On 11 April 2001, the USA and the EU concluded a Memorandum of Understanding identifying ‘the means by which the long-standing dispute over the EU’s bananas import regime can be resolved’; accordingly, the EU had to undertake to ‘introduce a tariff-only regime for imports of bananas no later than 1 January 2006’.66 In return, the USA suspended provisionally the imposition of increased customs duty. However, it clarified by communication to the DSB on 26 June 2001 that the memorandum ‘[did] not in itself constitute a mutually agreed solution pursuant to Article 3.6 of the DSU [and that], in view of the steps yet to be taken by all parties, it would also be premature to take this item off the DSB agenda’.67 From 1 July 2001 onwards, the USA reduced the import duties to their initial rates. Following the ‘Banana Agreement’ between the USA and the EU, a waiver (‘Doha Waiver’) was obtained under Article IX(1) and (3) WTO Agreement.68 Although this waiver would apply until 31 December 2007, it was linked to or made conditional upon the EU implementing a tariff-only regime by 1 January 2006.69 On 23 February 2007, Ecuador requested the establishment of an Article 21.5 panel, questioning the EU banana regime’s conformity 62 64

65 66

67 68

WT/DSB/M/59. 63 64 Fed. Reg. 19209 (EC Annex X). See Panel Report WT/DS165/R, II.D.2.36 and Appendix 2.6 to that report for US Responses to Additional Questions of the Panel, dated 8 February 2000, para. 20. US Ex. 7. As referred to by the GC in, e.g., Case T-383/00, Beamglow Ltd., para. 43. See also ‘Joint United States – European Union Release’, www.ustr.gov. As referred to by the GC in, e.g., Case T-383/00, Beamglow Ltd., para. 43. See WT/MIN(01)/15. 69 WT/MIN(01)/15, Annex.

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with previous DSB reports and rulings. The panel’s report was circulated to members on 7 April 2008. After examining the substantive claims brought by Ecuador and the EU’s defences, the panel concluded that through its current regime for the importation of bananas, established in Council Regulation (EC) No 1964/2005 of 29 November 2005, including the duty-free tariff quota for bananas originating in ACP countries and the most-favoured nation (MFN) tariff currently set at E176/tonne, the EU had failed to implement the recommendations and rulings of the DSB. The panel recommended that the DSB request the EU to bring the inconsistent measures into conformity with its obligations under the GATT 1994.70 On 12 July 2007, the DSB set up a compliance panel, also at the request of the USA, from 2 July 2007.71 Although the USA voiced the opinion that the EU was still not in compliance with the DSB recommendations and rulings,72 it was also said to be ‘fully committed to a negotiated settlement to this dispute’.73 The EU considered the request an ‘unfortunate move’ by the USA and questioned the interest of the USA in this case, given that the USA was not a producer or exporter of bananas; while claiming to have already implemented the reports, the EU did not object to the establishment of the panel.74 The US request was supported by Panama, Nicaragua and Ecuador, which were also stating that they were still ready to negotiate a solution; Jamaica and Cameroon declared their continuous preference for a negotiated solution over litigation.75 Since no solution was reached, the panel circulated its report to members on 19 May 2008. The panel concluded that, through its current regime for the importation of bananas, established in Council Regulation (EC) No 1964/2005 of 29 November 2005, in particular the duty-free tariff quota for bananas originating in ACP countries, the EU had failed to implement the recommendations and rulings of the DSB that, to the extent that the current EU bananas import regime contained measures inconsistent with various provisions of the GATT 1994, it had nullified or impaired benefits accruing to the USA under that Agreement. In the light of the original DSB recommendations and

70 72

73

74

WT/DS27/RW2/ECU. 71 WT/DS27/83. According to the USA, the EU’s banana import regime was inconsistent with Articles I and XIII GATT 1994; see WT/DS27/83. See WTO news item of 12 July 2007: www.wto.org/english/news_e/news07_e/ dsb_12july07_e.htm. Ibid. 75 Ibid.

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rulings remaining operative through the results of the compliance proceedings, the panel made no new recommendations.76 On 22 May 2008, the EU and Ecuador, and on 12 June 2008, the EU and the USA submitted joint requests to the DSB to adopt the draft decision in which the DSB committed to adopt the Article 21.5 panel report no later than 29 August 2008 unless: (i) the DSB decided by consensus not to do so; or (ii) the USA or the EU notified the DSB of its decision to appeal.77 The EU notified the DSB on 28 August 2008 of its decision to appeal certain issues of law covered in the panel reports and legal interpretations developed by the panel in those cases.78 On 26 November 2008, the Appellate Body circulated its Reports to WTO members.79 Accordingly, the EU import regime for bananas, which grants preferences for bananas from the ACP countries, violated the obligations of the EU under GATT Article XIII (which requires the nondiscriminatory application of quantitative restrictions) and GATT Article II (which prohibits the application of tariffs above bound levels). The EU did not contest that its measures were also inconsistent with GATT Article I (MFN). The reports were adopted by the DSB on 11 December (Ecuador) and 22 December (USA) 2008.80 On 9 January 2009, the EU informed the DSB ‘that it intend[ed] to bring itself into compliance with its recommendations and rulings by modifying its scheduled tariff commitments on bananas through an agreement on the level of the new EC bound tariff duty with Latin American banana supplying countries pursuant to negotiations under Article XXVIII of the GATT’.81 The DSB was notified on 7 January 2010 by the EU and Ecuador that they had reached a mutually agreed solution (Article 3.6 DSU) ending their dispute; the EU had already reported in December 2009 that it had initialled with Ecuador and other members the so-called Geneva Agreement on Trade in Bananas (GATB), which had been notified to the General Council on 15 December 2009 (WT/L/784).82 Ecuador and the EU therefore agreed that the EU would not need to continue providing status reports while taking the necessary steps to implement the Agreement. According to paragraph 4(b) of the Agreement, the EU was to ‘communicate a draft Schedule on bananas

76 77 79 80

See: www.wto.org/english/tratop_e/dispu_e/cases_e/ds27_e.htm. WT/DS27/87 and WT/DS27/88. 78 WT/DS27/89 and WT/DS27/90. WT/DS27/AB/RW/USA; WT/DS27/AB/RW/ECU. See: www.wto.org/english/tratop_e/dispu_e/cases_e/ds27_e.htm.

81

Ibid.

82

Ibid.

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incorporating the text of this Agreement to the Director-General for Certification’ and, upon certification of the EU’s new banana tariff schedule, all pending disputes were considered to be settled (paragraph 5 of the Agreement).83 On 31 May 2010, the GATB was signed in Geneva, which was followed on 8 June 2010 with the signature of a related settlement agreement with the USA.84 On 3 February 2011, the European Parliament gave its consent on the conclusion of the two Agreements, the Council adopted the Decision to conclude them on 7 March 2011 and the EU notified the WTO of the termination of internal procedures for their conclusion on 17 March 2011.85

1.2 Overview of existing EU jurisprudence Having presented a summary of the international disputes on Hormones and Bananas dealt with under the WTO system – which constitute the origin of damage allegedly suffered by retaliation victims – the following sections focus on the EU internal dimension of the legal issues in question. They provide an overview of the EU courts’ case law on the impact of the EU’s obligations under the WTO Agreement on the European legal system and, more specifically, on the EU courts’ legality review of EU conduct. At the time the EU courts had to deal with the effect of WTO law and rulings on their legality review in the context of compensation actions, they had already established their approach regarding the effect of the GATT 1947 and the WTO agreements of 1994 on the European legal system in the context of preliminary rulings86 and 83

84

85

86

Ibid.; http://trade.ec.europa.eu/doclib/docs/2009/december/tradoc_145606.pdf; Council Dec. 2010/314/EU, OJ 2010 L141/1. For the full text of the GATB, see http://eur-lex. europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:141:0003:0005:EN:PDF. General overview of active WTO Dispute Settlement cases involving the EU as complainant or defendant and of active cases under the Trade Barriers Regulation, 19; see http://trade.ec.europa.eu/doclib/docs/2007/may/tradoc_134652.pdf. Ibid., 19, 42ff. For the Council Decision 2011/194/EU, see http://eur-lex.europa.eu/ LexUriServ/LexUriServ.do?uri=OJ:L:2011:088:0066:0066:EN:PDF. Article 267 TFEU (2), (1)(b) entitles/obliges a national court to refer a question on the validity of a EU act to the ECJ if it considers that a decision on the question is necessary to enable it to give judgment. See, e.g., Cases 21–4/72, International Fruit Company et al. [1972] ECR 1219 (a Dutch court asked the ECJ whether it had jurisdiction to give rulings on the compatibility of EU measures with provisions of the GATT); Case 9/73, Schlu¨ter v. Hauptzollamt Lo¨rrach [1973] ECR 1135; Case 266/81, Societa` Italiana per l’Oleodotto Transalpino v. Ministero delle finanze et al. (SIOT) [1983] ECR

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annulment actions.87 The EU courts’ findings on the effect of WTO law and rulings developed in the context of preliminary rulings and annulment actions are briefly summarised on the following pages. This is meant to provide the historical case law background and context leading to the question whether the EU courts should modify their approach in the context of compensation actions, which has so far been characterised by their general refusal to take account of the EU’s obligations under WTO law merely because of the lack of direct effect of those obligations.88 Subsequent to the summary of findings reached in actions aiming at the annulment of EU measures, the courts’ findings reached in recent years on EU liability for WTO law infringements are presented; for reasons of clarity, the courts’ reasoning behind those findings is presented in more detail in Chapter 3, where it is followed by, and directly linked to, its critical evaluation.

1.2.1 Background: case law on the effect of WTO law as a benchmark for the validity of EU measures In their case law in the course of annulment actions (Article 263 TFEU) and preliminary rulings (Article 267 TFEU), the EU courts have refused to review EU measures in the light of the GATT 1947 and the WTO agreements of 1994, unless the exceptions of the so-called

87

88

731; Cases 267–9/81, Amministrazione delle finanze dello Stato v. Societa` Petrolifera Italiana (SPI) and Michelin Italiana (SAMI) [1983] ECR 801; Case C-469/93, Amministrazione delle finanze dello Stato v. Chiquita Italia (Chiquita) [1995] ECR I-4533; Cases C-27/00 and C-122/00, Omega Air and others [2002] ECR I-2569; Case C-377/98, Netherlands v. Parliament and Council [2001] ECR I-7079; Order in Case C-307/99, OGT Fruchthandelsgesellschaft mbH v. Hauptzollamt Hamburg-St. Annen [2001] ECR I-3159; Case C-377/02, Van Parys [2005] ECR I-1465. According to Article 263(1), (2) and (4) TFEU, in actions brought by a Member State, a European institution or an individual, the ECJ or the GC shall review the legality of acts adopted by the EU institutions intended to produce legal effects vis-a`-vis third parties. If the institution’s measure is not covered by EU competence, if there is an infringement of an essential procedural requirement, an infringement of the Treaty or of any rule of law relating to its application, or a misuse of powers, the courts shall declare the act concerned to be void (Articles 263(2), 264 TFEU); see also the commentary on (now) Articles 263–6 TFEU by A. Thies in H. Smit, P. Herzog, C. Campbell and G. Zagel (eds.), Smit & Herzog on The Law of the European Union, Vol. 4 (Newark, NJ: Lexisnexis Matthew Bender, 2010); Case C-280/93, Germany v. Council (Bananas) [1994] ECR I-4973; Case C-149/96, Portugal v. Council [1999] ECR I-8395; Case C-76/00 P, Petrotub and Republica v. Council [2003] ECR I-79. For the discussion of potentially differentiating between the legality review of courts in compensation and annulment actions, see also Chapter 2, section 2.3.4.

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‘implementation principle’89 were established. More precisely, the EU courts have included provisions of the GATT 1947 and the WTO agreements in the body of law used as a benchmark when reviewing the lawfulness of EU measures only where the invoked GATT/WTO law obligation has been ‘expressly referred to’ or ‘implemented’ by EU legislation.90 The EU courts have also established the principle of consistent interpretation (also called ‘indirect effect of international law’).91 Accordingly, EU law must be interpreted in the light of the GATT and other WTO agreements, unless the wording and purpose of the contested EU law cannot be found to be compatible with the relevant international law.92 The ECJ has also referred to a WTO Appellate Body report to support its own interpretation of a provision of 89

90

91

92

For an examination of the further application of the so-called ‘implementation principle’ in the EU courts’ jurisprudence, see P. Eeckhout, ‘Judicial Enforcement of WTO Law in the European Union – Some Further Reflections’, JIEL, 5(1) (2002), 91–110, 104ff. For these exceptions with regard to the GATT 1947, see Case 70/87, Fediol v. Commission [1989] ECR 1781, paras. 19–22; and Case C-69/89, Nakajima All Precision Co. Ltd. v. Council [1991] ECR I-2069, para. 31. The ECJ confirmed the existence of these exceptions with regard to the WTO agreements in Case C-149/96, Portugal v. Council, paras. 47 and 49; Order in Case C-307/99, OGT, para. 24; Cases C-27/00 and C-122/00, Omega Air, para. 93; and Case C-76/00 P, Petrotub, para. 53. A. Peters, ‘The Position of International Law within the European Community Legal Order’, GYIL, 40 (1997), 9–77, 73. See, e.g., Case 92/71, Interfood v. Hauptzollamt HamburgEricus [1972] ECR 231, para. 6; Case C-61/94, Commission v. Germany (International Dairy Arrangement) [1996] ECR I-3989, para. 52; Case C-341/95, Gianni Bettati v. Safety Hi-Tech Srl [1998] ECR I-4355, para. 20; and Case C-286/90, Anklagemindigheden v. Poulsen and Diva Navigation [1992] ECR I-6019, para. 9. The principle of consistent interpretation was also applied where the EU was not a signatory of the relevant international agreement (or the successor of the Member States): with regard to the ILO Convention on Equal Pay, see Case 43/75, Defrenne v. Socie´te´ anonyme belge de navigation ae´rienne (Sabena) [1976] ECR 455, paras. 16–20; with regard to international treaties for the protection of human rights, see, e.g., Cases 46/87 and 227/88, Hoechst v. Commission [1989] ECR 2859, para. 13; Case C-260/89, Elliniki Radiophonia Tielorassi v. Dimotiki Etairia Pliroforis (ERT) [1991] ECR I-2925, para. 41; Opinion 2/[1996] ECR 1763, para. 33. See also Cottier and Oesch, International Trade Regulation, pp. 206–9 with reference to further reading on the principle of consistent interpretation. Case C-70/94, Werner v. Germany [1995] ECR I-3189, para. 23; Case C-83/94, Leifer and others [1995] ECR I-3231, para. 24; Case C-53/96, Herme`s International v. FHT Marketing Choice BV [1998] ECR I-3603, para. 28; Joined Cases C-300/98 and 392/98, Parfums Christian Dior SA v. Tuk Consultancy BV, Assco Geru¨ste GmbH and Rob van Dijk v. Wilhem Layher GmbH & Co. KG and Layher BV [2000] ECR I-11307, para. 47. See also Advocate General Jacobs on Case C-76/00 P, Petrotub, Opinion, paras. 50ff; T. Cottier and M. Oesch, ‘WTO Law, Precedents and Legal Change’, Turku Law Journal, 3(1) (2001), 27–41, 33, 34.

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the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs).93

1.2.1.1 The ECJ’s approach with regard to the GATT 1947 Before the WTO Agreement came into force, the ECJ held that the GATT 1947 had binding effect for the EU because of its Member States being parties to the GATT. However, after assessing the GATT’s ‘spirit . . . general scheme and . . . terms’, the Court concluded that it was primarily an instrument of trade diplomacy and not sufficiently precise to be directly effective, that its provisions had ‘great flexibility’, were ‘not capable of conferring on citizens of the [EU] rights which they can invoke before the courts’ and could ‘not affect the validity’ of EU legislation.94 Hence, the Court did not review measures adopted by EU institutions in the light of the GATT 1947 provisions.95 The ECJ held in its Nakajima96 and Fediol97 decisions that GATT provisions could be relied upon before the EU courts if the pertinent EU legislation ‘implements’ or ‘refers to’ the pertinent GATT law (in the light of which the EU legislation is sought to be reviewed).

1.2.1.2 The ECJ’s approach with regard to the 1994 WTO Agreement 1.2.1.2.1 Review in the light of primary WTO law After the Uruguay Round, the (then) European Communities became a member of the WTO,98 and the EU institutions – including the ECJ – have

93

94

95

96 98

Case C-245/02, Anheuser-Busch v. Budvar [2004] ECR I-10989, para. 49; for a comment, see F. Mariatte, ‘Droit des marques et nom commercial – Discours de la me´thode d’interpre´tation conforme du droit international, du droit communautaire et du droit national applicables a` la re´solution d’un conflit entre une marque et un nom commercial’, Europe, 26(1) (2005), 24–5. Cases 21–4/72, International Fruit Company, paras. 7, 8, 18--28; Case 9/73, Schlu¨ter, paras. 27–30; Case 266/81, SIOT, para. 28; Cases 267–9/81, SPI and SAMI, paras. 23 and 31; Case C280/93, Germany v. Council, paras. 105–12; Case C-469/93, Chiquita, paras. 24–9. For a discussion and criticism of this approach, see E.-U. Petersmann, ‘Strengthening the Domestic Legal Framework of the GATT Multilateral Trade System: Possibilities and Problems of Making GATT Rules Effective in Domestic Legal Systems’ in E.-U. Petersmann and M. Hilf (eds.), The New GATT Round of Multilateral Trade Negotiations: Legal and Economic Relations, 2nd edn (The Hague: Kluwer Law and Taxation Publishers, 1991) 33–113; M. J. Hahn and G. Schuster, ‘Zum Verstoß von gemeinschaftrechtlichem Sekunda¨rrecht gegen das GATT’, Europarecht, 3/4 (1993), 261–81. Case C-69/89, Nakajima, para. 31. 97 Case C-70/87, Fediol, paras. 19–22. Council Decision 94/800/EC of 22 December 1994, OJ 1994 L 336/1; and Article XI, para. 1 Marrakesh Agreement Establishing the WTO.

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since been directly bound by the WTO agreements.99 However, the ECJ has so far not modified the approach that it had taken in cases in which applicants had invoked provisions of the GATT 1947, not even with regard to its reasoning. In Affish, the ECJ avoided to rule on the legal effects of the SPS Agreement by stating that, although the applicant who brought the action before the national court had done so, the national court had – in the preliminary reference – not asked the Court ‘to examine the contested decision in the light of that Agreement, nor [was] it necessary for the Court to carry out such an examination of its own motion’.100 In Germany v. Council101 and T. Port III,102 the ECJ was asked to rule on the validity of the Council Decision concluding the Framework Agreement on Bananas, which was attached to the EU’s Uruguay Round schedule of obligations.103 However, the ECJ did not have to address the question of direct effect of WTO law because Ecuador – from where T. Port was importing bananas – was not a WTO member at the time relevant for the Court’s decision, and Germany had not challenged the Decision for a WTO law breach.104

99

100

101 102

103

104

According to Article 216(2) TFEU (replacing former Article 300(7) EC), ‘Agreements concluded by the Union are binding upon the institutions of the Union and on its Member States’. Case C-183/95, Affish BV v. Rijksdienst voor de keuring van Vee en Vlees [1997] ECR I-4315, paras. 16, 28; for Advocate General Cosmas’ assessment but also his denial of direct effect of the WTO Agreement, see his Opinion of 10 December 1996 in Affish, paras. 109–28; see also Advocate General Tesauro, who considered it necessary to consider – before addressing the substance of the question referred by the national court – whether the article on which it had requested an interpretation had direct effect, since it was relevant for the outcome of the original proceeding; he also considered it possible to attribute direct effect where the specific provision is able to be directly relied upon: Case C-53/96, Herme`s, Opinion of 13 November 1997, paras. 22–37. Case C-122/95, Germany v. Council [1998] ECR I- 973. Joined Cases C-364 and 365/95, T. Port GmbH & Co. v. Hauptzollamt Hamburg-Jonas (T. Port III) [1998] ECR I-1023. The Agreement was concluded with Colombia, Costa Rica, Nicaragua and Venezuela; for the Agreement Council Decision approving the results of the Uruguay Round on behalf of the EU, see Decision 94/800 [1994] OJ L 336/1. The ECJ had previously declined to deliver an Opinion under Article 228(6) EC (now Article 218(11) TFEU) with regard to the compatibility of the Framework Agreement on Bananas with (then) EC law, because the Agreement had already entered into force at that time: see Opinion 3/94 [1995] ECR I-4577. Joined Cases C-364 and 365/95, T. Port III, paras. 58ff. C-122/95, Germany v. Council; for further discussion and comment on these cases, see S. Peers, ‘Constitutional Principles and International Trade’, European Law Review, 24(2) (1999), 185–95.

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In Herme`s, the ECJ acknowledged its own jurisdiction to interpret the TRIPs Agreement (as regards matters within its competence) as well as the obligation of domestic courts to interpret national law in the light of the provisions of the TRIPs Agreement.105 Even though intervening Member States and the Commission had submitted arguments on the issue of direct effect of the TRIPs provision in question, the ECJ did not consider it necessary to give a ruling on that question, leaving it instead to the national court to interpret the relevant national law in the light of that provision.106 Already prior to the Herme`s ruling, however, the Sixth Chamber of the ECJ had in Italy v. Council reiterated the EU courts’ case law on the GATT 1947 and denied direct effect without even addressing the possible differences in nature between the GATT 1947 and the WTO agreements.107 In Portugal, the full Court of the ECJ reiterated the general denial of invokability of international trade law provisions before the EU courts: [H]aving regard to their nature and structure, 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 [EU] institutions.108

Portugal had sought the annulment of a Council Decision concerning the conclusion of Memoranda of Understanding with India and Pakistan regarding market access for textile products. The Portuguese government had claimed that the contested decision constituted a breach of certain rules and fundamental principles of the WTO, in particular those of GATT 1994, the Agreement on Textiles and Clothing and the Agreement on Import Licensing Procedures.109 Portugal referred to the ‘implementation/reference exception’ and argued that the Council Decision intended to implement, inter alia, the GATT 1994.110 Furthermore, Portugal emphasised that ‘the WTO agreements [were] significantly different from GATT 1947, in particular in so far as they radically alter[ed] the dispute settlement procedure’ and that ‘the case [did not] raise the problem of direct effect’, but concerned 105 107

108

109

Case C-53/96, Herme`s, para. 28. 106 Ibid., paras. 24ff, 35. Case C-352/96, Italy v. Council [1998] ECR I-6937, para. 19; for a discussion of those differences, see, e.g., Opinion of Advocate General Tesauro in Case C-53/96, Herme`s; for a summary and discussion of literature, see also J. O. Berkey, ‘The European Court of Justice and Direct Effect for the GATT: A Question Worth Revisiting’, European Journal of International Law, 9(4) (1998), 626–57. Case C-149/96, Portugal, para. 47; see also Order in Case C-307/99, OGT, para. 24; Case C-76/00 P, Petrotub, para. 53. See Case C-149/96, Portugal, para. 25. 110 Ibid., paras. 27ff.

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‘the circumstances in which a Member State may rely on the WTO agreements before the Court for the purpose of reviewing the legality of a Council measure’.111 According to Portugal, the Decision’s legality thus had to be reviewed in the light of GATT provisions.112 The ECJ, however, did not follow Portugal’s arguments. It concluded that ‘to require the judicial organs to refrain from applying the rules of domestic law which are inconsistent with the WTO agreements would have the consequence of depriving the legislative or executive organs of the contracting parties of the possibility afforded . . . of entering into negotiated arrangements even on a temporary basis’.113 It stressed that ‘the agreement establishing the WTO, including the annexes, is still founded, like GATT 1947, on the principle of negotiations with a view to “entering into reciprocal and mutually advantageous arrangements”’.114 In order to avoid ‘disuniform application of the WTO rules’, the principle of reciprocity would require the EU courts to refrain from reviewing the legality of EU rules in the light of WTO law, as long as the judicial organs of other (most important) commercial partners of the EU would not do so.115 ‘To accept that the role of ensuring that those rules comply with [EU] law devolves directly on the [EU] judicature would deprive the legislative or executive organs of the [EU] of the scope for manoeuvre enjoyed by their counterparts in the [EU’s] trading partners.’116 The EU courts have reiterated the conclusion reached in Portugal in subsequent preliminary rulings117 and judgments in annulment actions.118 1.2.1.2.2 Implementation principle In Portugal, the ECJ also recognised again the exceptions to the rule of non-invokability with respect to the WTO agreements and held: It is only 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, that it is for the Court to review the legality of the [EU] measure in question in the light of the WTO rules.119

111 115 117

118

Ibid., paras. 31ff. 112 Ibid., para. 33. 113 Ibid., para. 40. 114 Ibid., para. 42. Ibid., paras. 43ff. 116 Ibid., para. 46. Cases C-27/00 and C-122/00, Omega Air, paras. 89ff; Joined Cases C-300/98 and C-392/98, Dior and Assco, para. 43; Case C-377/98, Netherlands, para. 52; Order in Case C-307/99, OGT, paras. 24ff. Case C-76/00 P, Petrotub, para. 53. 119 Case C-149/96, Portugal, para. 49.

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The ECJ applied the implementation principle – for the first time since the EU became a member of the WTO – in the Petrotub and Republica case, where two Romanian producers of seamless pipes and tubes of iron or non-alloy steel brought an action seeking the partial annulment of a Council Regulation120 imposing definitive anti-dumping duties on, inter alia, their products. The two actions had been joined before the GC that dismissed them.121 The two producers brought a joint appeal in which they claimed that the GC had erred in law in its interpretation and application of the requirement to state adequate reasons for an EU measure. The ECJ set aside the judgment of the GC and annulled the contested Council Regulation insofar as it concerned Petrotub and Republica.122 According to the ECJ, the purpose of the Regulation was, inter alia, ‘to transpose into EU law as far as possible the new and detailed rules contained in the 1994 Anti-dumping Code, which include, in particular, those relating to the calculation of the dumping margin, so as to ensure a proper and transparent application of those rules’.123 Consequently, it held that ‘the [EU] adopted the basic regulation in order to satisfy its obligations arising from the 1994 Anti-dumping Code and that . . . it intended to implement the particular obligations laid down by . . . that code’ and concluded that ‘[t]o that extent . . . it is for the Court to review the legality of the [EU] measure in question in the light of the last-mentioned provision’.124 1.2.1.2.3 Review in the light of mixed agreements The Dior and Assco cases concerned the effect of mixed agreements125 on the EU courts’ legality review. In these cases, the reasoning of the ECJ to refuse a review of EU legislation in the light of WTO law was different. It concluded that ‘the provisions of the TRIPs are not such as to create

120

121 122 125

Council Regulation (EC) No 2320/97 of 17 November 1997 imposing definitive antidumping duties on imports of certain seamless pipes and tubes of iron or non-alloy steel originating in Hungary, Poland, Russia, the Czech Republic, Romania and the Slovak Republic, repealing Regulation (EEC) No 1189/93 and terminating the proceeding in respect of such imports originating in the Republic of Croatia, OJ 1997 L 322/1. Joined Cases T-33/98 and T-34/98, Petrotub and Republica v. Council [1999] ECR II-3837. Case C-76/00 P, Petrotub. 123 Ibid., para. 55. 124 Ibid., para. 56. For a discussion of shared powers and mixed agreements, see Cottier and Oesch, International Trade Regulation, pp. 218–19, 239ff, 258–9 (with reference to further literature, see pp. 259–60); for a recent account of the role and practice of mixed agreements, see C. Hillion and P. Koutrakos (eds.), Mixed Agreements Revisited – The EU and its Member States in the World (Oxford: Hart, 2010).

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rights upon which individuals may rely directly before the courts by virtue of [EU] law’.126 However, it held that where the EU has not yet legislated and where the competence in this field thus remains with the Member States, it is up to them to decide whether provisions have direct effect in the domestic legal order.127 1.2.1.2.4 Review in the light of DSB rulings In the cases introduced above, the EU courts never had to deal with situations in which the DSB had already adopted Panel and Appellate Body Reports that were related to the issues in question. This is of relevance, given that a DSB ruling and recommendation can be considered specifying the infringed WTO law provision and thus possibly increasing its direct enforceability; such reasoning has been relied upon when considering provisions of international decisions, made on the basis of international agreements, to be directly invokable where national measures were under review.128 It was for the first time in Van Parys in 2005 that the ECJ had to decide on the effect of WTO law and rulings on its own legality review after the DSB had ruled on the same legal question at the WTO level and the implementation period granted by the DSB (Article 21(3) DSU) had expired.129 The decision in Van Parys put an end to the hope expressed in the literature after the Biret decision (see section 1.2.2 below on liability cases) where it was thought that the ECJ had left the door open with regard to its legality review in the light of WTO law and rulings after the expiry of the ‘grace period’ granted by the DSB.130 Van Parys had brought two actions before a domestic court challenging the refusal of import licences based on the banana market regulation, and the ECJ was asked under a preliminary ruling procedure 126 127

128 129

130

Cases C-300/98 and C-392/98, Dior and Assco. Ibid.; Case C-431/05, Merck Gene´ricos-Produtos Farmaceˆuticos Ldª v. Merck & Co. Inc. and Merck Sharp & Dohme Ldª [2007] ECR I-7001, para. 47. Case C-192/89, Sevince [1990] ECR 3641, paras. 14ff. Case C-377/02, Van Parys; the ECJ followed the conclusion given by the (now) GC in Case T-19/01, Chiquita Brands and others [2005] ECR II-315 in the context of an action for damages four weeks before the ECJ’s decision in Van Parys (see note 165 below). S. Ho¨rmann and G. J. Go¨ttsche, ‘Die Haftung der EG fu¨r WTO-Rechtsverletzungen – Neue Tendenzen in der EuGH-Rechtsprechung?’, Recht der Internationalen Wirtschaft, 9 (2003), 689–98; A. Thies, ‘Biret and Beyond: The Status of WTO Rulings in EC Law’, CML Rev, 41(6) (2004), 1661–82; P. J. Kuijper and M. Bronckers, ‘WTO Law in the European Court of Justice’, CML Rev, 42(5) (2005), 1313–55; M. Bronckers, ‘The Relationship of the EC Courts with other International Tribunals: Non-committal, Respectful or Submissive?’, CML Rev, 44(3) (2007), 601–27, 611.

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(Article 267 TFEU) to assess the validity of the pertinent regulation. The ECJ stated that the discretion of WTO members to negotiate and reach a settlement under the WTO system, even on a temporary basis (Article 22 DSU), would be undermined if the courts were required not to apply domestic law that is inconsistent with WTO law; according to the ECJ, even after the expiry of the implementation period, the EU retained (lawful) possibilities under the DSU to find a mutually acceptable solution to the dispute at the WTO level; also, the principle of reciprocity would prevent the ECJ from granting direct effect to WTO agreements because the EU’s most important trading partners’ courts would not review domestic law in the light of the WTO agreements.131 Hence, the ECJ continued to refrain from ruling on the incompatibility of EU measures with WTO law provisions in order not to interfere with the other EU institutions’ scope for manoeuvre at the international level. Since Van Parys, differentiation has been made between rulings of the DSB ‘on the basis of WTO rules to which the ECJ has exceptionally allowed private challenges, i.e. antidumping and countervailing duty rules’ and other rulings.132 In 2006, the (then) CFI distinguished 131

132

Case C-377/02, Van Parys, paras. 51 and 53; for comments on this judgment, see G. Gattinara, ‘European Banana Importers and WTO Dispute Settlement Decisions: Is the Door Closed?’, European Law Reporter (2005), 104–7; A. Steinbach, ‘Zur Rechtswirkung von WTO-Streitbeilegungsentscheidungen in der Gemeinschaftsrechtsordnung’, Europa¨ische Zeitschrift fu¨r Wirtschaftsrecht, 16(11) (2005), 331–5; G. Zonnekeyn, ‘De afdwingbaarheid van het WTO-recht voor particulieren: rien ne va plus?’, Nederlands tijdschrift voor Europees recht (2005), 197–201; P. Hallstro¨m, ‘Ma˚ len van Parys och Chiquita, EG-Domstolen och fo¨rstainstansra¨tten valde “judicial restraint”’, Europara¨ttslig tidskrift (2005), 556–61; N. Lavranos, ‘The Chiquita and Van Parys Judgments: An Exception to the Rule of Law’, Legal Issues of European Integration, 32(4) (2005), 449–60; A. Antoniadis, ‘The Chiquita and Van Parys Judgments: Rules, Exceptions and the Law’, LIEI, 32(4) (2005), 460–76; J.-C. Zarka, ‘Absence d’effet direct des re`gles de l’OMC dans l’ordre juridique communautaire’, La Semaine juridique – entreprise et affaires, 37 (2005), 1474–6; F. Mariatte, ‘Le juge communautaire et l’effet des de´cisions de l’Organe de re`glement des diffe´rends de l’OMC. Rapide examen des arreˆts de la Cour, du 1er mars 2005, aff. C-377/02, van Parys, et du Tribunal, du 3 fe´vrier 2005, aff. T-19/01, Chiquita Brands et a. c/ Commission’, Europe, 6 (2005), 7–11; A. Masson, ‘La confirmation par l’arreˆt Parys v. Belgische Interventie-en Restitutiebureau de l’articulation paradoxale du droit de l’OMC et du droit communautaire’, Revue du Marche´ Commun (2006), 189–94; P. Egli, ‘Le´on Van Parys NV v. Belgisch Interventie- en Restitutiebureau. C-377/02’, International Decisions edited by Daniel Bodansky, American Journal of International Law, 100(2) (2006), 449–54; G. T. Chatton, ‘Arreˆt Van Parys: principe de l’absence d’effet direct du droit de l’OMC et des decisions de l’ORD au sein de l’ordre juridique de l’Union europe´enne’, 14 April 2005: www.ceje.ch/fr/actualites/archives/relations-exterieures/494-arret-van-parys. Bronckers, ‘The Relationship’, 611, referring to Case C-69/89, Nakajima.

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between the prior WTO ruling (bed-linen ruling)133 on the facts and the antidumping measure (on recordable compact discs) to be adjudicated; the Court avoided ruling on whether the WTO rulings were binding on EU courts.134 In his Opinion in Ikea, Advocate General Le´ger considered the DSB’s interpretation in its rulings (on bed-linen)135 not binding on the Court’s assessment of the contested EU measure; according to the Advocate General, ‘such an outcome would jeopardise the autonomy of the [EU] legal order in the pursuit of its own objectives’.136 Although Advocate General Le´ger acknowledged that ‘the WTO Agreement contain[ed] a set of rules which are binding on the Contracting Parties’, he considered the WTO ‘first and foremost a forum within which Members conduct negotiations concerning their multilateral trade relations’.137 He did not deem the DSB to be an international court that could potentially bind the ECJ according to Opinion 1/91,138 and considered Panel and Appellate Body Reports to be merely recommendations that needed to be adopted by the political body, the DSB.139 The ECJ reaffirmed in its Ikea judgment of September 2007 its case law on the lack of direct effect of WTO agreements and its reluctance to review EU measures in the light of WTO law, except where the EU had intended to implement a particular WTO obligation or the EU measure explicitly referred to the precise provision of the WTO agreements.140 The ECJ concluded that the EU did not intend to give effect to a specific WTO obligation when adopting EU legislation subsequent to a DSB ruling.141 The existence of the DSB rulings themselves did not make

133

134

135 136

137 139

140

European Communities – Antidumping Duties on Cotton-type Bed Linen from India (Bed Linen), Report of the Appellate Body of 1 March 2001, WT/DS141/AB/R. Case T-274/02, Ritek and Prodisc Technology v. Council [2006] ECR II-4305, para. 98; Bronckers, ‘The Relationship’, 611. European Communities – Antidumping Duties, Report of the Appellate Body. Case C-351/04, Ikea. [2007] ECR I-7723, paras. 77–9. According to Bronckers, Advocate General Le´ger thereby suggests a modification of the ECJ’s approach in Opinion 1/91 on the Draft Agreement relating to the creation of the EEA [1991] ECR I-6079, para. 39, where the ECJ held that it was, in principle, compatible with the EC Treaty for the (then) EC to consent to an international treaty establishing its own system of courts, including a court with jurisdiction to settle disputes of the contracting parties, and that this decision would be binding on the ECJ where called upon to rule on the interpretation and application of the treaty: see Bronckers, ‘The Relationship’, 612. Case C-351/04, Ikea, paras. 83ff. 138 Opinion 1/91, para. 3. Case C-351/04, Ikea, paras. 93, 94; for a critical assessment of this opinion, see Bronckers, ‘The Relationship’, 612ff. Case C-351/04, Ikea, para. 30. 141 Ibid., para. 35.

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any difference to the Court in its assessment of the implications of the EU’s obligations under the WTO agreements.

1.2.2 Liability cases Articles 268142 and 256143 TFEU confer jurisdiction on the EU courts for compensation actions against the EU under Article 340(2) TFEU. According to Article 340(2) TFEU, ‘the Union shall, in accordance with the general principles common to the laws of the Member States, make good any damage caused by its institutions or by its servants in the performance of their duties’.144 Even though the following chapters will focus on the specific group of ‘retaliation victims’, the survey on the EU courts’ case law covers all categories of traders who brought compensation actions before the EU courts to provide a comprehensive account of the courts’ reasoning.

1.2.2.1 The Bananas case: Atlanta, Cordis et al. In Atlanta, the applicants were traders whose business consisted in importing third-country bananas into the EU and who were responsible for organising transport by freezer ships; Atlanta had chartered three vessels which it then made available to an American company. As a consequence of import restrictions imposed by the EU Regulation in question, the American company terminated the contract prematurely on the ground that the vessels would no longer be needed while Atlanta needed to continue to pay the agreed charter hire to the ship-owner.145 The ECJ did not decide on the merits with regard to the legal effect of WTO law, as it dismissed the pertinent plea as inadmissible.146 In Cordis, Bocchi, T. Port and Bananatrading, companies 142

143

144 145

146

Article 268 TFEU (formerly Article 235 EC) states that: ‘The Court of Justice of the European Union shall have jurisdiction in disputes relating to compensation for damage provided for in the second and third paragraphs of Article 340.’ Article 256(1) TFEU (formerly Article 225 EC): ‘The General Court shall have jurisdiction to hear and determine at first instance actions or proceedings referred to in Articles 263, 265, 268, 270 and 272, with the exception of those assigned to a specialised court set up under Article 257 and those reserved in the Statute for the Court of Justice. The Statute may provide for the General Court to have jurisdiction for other classes of action or proceeding. Decisions given by the General Court under this paragraph may be subject to a right of appeal to the Court of Justice on points of law only, under the conditions and within the limits laid down by the Statute.’ See Chapter 2 for more details. See Case T-521/93, Atlanta and others v. European Community [1996] ECR II-1707, para. 12; Case C-104/97 P, Atlanta v. European Community [1999] ECR I-6983, para. 3. Case C-104/97 P, Atlanta v. European Community, paras. 17–23.

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sought compensation claiming that the distribution of import licences under the banana market regulation was in breach of WTO law provisions.147 The GC referred to the Portugal decision and held that it was not possible to challenge the validity of EU law in the light of WTO rules; since these rules ‘[we]re not in principle intended to confer rights on individuals’, ‘the [EU could not] incur noncontractual liability as a result of infringement of them’.148

1.2.2.2 The Hormones case: Biret In Biret, the claimant sought damages for the EU’s failure to comply with WTO law, in particular, the EU’s refusal to implement the WTO rulings in the Hormones case. Biret claimed to have suffered damages as a consequence of the EU legislation prohibiting the importation of hormone-treated meat,149 which the DSB had already held to be in breach of WTO law and, more specifically, the SPS Agreement.150 The GC rejected the claim for damages as unfounded, since no (enforceable) unlawful conduct of the EU was identified.151 Referring to previous case law, it denied the possibility for individuals to rely on provisions of the WTO agreements in order to establish unlawful conduct of the EU institutions. Thereby, the GC repeated the reasoning of the ECJ based on ‘the nature and structure of the WTO Agreements’, the reciprocal character of WTO obligations and the need to maintain the discretion enjoyed by the EU institutions, similar to that enjoyed by bodies of the EU’s trading partners.152 According to the Court, since the EU Directives were adopted before the SPS Agreement came into force, they could logically not ‘expressly refer to’ or ‘implement particular obligations of’ the Agreement. Consequently, the present case could not fall within the exception established by the case law, which would have enabled 147

148

149

150

151

Case T-18/99, Cordis Obst und Gemu¨se Großhandel v. Commission [2001] ECR II-913, paras. 30ff; Case T-30/99, Bocchi Food Trade International v. Commission [2001] ECR II-943, paras. 35ff; Case T-52/99, T. Port GmbH & Co. KG v. Commission [2001] ECR II-981, paras. 30ff; Case T-3/99, Bananatrading v. Council [2001] ECR II-2123, paras. 14, 33ff. Case T-18/99, Cordis, paras. 46, 51; Case T-30/99, Bocchi, paras. 51, 56; Case T-52/99, T. Port, paras. 46, 51; Case T-3/99, Bananatrading, para. 43. Council Directive 96/22/EC of 29 April 1996, OJ 1996 L 125/3; Council Directive 88/146/EEC of 7 March 1988, OJ 1988 L 70/16; Council Directive 81/602/EEC of 31 July 1981, OJ 1981 L 222/32. EC-Hormones, Panel Reports, WT/DS26/R and WT/DS48/R; and Appellate Body Report, WT/DS26/AB/R and WT/DS48/AB/R. Case T-174/00, Biret International SA v. Council [2002] ECR II-17. 152 Ibid., paras. 60ff.

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applicants to rely on a WTO law infringement in a proceeding before the EU courts.153 Furthermore, neither the existence of a DSB ruling identifying the unlawfulness of the EU measure nor the lack of its implementation in the present case were considered as possibly modifying the scope of the EU courts’ legality review regarding the compatibility of EU measures with the EU’s WTO law obligations; the GC held the effect of DSB rulings to be directly linked to the effect of the infringed WTO agreements, the ‘direct effect’ of which had already been denied.154 The GC did not take a potential ‘no-fault liability’155 of the EU into consideration, because the applicant made the pertinent submission only in the reply; according to the GC, the submission was changing the very basis on which the EU could be held liable and therefore constituted a new plea in law that could not be introduced in the course of the proceedings (Article 48 of the Rules of Procedure of the GC).156 On 16 March 2002, Biret brought an appeal under (then) Article 49 of the Statute of the Court of Justice against the judgment of the GC. The appellant claimed in its first plea in law that the Court had misconstrued (now) Article 216(2) TFEU, according to which ‘agreements concluded under the conditions set out in this Article shall be binding on the institutions of the [EU]’.157 By its second plea, the appellant submitted that the GC had infringed (then) Article 48 of its Rules of Procedure by deciding that the claimant’s argument concerning a system of no-fault liability for the EU was a new plea in law that could not be introduced in the course of the proceedings.158 153

154

155 157 158

Ibid., paras. 63ff; for discussion and reference to recent case law, see section 1.2.1.2.2 above. For these exceptions with regard to the GATT 1947, see Case 70/87, Fediol, paras. 19–22; and Case C-69/89, Nakajima, para. 31. The ECJ confirmed the existence of these exceptions with regard to the WTO agreements in Case C-149/96, Portugal, para. 49. For an examination of further application of the so-called ‘implementation principle’ in the EU courts’ jurisprudence, see Eeckhout, ‘Judicial Enforcement’, 104ff. In Case T-174/00, Biret, the GC stated in para. 66 that ‘[t]he decision of the DSB of 13 February 1998 referred to above cannot alter that [the applicant cannot rely on an infringement of the SPS Agreement]’ and continued in para. 67: ‘There is an inescapable and direct link between the decision and the plea alleging infringement of the SPS Agreement, and the decision could therefore only be taken into consideration if the Court had found that Agreement to have direct effect in the context of a plea alleging the invalidity of the directives in question (see, with regard to a decision of the DSB finding that certain provisions of [EU] law were incompatible with GATT 1994, Case C-104/97 P Atlanta v. European Community [1999] ECR I-6983, paragraphs 19 and 20).’ For further discussion, see Chapter 5. 156 Case T-174/00, Biret, paras. 70ff. Case C-93/02, Biret International SA v. Council [2003] ECR I-10497, para. 38. Ibid., para. 67.

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On 30 September 2003, the ECJ dismissed Biret’s appeal.159 Nevertheless, the reasoning for the Court’s reluctance was not based on the denial of direct effect of the WTO rulings as articulated by the GC.160 Instead, the ECJ seemed to address implicitly the potential for individual claimants to rely on WTO law breaches, as identified by the Panel and the Appellate Body in DSB reports, after the expiry of the implementation period granted by the DSB.161 Given that Biret had ended its business operations by 1995, the Court stated that no damage could have been suffered after the relevant WTO implementation period had expired in 1999.162 There was thus no need for the Court to develop criteria for the legality review of EU measures against the benchmark of WTO rulings after the expiry of the implementation period granted by the DSB. The Court seemed to leave open for future decision under which circumstances WTO rulings might provide grounds for the legality review of EU conduct. It was considered significant by some that the Court did not rule out such legality review in comparable cases in the future, while exercising judicial economy.163

159

160 161

162 163

Case C-93/02, Biret; the appeal (Case C-94/02) brought by the parent company E´tablissements Biret et Cie SA on 10 August 2000 is not presented separately here since the wording and reasoning is similar. E´tablissements Biret et Cie SA – that held sixtysix per cent of the capital of Biret International – had brought an action for damages which it claimed to have suffered as a result of Biret International having gone into liquidation. Since the success of the appeal in Case C-94/02 therefore depended on the decision on Case C-93/02, it seems sufficient to present the latter. For comment on and analysis of Biret, see C. Pitschas, ‘EuGH: Kein Schadensersatz wegen Importverbots fu¨r Hormonfleisch’, EuZW, 14(24) (2003), 758–63; S. Bartelt, ‘Die Haftung der Gemeinschaft bei Nichtumsetzung von Entscheidungen des WTOStreitbeilegungsgremiums – Anmerkungen zu zu den Urteilen des EuGH vom 30. September 2003, Rs. C-93/02P und C-94/02P (Biret International SA gegen Rat)’, EuR, 38(6) (2003), 1077–82; C. Kaddous, ‘The Biret Cases: An Open Door to EC Liability for the Non-implementation of a WTO Dispute Settlement Decision?’, European Law Reporter, 3(2) (2004), 54–60; N. Lavranos, ‘Die EG darf WTO-Recht weiterhin ignorieren’, EWS, 15(7) (2004), 293–7; A. Alemanno, ‘Judicial Enforcement of the WTO Hormones Ruling within the European Community: Toward EC Liability for the NonImplementation of WTO Dispute Settlement Decisions’, HILJ, 45(2) (2004), 547–61; Thies, ‘Biret and Beyond’; P. Egli, ‘Case Comment on Biret’, AJIL, 99(1) (2005), 230–5. Case T-174/00, Biret, para. 67. Case C-93/02, Biret, para. 62. For a comment on the Opinion of Advocate General Alber given beforehand, see G. Zonnekeyn, ‘EC Liability for the Non-implementation of WTO Dispute Settlement Decisions – Advocate General Alber Proposes a “Copernican Innovation” in the Case Law of the ECJ’, JIEL, 6(3) (2003), 761–9. Case C-93/02, Biret, paras. 63ff. See Advocate General Tizzano in Case C-377/02, Van Parys, paras. 74ff, 97; Thies, ‘Biret and Beyond’. For a different view, see Pitschas, ‘EuGH: Kein Schadensersatz’.

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1.2.2.3 The Bananas case revisited: Chiquita It was in the Chiquita164 case brought before the GC that an EU court was for the first time under an obligation to address explicitly the legal effects of WTO law and rulings on its own legality review after the expiry of the implementation period under Article 21(3) DSU. The applicants were traders based in Trenton (New Jersey, USA) importing bananas into the EU who sought compensation under (now) Articles 256 and 340(2) TFEU for loss allegedly suffered because of the adoption and enforcement of the banana market regulation. The GC concluded that the existence of DSB reports would not change the established rule, according to which WTO law in principle does not belong to the body of law that serves as the benchmark for the EU courts’ legality review. The Court stated that the discretion of WTO members to negotiate and reach a settlement, even on a temporary basis (Article 22 DSU), would be undermined if the EU courts were required not to apply domestic law that is inconsistent with WTO law; even after the expiry of the implementation period, the EU was entitled under the DSU to find a mutually acceptable solution to the dispute.165

1.2.2.4 Liability cases brought by ‘retaliation victims’: FIAMM et al. From 2000 onwards, several actions were brought before the GC, in which European traders sought to hold the EU liable for damages allegedly caused by the USA’s retaliatory measures in the Bananas case.166 On 14 December 2005, the GC rejected all actions as unfounded.167 164 166

167

Case T-19/01, Chiquita Brands and others. 165 Ibid., paras. 161ff. For notification of actions, see: Case T-69/00, FIAMM SpA and FIAMM Technologies Inc. v. Commission and Council, OJ 2000 C 135/30; Case T-151/00, Le Laboratoire du Bain v. Council and Commission, OJ 2000 C 247/30; Case T-301/00, Groupe Fremaux and Palais Royal Inc. v. Council and Commission, OJ 2000 C 355/32; Case T-320/00, CD Cartondruck GmbH & Co. KG v. Council and Commission, OJ 2000 C 355/39; Case T-383/00, Beamglow Ltd. v. Council et al., OJ 2001 C 61/21; Case T-135/01, Giorgio Fedon & Figli S.p.A, Fedon S.r.l. and Fedon America USA Inc. v. Commission and Council, OJ 2001 C 275/10. Case T-297/00, Claude-Anne de Sole`ne v. Council, OJ 2000 C 355/30, was removed from the register on 2 April 2003, and Case T-109/03, Arran Aromatics Ltd. and others v. Commission, OJ 2003 C 135/33, was removed from the register on 13 July 2006. For a brief overview of some of these cases, see G. Zonnekeyn, ‘EC Liability for Non-implementation of Adopted WTO Panel and Appellate Body Reports – The Example of the “Innocent Exporters” in the Banana Case’ in V. Kronenberger (ed.), The EU and the International Legal Order: Discord or Harmony? (The Hague: Asser Press, 2001), 251–272, 253ff. Case T-69/00, FIAMM and FIAMM Technologies; Case T-151/00, Le Laboratoire du Bain [2005] ECR II-23*; Case T-301/00, Fremaux [2005] ECR II-25*; Case T-320/00, CD Cartondruck AG

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The applicants of the six cases had based their claims for compensation – again brought under (now) Articles 256, 268 and 340(2) TFEU168 – on the EU’s breaches of WTO law and general principles of EU law. Furthermore, and brought forward as an alternative plea, the applicants claimed that the EU had – even in the absence of unlawful conduct – caused a disproportionate financial burden or loss. Drawing on previous case law, the GC refused to review the pertinent EU legislation in the light of the WTO rules; thus, it did not identify any unlawful act for which the EU could be held liable.169 The Court furthermore concluded that the applicants’ complaints ‘based on [a] breach of the principles of the protection of legitimate expectations and of legal certainty, on infringement of the right to property and to pursuit of an economic activity and, finally, on failure to observe the principle of proper administration all rest on the premiss that the conduct of which the defendant institutions are accused is contrary to WTO rules’.170 It came to the same conclusion with regard to the principle of proportionality171 and the principle of non-discrimination,172 thus linking the implications of the EU law principles for the legality of EU conduct to

168

169

170 172

[2005] ECR II-27*; Case T-383/00, Beamglow Ltd.; Case T-135/01, Fedon et al. [2005] ECR II29*. For comment on and analysis of these cases, see A. Thies, ‘Annotation on T-69/00 FIAMM et al.’, CML Rev, 43(4) (2006), 1145–68; M. Schmauch, ‘Non-compliance with WTO law by the European Community – Neither Unlawful Conduct nor Unusual Damage’, European Law Reporter, 5(2) (2006), 92–101; F. Mariatte, ‘Responsabilite´ pour faute et responsabilite´ sans faute’, Europe, 40 (2006), 16–19; A. Alemanno, ‘La jurisprudence de la Cour de justice et du Tribunal de premie`re instance. Chronique des arreˆts. Arreˆts “FIAMM & Co.”’, Revue du droit de l’Union europe´enne, 1 (2006), 201–7; G. Montella, ‘La responsabilita` extracontrattuale della Comunita` e la gestione politica degli effetti delle norme convenzionali’, Diritto pubblico comparato ed europeo, 2 (2006), 840–3; S. Corongiu, ‘Le Istituzioni comunitarie possono essere responsabili anche per atto lecito: una sentenza storica del Tribunale di Primo Grado’, Corriere giuridico, 23(5) (2006), 639–42; S. Haack, ‘Grundsa¨tzliche Anerkennung der außervertraglichen Haftung der EG fu¨r rechtma¨ßiges Verhalten nach Art. 288 Abs. 2 EG’, EuR, 41(5) (2006), 696–705. Articles 256 and 268 TFEU confer jurisdiction on the GC (for the wording of those provisions, see notes 142ff above), and according to Article 340(2) TFEU, ‘the Union shall, in accordance with the general principles common to the laws of the Member States, make good any damage caused by its institutions . . . in the performance of their duties’. Case T-69/00, FIAMM, paras. 108–15, 149; Case T-151/00, Le Laboratoire du Bain, paras. 100–7, 139, 142; Case T-301/00, Fremaux, paras. 100–7, 142ff; Case T-320/00, Cartondruck, paras. 105–12, 141, 145; Case T-383/00, Beamglow Ltd., paras. 125–32, 161, 167ff; Case T-135/01, Fedon et al., paras. 101–8, 141, 147. Case T-69/00, FIAMM, para. 146. 171 Case T-383/00, Beamglow Ltd., para. 162. Case T-151/00, Le Laboratoire du Bain, para. 137; Case T-301/00, Fremaux, para. 137; Case T-320/00, Cartondruck, para. 142.

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the effects of WTO law within the EU legal order. Consequently, the applicants’ complaints were rejected.173 Interestingly, the GC did not question the existence of a liability principle in EU law (on the basis of [now] Article 340(2) TFEU) in the absence of unlawfulness.174 The Court relisted the conditions for successfully claiming compensation from the EU in the absence of unlawful conduct. Accordingly, there had to be a causal link between the EU conduct and damage, which had to be of a ‘special’ and ‘unusual’ nature.175 Following its assessment, however, the GC denied the ‘unusual nature’ of the damage suffered in the case before it. It concluded that since the WTO system provided a mechanism of retaliation, ‘the risk of this vicissitude ha[d] to be borne by every operator who decides to sell his products on the market of one of the WTO Members’.176 FIAMM and FIAMM Technologies (hereinafter ‘FIAMM’) together with Fedon & Figli and Fedon America (hereinafter ‘Fedon’) – represented by the same lawyers – brought an appeal before the ECJ in February and March 2006.177 On 12 April 2007, the ECJ joined these two cases for the oral hearing and judgment.178 Advocate General Maduro suggested in his Opinion of 20 February 2008 sending the case back to the GC. The suffered damage should not be seen as ‘normal’ – i.e., manifesting ‘a normal commercial risk against which a prudent operator could and should have protected himself’ – but ‘unusual’, given that the damage had occurred with traders being active in market sectors different from those affected by the banana market regulation.179 According to the Advocate General, it would then be for the GC to assess whether the damage was also ‘special’ in nature before granting compensation.180

173 174

175

176 177

178 179

180

Case T-69/00, FIAMM, para. 147. Case T-69/00, FIAMM, paras. 157ff; see also Case 81/86, De Boer Buizen v. Council and Commission [1987] ECR 3677, para. 17. Case T-69/00, FIAMM, para. 160; see also Case C-237/98 P, Dorsch Consult v. Council and Commission [2000] ECR I-4549, para. 19. See Case T-69/00, FIAMM, paras. 205, 211. For notification of appeal, see: Case C-120/06, FIAMM and FIAMM Technologies v. Council and Commission, OJ 2006 C 108/10, appeal brought on 27 February 2006; and Case C-121/06, Fedon & Figli and Fedon America v. Council and Commission, OJ 2006 C 108/11. www.curia.europa.eu/en/content/juris/c2.htm. Cases C-120 and 121/06 P, FIAMM and Fedon [2008] ECR I-6513, Opinion of Advocate General Maduro, paras. 82, 83; see also note 78 for his reference to the additional requirement of the court considering the damage to be ‘sufficiently serious’. Ibid., para. 83.

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On 9 September 2008, the ECJ rejected the appeal.181 The Court followed the GC with respect to the requirement and lack of direct effect of the WTO law obligations and DSB reports. It also denied the existence of the principle of liability in the absence of unlawfulness under EU law. Furthermore, since the applicants had not challenged the GC’s decision in respect of its refusal to apply the invoked general principles of EU law as a benchmark for its legality review of the EU conduct in question, the ECJ was not required to address this issue.

1.3 EU conduct under review As stated in the Introduction, this book aims to bring together the law and scholarship on the effect and enforceability of international trade law in the EU legal order and the liability regime of the EU in order to assess the legal position of ‘retaliation victims’. While the former is generally looked at from an ‘EU external relations law’ perspective,182 the latter is mainly discussed as a matter of ‘EU domestic constitutional law’, without giving particular attention to the specificities of liability for conduct of the EU as a global actor.183 The purpose of the subsequent chapters is to assess the liability for EU conduct with an international trade dimension against the background of EU law that determines the reach of accountability of public authority as well as the system and scope of legal remedies for natural and legal persons within the EU legal order.184 As discussed in further detail in Chapter 3, EU liability for infringements of WTO law necessarily requires some ‘effect’ of WTO law on the legal position of the applicant where compensation is claimed on the basis of its breach. At the same time, however, it is evaluated in Chapter 4 whether and to what extent ‘pure EU law’ – in particular, fundamental 181 182

183

184

Cases C-120 and 121/06 P, FIAMM et al. For an overview of the case law on direct effect, see P. Eeckhout, EU External Relations Law, 2nd edn (Oxford University Press, 2011), pp. 331ff. For a detailed study of EU and Member State liability, see A. Biondi and M. Farley, The Right to Damages in European Law (Alphen aan den Rijn: Kluwer Law International, 2009). For a comprehensive study of accountability in the EU, see A. Benz, C. Harlow and Y. Papadopoulos (eds.), Special Issue: Accountability in EU Multilevel Governance, ELJ, 13(4) (2007), 441–571, which includes the following definition of accountability by M. Bovens, ‘Analysing and Assessing Accountability: A Conceptual Framework’, 447–468, 450: ‘Accountability is a relationship between an actor and a forum, in which the actor has an obligation to explain and to justify his or her conduct, the forum can pose questions and pass judgement, and the actor may face consequences.’

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rights and other general principles in the interests of natural and legal persons – belongs or should belong to the body of law in the light of which EU conduct is reviewed despite its international dimension, and independently of the effect of WTO law. This includes a critical evaluation of the GC’s reasoning in FIAMM, in which the Court refused any review in the light of general principles of EU law by stating that their applicability would depend on the direct effect of WTO law.185 For now, it shall only be mentioned that, even though the damage suffered by retaliation victims occurred as a direct consequence of retaliatory measures imposed by another WTO member, it is the conduct of EU institutions that triggered such action through a continuous breach of WTO law. In order to provide a basis for later assessment of the impact of ‘pure’ EU law on the review of EU conduct with an international dimension, the following table seeks to provide an overview of the different acts and omissions of the EU in the context of an international trade dispute. It is the different aspects of this conduct that are potentially to be reviewed in the light of WTO law (for more details, see Chapter 3) and/or general principles of EU law (for more details, see Chapter 4) when assessing the EU’s liability towards ‘retaliation victims’; for this purpose, different steps of international trade disputes are distinguished. In addition to different time periods of an international trade dispute in which EU conduct can be identified, it seems useful to also determine the objective of each measure in order to identify the legal context in which the measures were adopted, including the legal basis of the measures and the entities affected by them. This differentiation aims to contribute to the identification of normative parameters that reflect different layers of legal systems, including international, regional and national law, when judging on the right to compensation of natural and legal persons hit by the consequences of an international trade dispute. Where national, regional and international law as well as the conduct of public authority regulate and affect individuals, it becomes necessary to address the issue of accountability within the legal framework in which these acts are adopted. It seems important to take account of the standards of rights and remedies recognised in each of the legal regimes so as to be able to come to normative conclusions on the legal position and rights of natural and legal persons in each particular context.

185

Case T-69/00, FIAMM, para. 146.

setting the scene

39

Table 1 serves to provide an overview of the EU conduct – as an act of public authority with impact on other subjects of international law, EU Member States and natural and legal persons – involved in an international trade dispute. It contains for each act or omission of EU institutions: (a) the legal basis on which the measure was adopted or should have been adopted; (b) the body of law to comply with when adopting this measure; and (c) the persons affected and, more specifically, the potential claimant relying on this body of law when requiring judicial review or claiming compensation before the EU courts. It can be seen from this table that the EU conduct leading to international trade disputes, which might be subject to judicial review in an annulment action (Article 263 TFEU) or an action for damages (Articles 268 and 340(2) TFEU), is based on legal provisions (‘competence norms’) that stem from a different legal regime (i.e., the EU legal order) than some of the legal provisions of which an infringement is claimed (i.e., EU and WTO law). The aim pursued by the institutions when adopting the measures in question is not necessarily of an explicit international nature, even where the EU measure has an international dimension, i.e. has an impact on the EU’s international relations. This leads to specific difficulties with regard to the scope of judicial review and EU liability where not only EU law but also a further international legal order, the WTO law, is of relevance. As shown in the previous sections of this chapter, the EU courts have refrained from recognising norms of the international legal order as a benchmark for their judicial review in order not to interfere with the EU institutions’ scope for manoeuvre in the context of international trade disputes. In the context of compensation actions, the issue has become especially relevant with regard to the liability criterion of a ‘sufficiently serious breach’ which requires: (a) a breach of law (that belongs to the enforceable body of law); and (b) where discretion is granted to the institutions – because of the political and/or economic nature of the measure to be adopted – a ‘manifest and grave disregard’ of this discretion. It is questioned in Chapter 3 whether the ‘legal discretion’ granted to the EU institutions by the TFEU itself (i.e., giving more weight to one EU objective than to another in a particular decision of economic policy) should be distinguished from what might be called a ‘political discretion’ given to the EU institutions when acting at the international level (i.e., the de facto option to accept retaliatory measures rather than complying with legal obligations under WTO law). It is assessed whether the EU has ‘legal discretion’ not only to breach WTO

Table 1 EU conduct in international trade disputes and its legal contexts Potential claimant before EU courts

Act or omission

Legal basis

Body of law to comply with

Adoption of WTO agreements

Competence given by Art. 207 TFEU

EU law (Treaty provisions, including competence norms; general principles; secondary legislation (for grounds of review, see Art. 263(2) TFEU)

Adoption of EU legislation with international (trade) dimension

Competence given by Arts. 38 ff, especially 39 TFEU (Common Agricultural Policy)

• Member States (Art. 263 TFEU) • WTO primary law • Other EU institutions (Art. 263 • EU general principles, TFEU) such as right to property and • Natural and legal persons (Arts. to pursuit of an economic activity; non-discrimination, 263, 268 TFEU): ‘direct victims’ (banana/meat importers, etc.) proportionality, legitimate expectations

Non-implementation of the DSB reports and persistent upholding of EU legislation in breach of WTO law

Competence given? • Justified by Arts 38ff (CAP) or Art. 207 (external trade) TFEU? • To what extent is the scope of these provisions defined by WTO law obligations because of (a) the effect of WTO in EU law, Art. 216(2) TFEU, or (b) the limits on power transferred from the Member States to the EU?

• WTO primary law • WTO DSB reports • Dispute Settlement Understanding • EU general principles, such as proper administration, rule of law, right to property and to pursuit of an economic activity; non-discrimination, proportionality, legitimate expectations

• Member States (Art. 263 TFEU) • Other EU institutions (Art. 263 TFEU) • Natural and legal persons (Arts. 263, 268 TFEU)

• Member States (Art. 263 TFEU) • Other EU institutions (Art. 263 TFEU) • Natural and legal persons (Arts. 263, 268 TFEU): – ‘direct victims’ of EU legislation – ‘retaliation victims’

• Is there an additional legal basis if the non-implementation is for the protection of public health? Does Art. 22 DSU provide a ‘legal option’ to continue breach of WTO law? Omission to provide internal compensation mechanism for direct and retaliation victims

EU law (treaty provisions, Is there an obligation under including competence EU law to provide norms; general principles; compensation internally in secondary legislation: for order to protect the right to grounds of review, see property and/or equality and Art. 263(2) TFEU) proportionality while accepting retaliatory measures?

Natural and legal persons (Arts. 263, 268 TFEU): ‘direct victims’ of EU legislation and ‘retaliation victims’

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law but also to continue to do so after the breach has been identified by the DSB of the WTO, without any accountability towards natural and legal persons suffering damage within the EU as a consequence of the exercise of this discretion. For reasons of completeness, it is added that the possibly relevant elements for the application of a principle of liability in the absence of unlawfulness are not shown in the table above. As discussed in detail in Chapter 5, the grounds for a claim for compensation based on this principle are the special and unusual nature of the damage caused. Consequently, the applicability of this principle – if recognised – is independent both of the existence of a legal basis for EU action and the EU’s obligations under EU and international law. Moreover, the objective pursued by the EU action is irrelevant for the assessment of liability. As discussed in more detail in Chapter 6, these features arguably make the applicability of such a liability principle particularly suitable with regard to cases arising in the course of international trade disputes. It could potentially enable the EU courts to balance appropriately political, economic and individual interests within the EU legal order, as it focuses on the internal sharing of benefit and loss as well as standards of rights and remedies under EU law. While the principle’s application could have enabled applicants to hold the EU liable without necessarily affecting the institutions activities’ international dimension – which so far seems to have been the predominant aim of the ECJ when denying judicial review in the light of WTO law – in FIAMM et al., the ECJ denied the existence and applicability of such a ‘no-fault liability’ principle in the context of international trade disputes.186

1.4 Conclusions The purpose of this chapter has been to provide an overview of the different layers of legal issues that are addressed in this book. While the discussed international trade disputes are of great importance for the legal and political relationships between the EU and other WTO members, they were presented here merely to provide the international context in which retaliation is imposed by non-EU states and negatively affects natural or legal persons seeking compensation from the EU. The focus of this chapter has been to set the scene for an assessment of the 186

Cases C-120 and 121/06 P, FIAMM et al.

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43

legal implications of the international context for those persons protected in principle under the EU constitutional legal order. For this reason, after describing the problem (for traders) that has been created by the international trade disputes, the chapter discussed the judicial reluctance to grant compensation for their consequences at the EU level. The case law of the ECJ was introduced to illustrate the conclusions of the EU courts concerning the rights and judicial protection of those affected by retaliation imposed by other WTO members, which currently leaves them without any entitlement to compensation. To provide the background for a detailed analysis in the remaining part of this monograph, this chapter demonstrated that EU conduct in the context of international trade disputes has both an international dimension, which made it subject to judicial review by the DSB in the light of WTO law, and internal regulatory implications. It was suggested that distinctions should be made between different aspects of the EU conduct in question in order to identify the appropriate or correlating scope of legality review the EU courts should undertake in terms of: (a) the adoption of EU legislation; (b) the non-implementation of DSB reports and the upholding of the EU legislation in question; and (c) the omission to provide internal compensation mechanisms (despite possibly being required on the basis of general principles of EU law). In sum, it is submitted here that EU conduct in the context of international trade disputes needs in principle not only to be reviewed in the light of related WTO law infringements (see Chapter 3) but, and despite its international dimension, also in the light of ‘pure EU law’, which necessitates an analysis of the scope and implications of relevant EU law in the present context, which will be the subject of the subsequent chapters of this book. The analysis thus addresses the applicability and scope of general principles of EU law in the interest of individuals (see Chapters 4 and 5) and takes account of the EU’s overall standard of individual right protection and judicial review in the light of the EU’s increasing role as a global actor (see Chapter 6).

2

Liability for unlawful conduct: the role of the legal remedy and conditions of the right to compensation in the EU legal order

Providing the starting point for the subsequent critical evaluation of the EU courts’ case law on liability for conduct in international trade disputes in the following chapters, this chapter presents the legal basis of the entitlement for compensation under EU law. After introducing the relevant provisions of the TFEU1 and elaborating upon the general role of the remedy for compensation within the European legal order, the conditions for a successful liability claim are addressed individually.2 The introduction of the general conditions that need to be met for a liability claim to be successful under EU law is followed by an analysis of the special constellation of liability cases in which EU conduct is allegedly unlawful because of a breach of international law. This analysis entails a discussion of the EU courts’ case law on the implications of binding international law obligations and rulings for their own judicial review. It thereby provides the ground for the more specific assessment of the effect of WTO law and rulings on the courts’ legality review in compensation actions, which will be addressed in Chapter 3.3 The 1 2

3

See in particular Articles 268 and 340(2) TFEU. Procedural requirements of an action for damages are not covered in this chapter because of the lack of specific relevance in the present context. For further discussion, see the coverage on Article 268 TFEU by F. Castillo de la Torre in Smit et al. (eds.), Smit & Herzog, Vol. 4; T. Heukels and A. McDonnell, ‘Limitation of the Action for Damages Against the Community: Considerations and New Developments’ in T. Heukels and A. McDonnell (eds.), The Action for Damages in Community Law (The Hague: Kluwer Law International, 1997), pp. 225–9; see also Article 46 Statute of the ECJ; M. Broberg, ‘The Calculation of the Period of Limitation in Claims Against the European Community for Non-Contractual Liability’, EL Rev, 26(3) (2001), 275–90. While international agreements adopted by the EU become (technically) an ‘integral part of EU law’ (see discussion below in section 2.3.3), the implications of WTO law infringements on EU liability are assessed in a separate chapter, preceding the chapters on the impact of ‘pure EU law’ on the possible entitlement to compensation of

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45

present chapter concludes by suggesting a modification of the scope of the EU courts’ current legality review of EU measures in the particular context of compensation actions, which might be justified by the particular outcome of the actions and their role in the system of judicial protection in the EU legal order.

2.1 Background According to Article 340(2) TFEU (formerly Article 288(2) EC), ‘the Union shall, in accordance with the general principles common to the laws of the Member States, make good any damage caused by its institutions or by its servants in the performance of their duties’. On the basis of (now) Article 340(2) TFEU, the EU courts have developed conditions under which natural or legal persons can claim compensation from the EU.4 When developing these conditions, the EU courts have aimed to balance the interests of individuals in not being negatively affected by measures of public authority without legal remedy with the EU’s interest in the functionality of its institutions.5 The exercise of the institutions’ political and legislative functions in the general interest of the EU should not be (entirely) hindered by the prospect of actions for damages.6 Yet, EU measures often affect, directly and negatively, natural and legal persons in the same way as the measures of national authorities.7 Moreover, the principles of direct effect and supremacy have not only led to the conferral of additional rights to individuals but have also possibly

4

5

6

7

retaliation victims. This is justified by the predominant (political) role of WTO law and rulings in the context of international trade disputes as well as the large body of EU courts’ case law and academic writing dealing with the effect of WTO law (infringements) on the EU courts’ legality review. For a commentary on contractual and non-contractual liability under Article 340 TFEU, see F. Castillo de la Torre’s discussion on Article 340 TFEU in Smit et al. (eds.), Smit & Herzog, Vol. 4. See, e.g., with regard to legislative measures involving choices of economic policy, Joined Cases 83 and 94/76, 4, 15 and 40/77, Bayerische HNL Vermehrungsbetriebe GmbH & Co. KG v. Council and Commission [1978] ECR 1209, paras. 4ff; for these issues in the context of state liability, see P. Craig, ‘Francovich, Remedies and the Scope of Damage Liability’, LQR, 109 (1993), 595–621. Cases C-46/93 and 48/93, Brasserie du Peˆcheur SA v. Bundesrepublik Deutschland and The Queen v. Secretary of State for Transport, ex parte Factortame Ltd. and others [1996] ECR I-1029, para. 45 (where the Court established the principle of Member State liability referring to EU liability). Article 288 TFEU lists the legal and non-legal instruments that EU institutions can choose to exercise the EU’s competence. For a detailed discussion, see P. Craig and G. De Bu´rca, EU Law: Text, Cases, and Materials, 5th edn (Oxford University Press, 2011), Chapter 4, ‘Instruments and the Hierarchy of Norms’, pp. 103–20.

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constrained their legal positions previously held under national law, necessitating appropriate accountability mechanisms.8 The immediate impact of EU measures on the (professional) life of natural and legal persons requires a complete system of legal remedies against EU conduct that is – or is meant to be – granted by the EU treaties.9 While national courts might have a role to play in the judicial protection of individuals under EU law, it is in particular EU conduct that lacks national implementation (e.g., in areas of exclusive competence) that calls for liability at the EU level without the intermediary of the national courts.10 In order to enforce a right to compensation vis-a`-vis the EU, an action can be brought before the EU courts.11 The EU treaties thus provide a judicial remedy for the protection of persons who have suffered damage caused by conduct of the EU institutions. The possibility of bringing compensation actions complements the limited possibility of individuals to directly challenge EU measures.12 In addition to the access to judicial review of administrative – and, under more restrictive criteria, also legislative – measures (Articles 263 and 265 TFEU), natural and legal persons are entitled to hold the EU liable for its acts and omissions causing damages under Articles 268 and 340(2) TFEU.13 Such a 8

9

10

11

12

13

The principle of direct effect was established by the ECJ in Case 26/62, Van Gend en Loos [1963] ECR 1; the principle of supremacy was established in Case 6/74, Costa v. ENEL [1964] ECR 585, 593. For detailed discussion of those principles, see Craig and De Bu´rca, EU Law, 5th edn, Chapter 7, ‘The Nature and Effect of EU Law: Direct Effect and Beyond’, pp. 180–217, and Chapter 9, ‘The Relationship between EU Law and National Law: Supremacy’, pp. 256–301. See, e.g., Case 294/83, Les Verts v. European Parliament [1986] ECR 1339, para. 23; Case C-50/00 P, Unio´n de Pequen˜os Agricultores [2002] ECR I-6677, para. 40; Case C-263/02, Commision v. Je´go-Que´re´ [2004] ECR I-3425, paras. 29ff. Already the former Judge of the Court of Justice, Lord Mackenzie Stuart, concluded that ‘the framers of the Treaty . . . wished to ensure [by introducing (now) Article 340(2) TFEU] that the EU should be responsible in law for all its actings and, if necessary, that recourse might always be had to a competent court’ in ‘The “Non-Contractual” Liability of the E.E.C.’, CML Rev, 14 (1975), 493–512, 495. According to Articles 256 and 268 TFEU, the GC has jurisdiction for actions brought by natural and legal persons with regard to compensation provided for in Article 340(2) TFEU, while the ECJ has jurisdiction if an appeal is brought against the judgment of the GC. For procedural details, see Articles 56–62 Statute of the Court of Justice and Articles 110–23 Rules of Procedure of the Court of Justice of the EU. For a commentary, see Castillo de la Torre on Article 268 TFEU in Smit et al. (eds.), Smit & Herzog, Vol. 4. Although the wording of the provisions does not exclude compensation actions brought by Member States, no Member State has brought one yet; see Castillo de la Torre on Article 268 TFEU in Smit et al. (eds.), Smit & Herzog, Vol. 4, § 268.06. For a discussion of the links between effective judicial protection and liability, see D. Nassimpian, ‘. . . And We Keep on Meeting: (De)Fragmenting State Liability’, EL Rev,

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mechanism has been considered mandatory in ‘any developed legal system’.14

2.2 Independence and complementarity of legal actions in the EU legal order In its early case law, the ECJ considered the annulment of an unlawful act a prerequisite for establishing liability in an action for damages.15 Consequently, potential claimants for damages were required to first bring an annulment action within two months after the adoption of the EU measure (Article 263(6) TFEU); the five-year time limit for initiating non-contractual liability cases ‘became largely meaningless’.16 Since Lu¨tticke in 1971, however, the ECJ has held that an action for damages ‘was established by the Treaty as an independent form of action, with a particular purpose to fulfil within the system of actions, and subject to conditions for its use, conceived with a view to its specific purpose’.17

14

15

16

17

32(6) (2007), 819–38, also referring to literature on the standing of individuals under (now) Article 263(4) TFEU and the Court’s approach towards the availability of effective judicial protection under EU law in note 61 at 829. Craig and De Bu´rca, EU Law, 5th edn, Chapter 16, ‘Damages Actions and Money Claims’, pp. 557–80, 557. Confirmed by the ECJ in the context of Member States’ liability in Case C-224/01, Ko¨bler [2003] ECR I-10239, paras. 30ff. Case 25/62, Plaumann v. Commission [1963] ECR 95, 108, where the Court held that ‘an administrative measure which has not been annulled cannot of itself constitute a wrongful act on the part of the administration inflicting damage on those whom it affects’. P. Mead, ‘The Relationship between an Action for Damages and an Action for Annulment: The Return of Plaumann’ in H. Schermers, T. Heukels and P. Mead (eds.), Non-contractual Liability of the European Communities (Leiden: Martinus Nijhoff Publishers, 1988), pp. 105–19, p. 110. Article 46 Statute of the Court of Justice states: ‘Proceedings against the Union in matters arising from non-contractual liability shall be barred after a period of five years from the occurrence of the event giving rise thereto. The period of limitation shall be interrupted if proceedings are instituted before the Court of Justice or if prior to such proceedings an application is made by the aggrieved party to the relevant institution of the Union. In the latter event the proceedings must be instituted within the period of two months provided for in Article 163 of the Treaty on the Functioning of the European Union; the provisions of the second paragraph of Article 265 of the [TFEU] shall apply where appropriate.’ Case 4/69, Lu¨tticke v. Commission [1971] ECR 325, 336, para. 6; see also Cases 9 and 11/71, Compagnie d’Approvisionnement de Transport et de Cre´dit SA et Grands Moulins de Paris SA v. Commission [1972] ECR 391, para. 4; Case 43/72, Merkur v. Commission [1973] ECR 1055, para. 4; confirmed in relation to an action for a failure to act in Case 153/73, Holtz & Willemsen GmbH v. Council and Commission [1974] ECR 675, para. 3.

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According to the EU courts, it must, in principle, be possible to bring an action for damages without the pertinent act or omission having been declared void or unlawful in the context of an annulment action (Article 263 TFEU), an action for a failure to act (Article 265 TFEU) or a preliminary ruling (Article 267 TFEU).18 This seems of particular relevance where no primary legal remedy has been available for individuals to directly challenge the EU measure that allegedly caused damage, for example, due to a lack of ‘direct and individual concern’ required under Article 263(4) TFEU.19 In cases where no primary legal remedy exists against legislative acts of the EU, claims for damages are being considered as an indemnification for the non-existing remedy.20 The ECJ emphasised in Scho¨ppenstedt that an action for damages ‘differ[ed] from an application for annulment in that its end is not the abolition of a particular measure, but compensation for damage caused by an institution in the performance of its duties’.21 The EU courts have since distinguished the aim of an action for damages (i.e., obtaining compensation) from the aim of an action by which natural and legal persons directly challenge EU measures or omissions (i.e., annulment).22 The interest of a claimant 18

19

20

21

22

Case 5/71, Aktien-Zuckerfabrik Scho¨ppenstedt v. Council [1971] ECR 975; Cases 9 and 11/71, Compagnie d’Approvisionnement; reiterated in Case T-178/98, Fresh Marine Company SA v. Commission [2000] ECR II-3331, para. 49; Case T-99/98, Hameico Stuttgart GmbH v. Council and Commission [2003] ECR II-2195, paras. 37–38. An action for damages can be brought within ‘five years from the occurrence of the event giving rise thereto’; see Article 46 Statute of the Court of Justice and, with regard to the beginning of the five-year period, discussion in Case T-201/94, Kusterman v. Council and Commission [2002] ECR II-415; Case T-261/94, Schulte v. Council and Commission [2002] ECR II-441. B. Schoißwohl, ‘Haftung der Gemeinschaft fu¨r WTO-Rechtsverletzungen ihrer Organe: Doktrin der “Nichtverantwortung”’, ZEuS, 4(4) (2001), 689–730, 697. In the context of state liability, see Joined Cases C-6/90 and C-9/90, Francovich and others [1991] ECR I-5357; Case C-224/01, Ko¨bler. S. Detterbeck, ‘Haftung der Europa¨ischen Gemeinschaft und gemeinschaftlicher Staatshaftungsanspruch’, Ao¨R, 125(2) (2000), 202–56, 211ff; C. Koenig, M. Pechstein and C. Sander, EU-/EG-Prozeßrecht, 2nd edn (Tu¨bingen: Mohr Siebeck, 2002), Chapter 8, para. 681; J. Schwarze, ‘Rechtsschutz Privater im Recht der EWG’ in I. von Mu¨nch (ed.), Festschrift fu¨r Hans-Ju¨rgen Schlochauer (Berlin/New York: De Gruyter, 1981), 927–46, 940; J. Schwarze, European Administrative Law (London: Sweet & Maxwell, 1992), p. 504; A. von Bogdandy, ‘Europa 1992 – Die außervertragliche Haftung der Europa¨ischen Gemeinschaften’, JuS (1990), 872–7, 873. Case 5/71, Scho¨ppenstedt, 983, para. 3, where the ECJ used the notion of ‘autonomous form of action’. See, e.g., Case 175/84, Krohn v. Commission [1986] ECR 753, para. 32; confirmed in Case T-178/98, Fresh Marine, paras. 45–50 and Case C-234/02, Frank Lamberts v. European Ombudsman [2004] ECR II-2803, para. 59. The importance of the distinction between the request for the abolition of a measure and the request for compensation has also been stressed by Advocate General Alber in his Opinion, delivered on 15 May 2003, in

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relying on Article 340(2) TFEU, and bringing an action under Article 268 TFEU, is neither to declare the unlawful act void nor to require the EU to act in a specific way, but to be compensated for the consequences of the act or omission, even if the unlawfulness is upheld. Article 264 TFEU23 provides the basis for the EU courts to declare an unlawful EC measure void on the grounds of Article 263(2) TFEU24 as a consequence of a successful annulment action. Article 264 TFEU is also applicable in the context of a preliminary ruling to ensure consistency of treatment between Articles 263 and 267 TFEU, which are the two methods for reviewing the legality of EU measures and deciding on their validity.25 However, it is argued here that Article 264 TFEU is not applicable in the context of compensation actions. There is no provision in the EU treaties that requires the EU courts to declare an EU measure void that was brought before the courts by a person claiming compensation; the success of a compensation action will not result in the automatic extinction of the measure.26 The EU courts’ determination of a breach of law given in the context of a compensation claim will not have erga omnes effect; instead, the action for damages ‘seeks only recognition that a right to compensation exists and, therefore, satisfaction solely for the benefit of the applicant’.27

23

24

25

26

27

Cases C-93/02 P and C-94/02, Biret [2003] ECR I-10497 and 10565, paras. 93ff. The ECJ has confirmed the difference of the legal impact of an annulment and that of a compensation action where the Court held that Member States are potentially liable for damages caused by acts of the judiciary: see Case C-224/01, Ko¨bler, para. 39. Article 264 TFEU states: ‘If the action is well founded, the Court of Justice of the European Union shall declare the act concerned to be void. However, the Court shall, if it considers this necessary, state which of the effects of the act which it has declared void shall be considered as definitive.’ According to Article 263(2) TFEU, the EU courts ‘have jurisdiction . . . on grounds of lack of competence, infringement of an essential procedural requirement, infringement of the Treaties or of any rule of law relating to their application, or misuse of powers’. For a discussion of annulment, see P. Craig, EU Administrative Law, 2nd edn (Oxford University Press, 2012), pp. 673ff. See Case 112/83, Socie´te´ de Produits de Maı¨s v. Administration des Douanes [1985] ECR 719, paras. 17, 18; see also Case 4/79, Socie´te´ Coope´rative ‘Providence Agricole de la Champagne’ v. ONIC [1980] ECR 2823; Case 145/79, Roquette Fre`res SA v. France [1980] ECR 2917, para. 53; Case C-38, 151/90, R v. Lomas [1992] ECR I-178; Case C-228/92, Roquette Fre`res SA v. Hauptzollamt Geldern [1994] ECR I-1445. Joined Cases T-3/00 and T-337/04, Athansios Pitsiorlas v. Council and ECB [2007] ECR II-4779, paras. 283ff; see also Koenig, Pechstein and Sander, EU-/EG-Prozeßrecht, Chapter 8, para. 681. Case 43/72, Merkur, 1070, para. 4; Mead, ‘The Relationship between an Action for Damages’, pp. 105ff or P. Mead, ‘The Relationship between an Action for Damages and an Action for Annulment: The Return of Plaumann’ in Heukels and McDonnell (eds.), The Action for Damages in Community Law, pp. 243–58; see also – and with further

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2.3 EU liability for unlawful conduct 2.3.1 Wording of the Article and leeway for the EU courts Article 340(2) TFEU provides that ‘the Union shall, in accordance with the general principles common to the laws of the Member States, make good any damage caused by its institutions or by its servants in the performance of their duties’. Thus, the EU courts have been empowered and obliged to develop a set of rules regarding EU liability on the basis of the ‘general principles common to the laws of the Member States’.28 The courts have not looked for the lowest common denominator.29 While it has not been decisive whether or not liability existed under all Member States’ legal systems in the given circumstances,30 the objective of the courts has been to meet the specific needs of the EU when developing EU liability principles.31

2.3.2 Conditions for EU liability developed by the EU courts Over the last few decades, the EU courts have developed criteria that have to be met (under Article 340(2) TFEU) in order to hold the EU liable for an unlawful act or omission; the act or omission can be of an

28

29

30

31

reference – M. Herdegen, Die Haftung der Europa¨ischen Wirtschaftsgemeinschaft fu¨r fehlerhafte Rechtsetzungsakte (Berlin: Duncker und Humblot, 1983), p. 150. Already in 1969, Advocate General Gand addressed the ECJ in Sayag, stating that ‘[t]he principal role finally revert[ed to the Court]: it is for [the Court] to describe the limits of non-contractual liability by comparing the examples provided by the laws of the Member States with the characteristics and requirements of the Community’. See Case 9/69, Claude Sayag et S.A. Zu¨rich v. Jean-Pierre Leduc etc. [1969] ECR 329. For the so-called ‘minimum theory’, see A. Heldrich, Die allgemeinen Rechtsgrundsa¨tze der außervertraglichen Schadenshaftung im Bereich der Europa¨ischen Wirtschaftsgemeinschaft (Frankfurt am Main/Berlin: Metzner, 1961), pp. 18ff. However, Heldrich explicitly changed his view in his case comment on Joined Cases 5, 7 and 13–24/66, Kampffmeyer et al. v. Commission [1967] ECR 245, 337–51, 349, note 30. Castillo de la Torre on Article 288 TFEU in Smit et al. (eds.), Smit & Herzog, Vol. 4, § 389.03. F. Fines, ‘A General Analytical Perspective on Community Liability’ in Heukels and McDonnell (eds.), The Action for Damages in Community Law, 11–40, 11; see also, e.g., Advocate General Gand in Case 9/69, Sayag, 340; Advocate General Roemer in Case 5/71, Scho¨ppenstedt, 989; E. Grabitz, ‘Liability for Legislative Acts’ in Schermers, Heukels and Mead (eds.), Non-Contractual Liability of the European Community, p. 2; T. C. Hartley, The Foundations of European Union Law, 7th edn (Oxford University Press, 2010), p. 453; Schwarze, European Administrative Law, p. 505, note 4, where he refers to case law as well as literature discussing the Court’s ‘innovative mission in framing rules of official liability’; Schwarze, ‘Rechtsschutz Privater im Recht der EWG’, 941.

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administrative as well as a legislative nature.32 The EU courts have recognised the similarity of the need for legal protection of natural and legal persons against EU and Member State conduct, and have paralleled the criteria for Member State and EU liability in principle.33 According to the EU courts’ case law, an action for damages is successful if there is a serious breach of EU law, the infringed EU law provision confers rights on individuals, and there is damage and a causal link between the conduct of the institution and the damage.34 Before turning to the specific characteristics of situations where public international law is invoked in order to establish ‘unlawful conduct of EU institutions’, the following section addresses liability conditions when applied in the general EU law context.

2.3.2.1 Sufficiently serious breach of law The body of ‘pure’ EU law consists of the treaties, EU legislation and unwritten general principles; a breach of all of these provisions can lead to liability as long as they confer rights on individuals in the meaning of the EU courts’ case law (see section 2.3.2.2 below). Thus, liability possibly arises where EU institutions act in breach of a treaty provision not providing (sufficient) competence to act;35 liability might 32

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For a general discussion of the previous distinction between liability for legislative and administrative conduct of the EU with regard to the conditions for liability, see C. J. Hilson, ‘The Role of Discretion in EC Law on Non-contractual Liability’, CML Rev, 42(3) (2005), 677–95; P. Craig and G. De Bu´rca, EU Law: Text, Cases, and Materials, 3rd edn (Oxford University Press, 2003), pp. 547ff; A. Biondi and M. Farley, The Right to Damages in EU Law (Alphen aan den Rijn: Kluwer Law International, 2009), pp. 100–3. In Case C-46/93 and 48/93, Brasserie du Peˆcheur, para. 45, the Court established the principle of Member State liability by referring to EU liability. In Case C-352/98 P, Laboratoires Pharmaceutiques Bergaderm and Goupil v. Commission [2000] ECR I-5291, para. 41, the ECJ recognised the criteria developed in the context of Member State liability as also relevant for EU liability unless there was a particular justification for differentiating between the two; for further references, see A. von Bogdandy, ‘Legal Effects of World Trade Organization Decisions within the European Union Law: A Contribution to the Theory of the Legal Acts of International Organizations and the Action for Damages under Article 288(2) EC’, JWT, 39(1) (2005), 45–66, at note 4. See, e.g., Case C-352/98 P, Bergaderm, paras. 41–3; Case C-55/90, Cato v. Commission [1992] ECR I-2533, para. 18; Case 26/81, Oleifici Mediterranei v. EEC [1982] ECR 3057, para. 16; Case T-175/94, International Procurement Services v. Commission [1996] ECR II-729, para. 44; Case T-113/96, Dubois et Fils v. Council and Commission [1998] ECR II-125, para. 54; Case T-155/99, Dieckmann v. Commission [2001] ECR II-3143, para. 27; Joined Cases T-3/00 and T-337/04, Athansios Pitsiorlas, paras. 290ff. See, e.g., Cases 71 and 72/84, Surcouf and Vidou [1985] ECR 2925, paras. 13ff; Case C-146/91, KYDEP v. Council and Commission [1994] ECR I-4199, paras. 60ff (concerning [now] Article 39 TFEU). An applicant cannot rely on a competence norm if its primary

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also arise if there is a breach of any other treaty provision, such as nondiscrimination provisions36 or provisions protecting the individuals’ fundamental freedoms;37 in addition, an infringement of EU legislation38 and of unwritten general principles,39 such as fundamental rights,40 can trigger the right to compensation from the EU.41 A breach of EU law, however, will only be sufficient for triggering non-contractual liability of the EU where the institution in question had either considerably reduced or no discretion when adopting the contested EU measure.42 As indicated above, it is no longer considered necessary by the courts to determine first whether the measure that allegedly caused the damage is of an administrative or a legislative nature.43 What matters is whether the acting institution(s) were granted and retained discretion, and, if so, whether the institution(s) ‘manifestly and gravely’ disregarded the limits of this discretion.44 These ‘strict

36

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38 39

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aim is the institutional balance within the EU: see Case C-282/90, Vreugdenhil [1992] ECR I-1937, paras. 20ff. Case 5/71, Scho¨ppenstedt, paras. 12ff; Cases 9 and 11/71, Compagnie d’Approvisionnement, para. 26ff; Case 50/86, Grand Moulins [1987] ECR-4833, paras. 10 and 15; Case T-472/93, Campo Ebro [1995] ECR II-421, paras. 69ff (concerning [now] Article 40(2) TFEU). For Member State liability for an infringement of (now) Article 157 TFEU, see Case C-160/01, Karen Mau [2003] ECR I-4791, where the Court, however, did not consider necessary to deal with an infringement of the invoked treaty provision. Case 265/85, Van den Bergh en Jurgens v. Commission [1987] ECR 1155, paras. 39ff (concerning [now] Articles 34 and 35 TFEU). Case 74/74, Comptoir National Technique Agricole (CNTA) SA v. Commission [1975] ECR 533. Case C-308/87, Grifoni v. European Atomic Energy Community [1994] ECR I-341, para. 8; for an overview, see Case T-481/93 and Case T-484/93, Verenigung van Exporteurs v. Commission [1995] ECR II-2941, para. 102. In Cases 63–9/72, Werhahn Hansamu¨hle and others v. Council [1973] ECR 1229, paras. 29ff, the Court left open whether an infringement of the right to property could lead to liability of the EC; an infringement of the right to property justifying compensation was dismissed in Case 281/84, Zuckerfabrik Bedburg v. Council and Commission [1987] ECR 49, paras. 25ff; in Case T-193/04, Tillack v. Commission [2006] ECR II-3995, para. 121, the (then) CFI referred to the protection of family life, the freedom of the press, the principle of the presumption of innocence and the right to a fair trial as fundamental rights conferring enforceable rights. See also Chapter 4 for further details on infringements of ‘pure’ EU law leading to EU liability. Case C-5/94, Hedley Lomas [1996] ECR I-2553, para. 28; Case C-352/98 P, Bergaderm, para. 44; Case C-312/00 P, Commission v. Camar and Tico [2002] ECR I-11355, para. 54; and Joined Cases T-198/95, T-171/96, T-230/97, T-174/98 and T-225/99, Comafrica and Dole Fresh Fruit Europe v. Commission [2001] ECR II-1975, para. 134; Case T-193/04, Tillack, para. 117. For a discussion of the distinction previously made by the courts between the liability for: (a) administrative acts; (b) non-discretionary legislative acts; and (c) discretionary legislative acts, see Hilson, ‘The Role of Discretion’. Case C-352/98 P, Bergaderm, para. 43; Case C-312/00 P, Camar, para. 54; Joined Cases T-3/00 and T-337/04, Athansios Pitsiorlas, para. 291.

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conditions’ – originally developed in Scho¨ppenstedt with regard to legislative measures concerning economic policy45 – have been considered not only by the EU courts, but also in academic writing as being necessary for enabling policy makers to enjoy provided discretion without an excessive threat of liability.46 In order to assess whether institutions have ‘manifestly and gravely disregarded the limits of their discretion’, it is necessary to identify those discretionary powers of the EU institutions – whose limits are allegedly disregarded – first. The EU institutions possess discretionary powers under the European treaties allowing them to pursue EU objectives and to choose appropriate means of action for that purpose.47 The source of these powers is the Member States’ transfer of competence to the EU under the treaties48 and EU legislation that was adopted on the basis of treaty provisions.49 Moreover, the EU holds competence under the doctrine of ‘implied powers’ in order to achieve the goals of the EU, even where those powers are not comprised explicitly in the treaties.50 The EU institutions need to respect the limits of the powers conferred upon them by the Member States both when acting internally and when acting internationally.51 45 46

47 48

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Case 5/71, Scho¨ppenstedt. T. Tridimas, The General Principles of EU Law, 2nd edn (Oxford University Press, 2006), p. 480. For the different categories of EU competence, see Articles 2 and 3–6 TFEU. Article 5(1) and (2) TEU; for specific competences, see Articles 2–6 TFEU and, e.g., Articles 38ff, 114, 115, 138, 219, 149, 207, 165(4), 166(4), 167(5), 168(4), 186, 191ff, 212 and 352ff TFEU. See, e.g., Case C-472/00 P, Commission v. Fresh Marine [2003] ECR I-7541, paras. 28ff; see also the Opinion of Advocate General Stix-Hackl in this case at paras. 78ff; see also Hilson, ‘The Role of Discretion’, 686 and 689. In Case 8/55, Fe´de´ration Charbonnie`re de Belgique v. High Authority [1954–56] ECR 245, the Court held that such power existed where it was reasonably necessary for the exercise of an original power. The Court took a wider approach in Cases 281, 283–5 and 287/85, Germany v. Commission [1987] ECR 3203, where a power was acknowledged where considered necessary for carrying out a task given to the EU in the treaty. The EU also has external competences where internal competence is given in the pertinent field: see Case 22/70, Commission v. Council (ERTA) [1971] CMLR 335 and Opinion 1/76 [1977] ECR 741. K. Lenaerts, P. van Nuffel and R. Bray, Constitutional Law of the European Union, 2nd edn (London: Thomson and Sweet & Maxwell, 2005), p. 86 with reference in note 37 to case law and further academic literature, such as ECJ Opinion 2/94, Accession by the Community to the ECHR [1996] ECR I-1759, para. 24; Opinion 2/00, Cartagena Protocol [2001] ECR-9713, para. 5; R. Barents, ‘The Internal Market Unlimited: Some Observations on the Legal Basis of Community Legislation’, CML Rev, 30(1) (1993), 85–109; N. Emiliou, ‘Opening Pandora’s Box: The Legal Basis of Community Measures Before the Court of

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It is claimed here, however, that it is not only the transfer of competence that defines the EU institutions’ scope of discretion, and the possible clash of objectives to be pursued according to the same legal basis. As was stated at the end of Chapter 1, EU action needs a legal basis (‘competence norm’) in order to be lawful, but institutions are also constrained by non-competence-related legal obligations and rights under EU law (‘body of law to comply with’) in their exercise of conferred competence. The limits to discretionary powers therefore stem from other EU objectives stated elsewhere in the treaties, or norms protecting the interests of the Member States, other EU institutions or individuals. Disentangling these empowering and constraining norms might not seem essential at this point of the analysis, as it arguably does not matter which part of EU law the EU courts apply in which step of their legality assessment as long as the hierarchy of norms is respected and the different interests involved are balanced at some point. However, it is suggested that this distinction is crucial when dealing with the implications of international law in the EU legal order. The distinction between the ‘legal basis for conduct’ or competence norm and the ‘body of law to comply with’ provides grounds for the assessment of international law within the European legal order where the ‘competence norm’ relied on by the EU institutions does not necessarily stem from the same legal regime as does ‘the body of law to comply with’. In other words, as indicated in Chapter 1 and as shown in more detail below, the European treaties also confer the EU’s law-making competence and related ‘discretionary powers’ (e.g., the competence to regulate the agricultural market: Articles 38–40 TFEU) when such competence is exercised in the context of international trade disputes. However, the potential limits to the EU’s legal discretion might be found not only in other (purely internal) EU interests, national interests or legal positions of individuals under EU law, but also in interests pursued by the international community as well as EU obligations under binding international law and rulings.52

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Justice’, EL Rev, 19(5) (1994), 488–507; for a comprehensive discussion of the (now) EU’s external relations authority and restraints on its exercise, see R. Holdgaard, External Relations Law of the European Community – Legal Reasoning and Legal Discourses (Alphen aan den Rijn: Kluwer Law International, 2008), Chapters 3–5, pp. 21–90. See Chapter 1, section 1.3, further discussion below in section 2.3.3.2.1, and Chapter 3, section 3.3.

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Having identified the competence of the EU and a breach of EU law, the courts will assess the seriousness of a breach of EU law. According to Advocate General Lagrange in an early European Coal and Steel Community liability case, ‘the required degree of seriousness varie[s] according to the nature of the service, the extent of the difficulty encountered in guaranteeing it, and, on the other hand, to the extent of the protection which the interests which have suffered damage deserve. In each case a balance must be struck between the public interest and private interests’.53 Thus, the factors that he suggested should be included when assessing the seriousness of a breach of law were the powers of and difficulties encountered by the acting institution, as well as the importance of interests that are affected by those acts. Yet, the EU courts seem to have limited their assessment of the ‘seriousness’ of the breach to the situation of the acting institution, without considering the situation of individuals claiming to be affected. In Bergaderm, the ECJ held that factors such as ‘the complexity of the situations to be regulated, difficulties in the application or interpretation of the texts and, more particularly, the margin of discretion available to the author of the act in question’ were to be taken into account when assessing the seriousness of a breach.54 This approach also seems to have been confirmed in the context of Member State liability. Advocate General Jacobs suggested in Schmidberger to take, inter alia, the following factors into consideration when determining a ‘serious breach’ and, more specifically, a ‘manifest and grave disregard of discretion’: the clarity and precision of the rule breached, the measure of discretion left to the . . . authorities, whether the infringement and the damage caused was intentional or involuntary, and whether any error of law was excusable or inexcusable. A breach persisting after a Court judgment finding its existence, or one which is clear from the Court’s case-law, will always be sufficiently serious and, where there is no discretion left to the . . . authorities, a breach of [EU] law will always give rise to liability.55 53

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Cases 14, 16, 17, 20, 24, 26 and 27/60 and 1/61, Meroni v. High Authority [1961] ECR 161, 174. Case C-352/98 P, Bergaderm, para. 40 and, to similar effect, Cases C-46/93 and C-48/93, Brasserie du Peˆcheur, para. 43. Case C-112/00, Schmidberger v. Austria [2003] ECR I-5659, Opinion of Advocate General Jacobs, para. 114, referring to Cases C-46/93 and C-48/93, Brasserie du Peˆcheur, paras. 55–7; Case C-392/93, British Telecommunications [1996] ECR I-1631, para. 42; and Joined Cases C-178/94, C-179/94, C-188/94, C-189/94 and C-190/94, Dillenkofer and others [1996] ECR I-4845, para. 25.

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The ECJ has been criticised for not taking into account the nature of the interests that have been infringed by the authorities when assessing the seriousness of a breach of law.56 The test has been questioned in particular with regard to cases involving fundamental rights, since all factors are related to the public interest pursued by the authorities.57

2.3.2.2 Conferral of rights In addition to the quality of the breach, the quality of the infringed provision constitutes a condition for EU liability as well.58 According to the EU courts’ case law, the provision must confer rights on individuals for an individual to successfully claim compensation on the basis of a breach of this provision.59 What is not at stake here is the extent to which individuals’ interests have been infringed or neglected by the actual measure of public authority, but rather whether or not the infringed provision is meant to protect the rights, positions or interests of the applicant, such as fundamental rights or other general principles.60 In 1961 in Vloeberghs, the ECJ held that the applicant could not rely on a possible breach of duty in order to claim compensation for damage caused by it, since the duty laid down in the treaty was only ‘intended to safeguard the interests of the [EU]’ and not those of ‘third parties’.61 In 1967 in Kampffmeyer, however, the Court acknowledged that a provision could aim to protect not only a general but also an individual interest, holding that: the fact that these interests are of a general nature does not prevent their including the interests of individual undertakings such as the applicants . . . Although the application of the rules of law in question is not in general capable of being of direct and individual concern to the said undertakings, that does not 56

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Hilson, ‘The Role of Discretion’, 694. With regard to previous (pre-Bergaderm) case law, Tridimas concluded that the Court had referred to the effect of the measure on individuals as well as the extent to which the law has been violated: see The General Principles, p. 484. Hilson, ‘The Role of Discretion’, 694. For the distinction of ‘concept of a breach’ and ‘character of the rule infringed’, see W. van Gerven, ‘Liability of the Member States, Community Institutions and Individuals’ in W. van Gerven and M. Zuleeg (eds.), Sanktionen als Mittel zur Durchsetzung des Gemeinschaftsrechts (Cologne: Bundesanzeiger Verlagsges. mbH, 1996), pp. 29–54, 45. Case C-352/98 P, Bergaderm, paras. 62 and 41ff. See, e.g., Case T-193/04, Tillack, para. 121, where the CFI referred to the protection of family life, the freedom of the press, the principle of the presumption of innocence and the right to a fair trial as fundamental rights conferring enforceable rights. Joined Cases 9 and 12/60, Socie´te´ commerciale Antoine Vloeberghs SA v. High Authority of the European Coal and Steel Community [1961] ECR 197, 217.

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prevent the possibility that the protection of their interests may be . . . intended by those rules of law.62

The Court has considered the prohibition of discrimination (under [now] Article 40(2) TFEU) to be aiming to assist the common organisation of the agricultural markets as well as to protect the interests of individual market participants.63 However, it has held that a provision aiming at the institutional balance within the EU was not meant to protect interests of individuals, so an ultra vires act of the EU institutions would not entitle concerned individuals to obtain compensation.64 According to the Court, the principle of sound administration was not conferring rights on individuals, except where it constituted the expression of specific rights, such as the right to have affairs handled impartially, fairly and within a reasonable period of time, the right to be heard, the right to have access to files and the obligation to give reasons for decisions, for the purposes of Article 41 of the Charter of Fundamental Rights of the European Union.65

2.3.2.3 Damage and causal link The applicant must have suffered actual and certain damage to successfully claim compensation from the EU.66 The damage must be quantifiable,67 and purely hypothetical and indeterminate damage does not give rise to a right to compensation.68 The applicant has to produce 62

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Joined Cases 5, 7 and 13–24/66, Kampffmeyer, 262ff; see also Case 5/71, Scho¨ppenstedt, paras. 12ff. Cases 83 and 94/76, 4, 15 and 40/77, HNL, para. 5; Case 238/78, Ireks-Arkady v. Council and Commission [1979] ECR 2955, para. 11; Joined Cases 241, 242, 245–50/78, DGV v. Council and Commission [1979] ECR 3017, para. 11; Joined Cases 261 and 262/78, Interquell Sta¨rkeChemie GmbH & Co. KG and Diamalt AG v. Council and Commission [1979] ECR 3045, para. 14. Case C-282/90, Vreugdenhil, paras. 19ff. Case T-193/04, Tillack, para. 127; Case T-196/99, Area Cova and others v. Council and Commission [2001] ECR II-3597, para. 43. See, however, Case C-76/01 P, Eurocoton v. Council [2003] ECR I-10091, para. 98, with reference to further case law, where the obligation to give reasons for legislative measures was not considered to be conferring rights on individuals. Joined Cases T-3/00 and T-337/04, Athansios Pitsiorlas, para. 293; Joined Cases 256/80, 257/80, 265/80, 267/80 and 5/81, Birra Wu¨hrer and others v. Council and Commission [1982] ECR 85, para. 9; and Case T-99/98, Hameico Stuttgart, para. 67. For a detailed discussion of what constitutes damage, see Castillo de la Torre, ‘Article 340 TFEU’, § 340.04[4], section on ‘Loss or Damage’ (i.e., loss of profit, future loss or damage, non-material damage, quantification of damage, interest, burden of proof and procedural aspects). Joined Cases T-3/00 and T-337/04, Athansios Pitsiorlas, para. 293; Case T-108/94, Candiotte v. Council [1996] ECR II-87, para. 54. Joined Cases T-3/00 and T-337/04, Athansios Pitsiorlas, para. 293; Case T-267/94, Oleifici Italiani v. Commission [1997] ECR II-1239, para. 73.

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evidence to the court to establish the existence and the scope of the damage suffered.69 The EU can only be held responsible for damage that is a sufficiently direct consequence of the misconduct of the institutions concerned.70 According to the EU courts, the EU is not responsible for compensating any harmful consequence, such as a remote consequence, of the conduct of its organs.71

2.3.3 Compensation for breaches of international law: the current approach of the EU courts This section introduces the approach taken by the EU courts where compensation is claimed because of a breach of international law that is binding on the EU institutions. Following the structure established by the EU courts and presented in the previous section, the focus lies on the establishment of a ‘breach of international law’ in compensation actions. In addition, some parameters are developed to identify the circumstances under which a breach of international law might be considered ‘sufficiently serious’ and to assess whether or not the infringed rule of international law confers rights on individuals in the meaning of the EU liability principles.72

2.3.3.1 Breach of international law In non-contractual liability cases which merely involve EU law – i.e., the EU legal order providing the legal basis for EU action as well as its legal constraints (see Chapter 1, section 1.3 and section 2.3.2 above) – the EU courts undertake a multi-step assessment before establishing the unlawfulness of the contested EU measure: a breach of EU law must be identified, this breach must be ‘serious’ and the infringed provision must be of a nature ‘conferring rights on individuals’. The situation is

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Joined Cases T-3/00 and T-337/04, Athansios Pitsiorlas, paras. 294; Case 26/74, Roquette Fre`res v. Commission [1976] ECR 677, paras. 22–4; Case T-575/93, Koelman v. Commission [1996] ECR II-1, para. 97; Case T-184/95, Dorsch Consult v. Council and Commission [1998] ECR II-667, para. 60. Joined Cases T-3/00 and T-337/04, Athansios Pitsiorlas, para. 292; Joined Cases 64/76, 113/76, 167/78, 239/78, 27/79, 28/79 and 45/79, Dumortier Fre`res and others v. Council [1979] ECR 3091, para. 21; Case T-333/01, Meyer v. Commission [2003] ECR II-117, para. 32. Joined Cases T-3/00 and T-337/04, Athansios Pitsiorlas, para. 292; Case T-193/04, Tillack, para. 118; Joined Cases 64/76, 113/76, 167/78, 239/78, 27/79, 28/79 and 45/79, Dumortier Fre`res, para. 21. The elements of there being a damage and a causal link between the breach of law and the damage are less controversial in general, but are addressed here in the specific context of WTO law infringements: see Chapter 3.

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slightly different where norms of international law are invoked and, more specifically, where compensation is claimed because of EU conduct allegedly infringing international law. The EU’s international law obligations arise from international treaties concluded by the EU, customary international law or international general principles.73 Thus, the origin of the body of international law is not the same as that of ‘pure EU law’ that has been adopted by the EU institutions under the independent legal order of the EU.74 Where a claimant invokes an infringement of international law, complex questions arise concerning the effect of international law in the EU legal system and, more precisely, its impact on the courts’ legality review.75 The EU courts will only be able to identify a breach of international law if the invoked international law obligation forms part of the law constituting the benchmark for the lawfulness of EU conduct also in the domestic EU legal order.76 Remaining within the scheme of criteria developed and applied in the context of Article 340(2) TFEU (see section 2.3.2 above), one could thus perceive the assessment of the effect of international law obligations as an additional step in the determination of the unlawfulness of EU action. Before deciding on the actual compliance in substance (of the EU measure with international law), the EU courts assess whether or not the invoked provision belongs at all to the body of law to be applied when assessing the legality of EU measures.77 73

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For the sources of international law, see Article 38 Statute of the International Court of Justice; for further discussion, see M. Shaw, International Law, 6th edn (Cambridge University Press, 2008), pp. 69–128. International agreements are not named as one of the EU’s legal instruments in Article 288 TFEU. According to Article 216(2) TFEU, international agreements concluded by the EU are binding on its institutions. For a discussion of the effect of international law on the European legal order, see Eeckhout, EU External Relations Law, pp. 323–436. For the recognition of the Community constituting a ‘new legal order of international law’, see Case 26/62, Van Gend en Loos, 12; and for the EEC Treaty having created its ‘own legal system’, see Case 6/64, Costa v. ENEL [1964] ECR 585, 593. For a general discussion on the ECJ’s receptiveness to international judicial decisions, see M. Bronckers, ‘The Relationship of the EC Courts with other International Tribunals: Non-commital, Respectful or Submissive’, CML Rev, 44(3) (2007), 601–27. For a recent discussion of the Court’s approach to the implications of international law and related academic writing, see G. De Bu´rca, ‘The ECJ and the International Legal Order: A Re-evaluation’ in G. De Bu´rca and J. H. H. Weiler (eds.), The Worlds of European Constitutionalism (Cambridge University Press, 2012), pp. 105–49. See also Peters, ‘The Position of International Law’. The further three steps follow: assessment of a breach of law (‘unlawfulness’), the ‘seriousness’ of the breach and the pertinent international law obligation ‘conferring rights on individuals’.

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As a consequence, even where a breach of an international norm, which constitutes an integral part of EU law, exists according to international law, and even where this breach has been identified in an internationally legally binding ruling,78 the EU courts do not necessarily take this international unlawfulness into account at the European level of judicial review. Thus – definitely de facto – a breach of international law does not automatically lead to the EU courts’ identification of ‘unlawfulness’ or a ‘breach of law’ in their own judicial review. 2.3.3.1.1 EU obligations under international law The EU has legal personality79 and can thus conclude international agreements with other subjects of the international legal order in areas covered by EU competence.80 At the international level, the EU – itself being a subject of international law – is bound by these international agreements according to the principle of pacta sunt servanda and must perform its obligations in good faith.81 If it acts in breach of its international legal obligations, it can be held responsible by other subjects of international law.82 With regard to the effect of international 78

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For example, according to the competent international dispute settlement organ of the WTO, the EU’s banana market legislation and its import ban on hormone-treated beef were considered not to be in compliance with WTO law (which remained relatively undisputed within the international community). Article 47 TEU. For further discussion, see Eeckhout, EU External Relations Law, pp. 193ff. See Article 26 Vienna Convention on the Law of Treaties of 23 May 1969 (VCLT, in force since 27 January 1980), which codifies international customary law, and Article 26 Vienna Convention on the Law of Treaties between States and International Organizations or between International Organizations of 21 March 1986 (VCLTIO, not yet in force); see also Shaw, International Law, pp. 902ff. Case 104/81, Hauptzollamt Mainz v. C.A. Kupferberg & Cie KG [1982] ECR 3641, para. 18; Case C-162/96, A. Racke GmbH & Co v. Hauptzollamt Mainz [1998] ECR I-3655, paras. 49ff; Case C-327/91, French Republic v. Commission [1994] ECR I-3641, para. 25. See also Articles 2(1)(a)(i) and 74(2) VCLTIO; for the work of the International Law Commission (ILC) on the ‘Responsibility of international organizations’, see: www.un.org/law/ilc; in 2011, the ILC adopted 67 draft articles on the responsibility of international organizations, http://untreaty.un.org/ilc/texts/instruments/english/draft%20articles/ 9_11_2011.pdf, together with commentaries, http://untreaty.un.org/ilc/texts/ instruments/english/commentaries/9_11_2011.pdf; according to Article 3, ‘[e]very internationally wrongful act of an international organization entails the international responsibility of that organization’, and Article 10 defines the existence of a breach of an international obligation. The WTO DSU provides for specific rules concerning breaches of WTO law obligations (www.wto.org/english/docs_e/legal_e/28-dsu.pdf); for a study of possible fallback on general international law, see B. Simma and D. Pulkowski, ‘Of Planets and the Universe: Self-contained Regimes in International Law’, EJIL, 17(3) (2006), 483–529.

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agreements within the EU legal order, Article 216(2) TFEU declares international agreements concluded by the EU binding not only on the Member States but also on the institutions of the EU. International agreements form ‘an integral part of the [EU] legal system’ as soon as they enter into force.83 The approach taken by the ECJ arguably follows the doctrine of monism that considers international law and EU law to be a unitary legal order.84 Accordingly, there would be no need for the EU institutions to adopt an act of transposition to make international agreements part of EU law.85 In its case law, the ECJ held that the (then) EC Treaty itself constituted the basis for the conclusion of international agreements and thus it had to have primacy over those agreements.86 At the same time, however, the courts ruled that international agreements prevail

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Established case law since Case 181/73, Haegeman v. Belgian State [1974] ECR 449, paras. 4ff; Case 104/81, Kupferberg, para. 13; Case 12/86, Meryem Demirel v. Stadt Schwa¨bisch Gmu¨nd [1987] ECR 3719, para. 7; Case C-344/04, IATA and ELFAA [2006] ECR I-403, para. 36; Case C-459/03, Commission v. Ireland [2006] ECR I-4635, para. 82; Case C-431/05, Merck Gene´ricos – Produtos Farmaceˆuticos Ldª v. Merck & Co. Inc., Merck Sharp & Dohme Ldª [2007] ECR I-7001, para. 31. For a different view, see Eeckhout, EU External Relations Law, pp. 326ff, who questions whether a monist approach is covered by the will of the Treaty drafters considering that the later establishment of the principles of supremacy and direct effect of EU law are not mentioned in the Treaty, but here result in international law – being an ‘integral part of EU law’ – prevailing over national law; he also questions whether full monism would reflect the legal traditions of the Member States in this respect. See the discussion on Article 218 TFEU by G. Zagel in Smit et al. (eds.), Smit & Herzog, Vol. 4, § 218.04 [5]; for a general discussion of the relationship between international and municipal law, see I. Brownlie, Principles of Public International Law, 7th edn (Oxford University Press, 2008), pp. 31–55; R. Jenning and A. Watts (eds.), Oppenheim’s International Law, Vol. I, Peace (London: Longman, 1992), pp. 52–86; on monism and dualism, see also F. Jacobs, ‘Introduction’ in F. Jacobs and S. Roberts (eds.), The Effect of Treaties in Domestic Law (London: Sweet & Maxwell, 1987), pp. xxiv–xxvi; J. Jackson, ‘Status of Treaties in Domestic Legal Systems: A Policy Analysis’, AJIL, 86 (1992), 313–15; L. Henkin, International Law: Politics and Values (Dordrecht: Martinus Nijhoff Publishers, 1995), pp. 64ff. Zagel, discussion on Article 218 TFEU in Smit et al. (eds.), Smit & Herzog, Vol. 4, §218.04 [5]. The (then) CFI held that the UN Charter – which was adopted by the EU Member States before joining the EC/EU – prevailed over the (then) EC Treaty: see Cases T-306/01 and T-315/01, Yusuf et al. v. Council [2005] ECR II-3533, para. 231. However, the ECJ did not follow the CFI on appeal and held that the primacy of the Charter would not extend to primary EU law, to which general principles of EU law belonged: see Joined Cases C-402/05 P and C-415/05 P, Yassin Abdullah Kadi and Al Barakaat International Foundation v. Council [2008] ECR I-6351, para. 308. For further discussion, see P. Eeckhout, ‘Community Terrorism Listings, Fundamental Rights, and UN Security Council Resolutions. In Search of the Right Fit’, ECL Rev, 3(2) (2007), 183–206.

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over EU legislation and administrative measures.87 Accordingly, all EU institutions when adopting EU measures must comply with those international agreements that have been adopted in accordance with (now) Article 218 TFEU. 2.3.3.1.2 EU courts and international law The EU courts belong to the group of EU institutions (Article 13 TEU), being bound by international agreements concluded by the EU, and are, according to Article 19(1) TEU, under an obligation to ‘ensure that in the interpretation and application of the Treaties the law is observed’. One could thus argue that the GC and the ECJ are – according to Article 216(2) TFEU, together with Article 19(1) TEU – under an obligation to take international obligations, forming an integral part of EU law, into account when assessing the lawfulness of other EU institutions’ measures. The EU courts have indeed held that they will interpret EU legislation and national measures ‘consistently’ with international law.88 However, in addition to international law being binding on all EU institutions, the EU courts have required the international legal obligation or provision to be ‘enforceable’89 or ‘directly effective’90 before assessing

87

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Joined Cases 21–4/72, International Fruit Company NV and others v. Produktschap voor Groenten en Fruit [1972] ECR 1219, para. 6; Case C-61/94, Commission v. Germany, para. 52; Case C-286/02, Bellio F.lli, para. 33; Case C-344/04, IATA, para. 35; Case C-311/04, Algemene Scheeps Agentuur Dordrecht [2006] ECR I-609, para. 25; Case C-308/06, Intertanko, para. 42. Case C-286/90, Poulsen (comprising, inter alia, a ‘consistent interpretation’ of an EC regulation with the Convention on the Law of the Sea); Case C-377/98, Netherlands (concerning the Convention on Biodiversity); Case C-286/02, Bellio F.lli, para. 33 (concerning the EEA Agreement). Case T-69/00, FIAMM, para. 102; see also Opinion of Advocate General Ruiz-Jarabo Colomer of 23 January 2007 in Case C-431/05, Merck, para. 87. Joined Cases 21–4/72, International Fruit Company (concerning GATT); Case 270/80, Polydor [1982] ECR 329 and Case 104/81, Kupferberg [1982] ECR 3641 (concerning free trade agreements); Case C-149/96, Portugal [1999] ECR I-8395 and later cases (see Chapter 1 and Chapter 3) (concerning WTO/GATT); Case 87/75, Bresciani [1976] ECR 129; Case 17/81, Pabst-Richarz [1982] ECR 1331; Case 12/86, Demirel; Case C-37/98, Savas [2000] ECR I-2927; Case C-235/99, Kondova [2001] ECR I-6427; Case C-257/99, Barkoci and Malik [2001] ECR I-6557; Case C-63/99, Gloszczuk [2001] ECR I-6369; Case C-268/99, Jany and others [2001] ECR I-8615; Case C-162/00, Land Nordrhein-Westfalen v. Beata Pokrzeptowicz-Meyer [2002] ECR I-1049; Case C-438/00, Kolpak [2003] ECR I-4135; Case C-97/05, Mohamed Gattoussi v. Stadt Ru¨sselsheim [2006] ECR I-11917 (concerning association agreements); Case C-18/99, Kziber [1991] ECR I-199 (concerning a co-operation agreement); Case C-265/03, Simutenkov [2005] ECR I-2579 (concerning a partnership agreement). For the effect of invoked articles of Association Councils’ decisions on the national legal systems and judicial review see, e.g., Case C-192/89, Sevince [1990] ECR 3461, paras. 14ff; Case C-171/01, Wa¨hlergruppe [2003] ECR I-4301, paras. 53ff; Case C-502/04, Ergu¨n Torun [2006] ECR I-1563.

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the lawfulness of the EU measure in the light of it.91 If an obligation stemming from the source of international law is not directly effective, an applicant cannot rely upon it before the EU courts, and the EU measure at stake will not be considered ‘unlawful’ because of a breach of this international law provision.92 Even an unlawfulness, which is established or identified by the internationally competent authority on the basis of an international agreement, is not necessarily ‘integrated’ by the EU courts when undertaking their own legality assessment of the EU measure in question.93 Where the contracting parties had not determined the effect of an international agreement in the agreement itself, the ECJ has assumed its own competence to decide whether or not provisions of an international agreement were directly effective.94 The EU courts have developed a two-step assessment for doing so. Accordingly, a provision of an international agreement can only be relied upon if: (a) the wording, purpose, nature, structure and broad logic of the agreement does not preclude direct effect; and (b) the pertinent provision is clear, precise and unconditional.95 The courts’ denial of the direct effect of invoked international law has often not been based on the actual wording of individual provision, but rather on the nature and structure of the agreement. According to the courts, the overall agreements as well as political considerations, for example, not to interfere with the ‘scope for manoeuvre’ enjoyed by the political institutions at the international level, prevented the recognition of direct effect.96 The EU courts have so far not distinguished between an action aiming at the invalidation or withdrawal of the challenged EU measure and an action for compensation with regard to their standards and the scope of the legality review of EU conduct. International law had to be ‘enforceable’, even where the courts did not explicitly require the international

91 92

93

94 95

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Bronckers, ‘The Relationship’, 602ff. For a further discussion of international law as a standard of EU and Member States’ action and of the terminology used in this context, see Peters, ‘The Position of International Law’, 12ff. For a detailed discussion of the reception of international courts’ rulings, see Bronckers, ‘The Relationship’, 603ff. Case 104/81, Kupferberg, para. 17. Ibid., paras. 18–27; Case 12/86, Demirel, para. 14; Case C-344/04, IATA, para. 39; Case C-308/06, Intertanko, para. 45. Craig and De Bu´rca, EU Law, 5th edn, pp. 344ff; see, e.g., Case C-149/96, Portugal, paras. 46ff.

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law provision to be ‘directly effective’.97 The courts’ reasoning when refusing the review of EU measures in the light of international law provisions that had been established in the context of annulment actions has been transferred to compensation actions without further distinction, despite the different purposes of those actions in the EU legal system.

2.3.3.2 Further conditions Furthermore, and as elaborated in the context of liability for infringements of ‘pure EU law’ above, applicants have to show that the breach of international law is ‘sufficiently serious’, that the infringed rule ‘confers rights’,98 that damage occurred and that there was a causal link between the EU measure and the damage. 2.3.3.2.1 Nature of the breach: ‘sufficiently serious’ The condition of a breach of international law being ‘sufficiently serious’ has not yet been addressed by the EU courts. The reason for this is that the courts have denied the existence of a breach of law because of a lack of direct effect of the provision; there simply is no unlawful act for which the EU could be held liable.99 As a consequence, there is no need for the courts to look at the nature of the breach when ruling on the right to compensation. It is claimed here, however, that the courts have in fact nevertheless enquired into the ‘seriousness’ of breaches by looking at the scope of discretion given to the institutions by both EU law and international law when adopting measures allegedly in

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See, e.g., Case T-18/99, Cordis Obst und Gemu¨se Großhandel v. Commission [2001] ECR II-913, paras. 30ff; Case T-174/00, Biret; Case T-69/00, FIAMM, paras. 108–15, 149. See Chapter 1 for further details. The author disagrees that this criterion is impossible to tell apart from the condition of ‘direct effect’ because direct effect of international law has so far been denied mainly on the basis of: (a) the assumption that the entire agreement in question would prevent direct effect; and (b) political reasons, not because of the character of the individual provision relied on in each particular case. Thus, an indepth analysis of EU liability principles in the specific context of international law infringements requires a clear distinction between these criteria, especially since it is suggested below that the condition of direct effect should be waived in the context of compensation actions, which would leave the courts with the condition of a conferral of rights only. Case T-69/00, FIAMM, paras. 108–15, 149; Case T-151/00, Le Laboratoire du Bain, paras. 100–7, 139, 142; Case T-301/00, Fremaux, paras. 100–7, 142ff; Case T-320/00, Cartondruck, paras. 105–12, 141, 145; Case T-383/00, Beamglow Ltd., paras. 125–32, 161, 167ff; Case T-135/01, Fedon et al., paras. 101–8, 141, 147.

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breach of international law. This claim will be elaborated upon further in Chapter 3 in the context of international trade disputes. In general, if the EU courts were to acknowledge the direct effect of an international provision or, as suggested below, waived the requirement of international legal provisions being directly effective in the context of compensation actions, it would become necessary to assess whether the alleged breach of international law is ‘sufficiently serious’ before recognising a right to compensation. The criterion of the breach being ‘sufficiently serious’ is dealt with by looking at the scope of discretion retained by the institutions when committing the breach. As presented above, the courts generally assess in this context whether the pertinent EU institution(s) ‘gravely and manifestly disregarded their limits of discretion’ before concluding on the seriousness of the breach. In order to assess the level of discretion left to the EU institutions in a context that is shaped by EU law and international law, it is suggested here that not only should the EU treaties and legislation be interpreted, but also that account should be taken of the implications of international obligations for the EU and its Member States. Even where the legal bases for measures taken by the EU institutions are found in the EU treaties, legislation or in accordance with the principle of implied powers,100 the (legal) discretion enjoyed by the EU institutions when taking action with international implications could potentially be limited through manifold routes. The following paragraphs seek to contribute to the establishment of a topology under which limits to the discretion of public authority can be assessed where several layers of law are relevant. The discussion thereby takes account of the fact that any one of the relevant layers of law possibly not only provides a legal basis for the exercise of power but also constitutes legal constraints regarding the exercise of such power. The discussion is based on the assumption that the allegedly infringed law is possibly distinct from the source of ‘discretion’ on which the EU institutions rely when claiming not to have committed a ‘serious breach’ of law. a. Discretion and its limits: (insufficient) competence to breach international law Identifying limits to EU competence in the area of external relations is arguably of particular importance, since its exercise often has an immediate effect on the Member States’ own standing as subjects of the international legal order, possibly going beyond their original 100

See note 50 above.

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commitment to the EU internal market.101 In addition to the general limits to EU competence due to the retention of powers by the Member States under the EU legal order, further limits to the discretion of the EU institutions, in particular regarding their compliance with international law, might exist for the following reasons. First, the institutions’ discretion provided by ‘competence norms’ under the treaties could be limited in that the Member States never intended to authorise the EU to act in breach of international law. In other words, it could be argued that despite entitling the EU to principally adopt measures with an impact on the EU’s and the Member States’ situation as international actors, the Member States did not intend to enable the EU to act in breach of international law. As a consequence, the courts could identify an inherent limitation to the powers conferred when assessing the scope of discretion available. If such a concept were to be adopted by the courts, it would be for the applicant to show that Member States had explicitly/clearly limited the powers of the EU in order to show that there is a ‘manifest and grave disregard of the limits of the discretion’ constituting a ‘sufficiently serious breach’ of EU law. Second, the discretion of EU institutions could be limited because of a lack of Member States’ transfer of powers to the EU with regard to upholding a breach, despite the competent international dispute settlement organ having identified such incompliance with international law. In other words, it could be argued that despite: (1) entitling the EU to adopt measures with an impact on the EU and the situation of its Member States as international actors; and (2) being aware that these measures could potentially infringe international legal obligations, Member States did not intend to enable the EU to act in breach of international law even after such breach has been identified by an international dispute settlement mechanism that is binding on the EU and the Member States (‘inherent limitation to the powers conferred to assure compliance with authoritatively defined international obligations’). Furthermore, the principle of subsidiarity102 could constitute another limitation on the discretion and exercise of powers of the EU in areas of

101

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B. De Witte and A. Thies, ‘Why Choose Europe? The Place of the European Union in the Architecture of International Legal Cooperation’ in S. Blockmans, B. Van Vooren and J. Wouters (eds.), The Legal Dimension of Global Governance: What Role for the EU? (Oxford University Press, 2013), pp. 23ff. Craig and De Bu´rca, EU Law, 5th edn, pp. 94–102.

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decision-making/law-making that have an impact on its compliance with international law, where the EU and Member States share competence.103 b. Limits to discretion: through the EU membership in international legal regimes The EU conduct challenged by applicants claiming compensation possibly interferes with the international obligations of the EU and its Member States. Hence, when the EU courts assess the scope of discretion enjoyed by the EU institutions (when exercising powers with relevance for the EU’s external relations), the limits of this discretion could also be found in the international legal regime itself and in prevailing or competing other international obligations. At the same time, it is submitted here that the membership of such an international legal regime possibly enlarges the scope of discretion where the international legal regime provides a basis for governmental action that had not been foreseen by the members’ domestic legal orders.104 Arguably, in order to take the scope of discretion shaped by the EU’s membership in an international legal regime into consideration when assessing the seriousness of a breach, the courts would first need to assess the effect of the relevant international legal provision in the EU legal system. In other words, if the EU courts were – in their assessment of a breach being ‘serious’ – considering taking the scope of discretion conferred to the EU institutions under an international treaty regime into account, they would have to rule first on their own ability to do so (see the discussion on ‘direct effect’ above). If such competence were to be recognised, the courts would subsequently be required to address the interrelationship between norms in the EU legal order stemming from different legal regimes. Where the EU’s power to act is legitimised by the EU treaties, one could question to what extent the scope of discretion linked to this power or competence can be shaped by international obligations and/or legitimatisation. International agreements rank above EU legislation but below the EU treaties.105 As such, even if international provisions are considered to be directly effective, their

103 105

Article 4 TFEU; Article 5(3) TEU. 104 See also Chapter 6, section 6.3 below. For a discussion of the effect of international law on the European legal order, see Eeckhout, EU External Relations Law, pp. 323–436.

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substance might not prevail over treaty provisions that authorise and require the EU to act on behalf of all Member States and their citizens. As will be elaborated upon further in Chapter 3, by analysing their approaches regarding breaches of WTO law, the courts have so far missed the opportunity to distinguish clearly between the institutions’ legal and political discretion when looking at the relevance of international norms for EU liability. It is claimed here that only legal discretion provided under international law should enable the legislative or executive institutions to choose different means and priorities without leaving the limits of legality or, at least, without ‘manifestly and gravely disregarding the limits of discretion’ that could trigger EU liability. Political discretion might exist where institutions are in a position to accept certain consequences of unlawful conduct, such as countermeasures imposed by other members of the international community. However, the institutions exercising such political discretion might nevertheless disregard the limits of legal discretion and thus commit a breach of law that has implications for EU liability vis-a`-vis individuals. c. Summary It has been argued that the discretion conferred to the EU (institutions) under the EU treaties and legislation could be defined and limited not only by the retained competences of the Member States and the principle of subsidiarity, but also by the EU’s own membership of international legal regimes. As a consequence of the EU being a supranational organisation and an actor of the international legal order, the ECJ could be entitled and obliged to take into account limitations of discretion ‘from below’ (because of its Member States’ rights or competences) as well as ‘from above’ (because of the international legal order that the EU decided to join and be bound by) when identifying a ‘manifest and grave disregard of discretion’. It will have to be decided on a case-by-case basis to what extent those limits of discretion have been disregarded by the EU institutions. According to the EU courts, the criterion relevant for the establishment of a ‘serious breach’ has to be looked at separately from the requirement of a ‘conferral of rights’ on the applicant by the infringed legal provision; the latter will be addressed in the following section. 2.3.3.2.2 Nature of the infringed rule: ‘conferring rights’ In Cordis, Bocchi, T. Port and Bananatrading, the (now) GC decided that the international legal provision – that the applicants relied on – did not

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confer rights on individuals and rejected an action for compensation as unfounded.106 However, it seems that the Court intended not to take any international legal provision into account in its review at all: it referred to the Portugal decision and held from the outset that it was not possible to challenge the validity of EU legislation in the light of the pertinent international provisions.107 It thereby denied the conferral of rights on the basis on which the ECJ had decided not to invalidate EU legislation, namely not to interfere with the other institutions’ scope for manoeuvre at the international level. Such a conclusion is not related to the nature of the legal provision in question – as it should be according to EU liability law established in the domestic context. It therefore seems worthwhile to re-assess the capacity of international law provisions to confer rights, which might entitle individuals to claim compensation from the EU. One could argue that ‘direct effect’ and the ‘conferral of rights’ are similar and that a distinction between these conditions is unnecessary.108 However, it is claimed here that the criterion of a ‘conferral of rights’ is different from the condition of ‘direct effect’. The question whether or not an international regime confers rights to individuals cannot depend on the EU courts’ recognition of direct effect of the regime’s provisions within the EU legal order. Direct effect of international law has so far been denied mainly on the basis of: (a) the assumption that the entire agreement in question would prevent direct effect; and (b) political reasons, and not because of the character of the individual provision relied on in each particular case. However, the EU courts are in a position 106

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Case T-18/99, Cordis, paras. 30ff; Case T-30/99, Bocchi Food Trade International v. Commission [2001] ECR II-943, paras. 35ff; Case T-52/99, T. Port GmbH & Co. KG v. Commission [2001] ECR II-981, paras. 30ff; Case T-3/99, Bananatrading v. Council [2001] ECR II-2123, paras. 14, 33ff. Case T-18/99, Cordis, paras. 46, 51; Case T-30/99, Bocchi, paras. 51, 56; Case T-52/99, T. Port, paras. 46, 51; Case T-3/99, Bananatrading, para. 43. Eeckhout observes that direct effect of EU law was a ‘tool for [its] effective enforcement’, which was enhanced by enabling individuals to invoke EU law before the courts, whereas international agreement necessitated an assessment as to whether they confer rights or freedoms: see Eeckhout, EU External Relations Law, pp. 381ff. According to A. Wu¨nschmann, the condition of ‘conferral of rights’ (Schutznormerfordernis) is replaced by the one of ‘direct effect’ where international law is invoked: Geltung und gerichtliche Geltendmachung vo¨lkerrechtlicher Vertra¨ge im Europa¨ischen Gemeinschaftsrecht (Berlin: Duncker und Humblot, 2003), pp. 228ff. The ECJ has recently denied in principle that UNCLOS provisions granted individual rights and concluded from that that the nature and the broad logic of UNCLOS prevents the Court from being able to assess the validity of a EU measure in the light of that Convention: see Case C-308/06, Intertanko, paras. 59ff, 65.

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to identify a conferral of rights on the basis of the international provision in question without necessarily recognising its direct effect. As stated above, the ECJ held in Kampffmeyer that a provision could include the interests of individuals even if it was aiming at the protection of a general interest; according to the Court, the provision could intend the protection of individuals’ interests even where it is not in general capable of being of direct and individual concern to the applicant.109 The Court thus acknowledged that even where the provision was not directly effective – in the way that EU legislation could be annulled because of its lack of compliance with it – its breach could be the basis for a right to compensation. Public international law has traditionally not been addressed to individuals, but has defined the legal relations between states and other subjects of the international legal order. Even where individuals have been beneficiaries of international agreements, the states and not the concerned individuals themselves have traditionally been the holders of rights under international law.110 However, over the last few decades, individuals have increasingly been recognised as holding rights themselves under international law, such as the law on consular and diplomatic protection (e.g., the right to seek assistance by the national’s representation abroad),111 foreign investment law (e.g., the rules on expropriation and rights to compensation from the receiving state)112 and the law of the sea.113 In some areas, such as human rights, investment law based on investment treaties and regional integration, individuals were even granted judicial remedies that they can invoke independently of their nation-state’s goodwill and support by opening a proceeding against state or regional authority.114 In addition, where 109

110

111 112 113

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Joined Cases 5, 7 and 13–24/66, Kampffmeyer, 262ff; see also Case 5/71, Scho¨ppenstedt, paras. 12ff. Mavrommatis Palestine Concessions case, PCJ, 1924. See also A. Arnull, ‘Liability for Legislative Acts under Article 215(2) EC’ in Heukels and McDonnell (eds.), The Action for Damages in Community Law, pp. 129–51, 137. LaGrand (Germany v. United States), Judgment, ICJ Reports 2001, p. 466, para. 77. Shaw, International Law, pp. 834ff. If sponsored by a state party, prospective parties to a contract governing activities in the seabed area can submit a dispute to the Seabed Disputes Chamber of the Tribunal (SBDC) under section 5 of part XI of UNCLOS, Articles 187(1)(c) and (d), 188(2) and 153(2)(b). See, e.g., individual applications under Article 34 European Convention on Human Rights (ECHR); Article 44 American Human Rights Convention (ACHR); Article 25(1) Convention for the Settlement of Investment Disputes between States and Nationals of Other States (ICSID); direct legal actions against the EU under Articles 263, 265 and 268 TFEU.

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individuals have remained without inherent judicial remedies and continue to rely on their (home) state to enforce their rights at the international level, the role and protection of individuals under international law have been strengthened.115 In the context of the EU courts’ assessment of the conditions of EU liability, the ‘conferral of rights’ has traditionally been interpreted broadly: the intention of a binding legal provision to protect the interests of individuals has been decisive.116 It can therefore not be excluded in principle that an international obligation ‘confers rights on individuals’ in the meaning of the quality of an infringed provision relied on under Article 340(2) TFEU.117 The courts need to assess the concrete nature of the allegedly infringed international legal provision in order to come to a sound conclusion regarding its ‘conferral of rights’. 2.3.3.2.3 Damage and causal link According to the EU courts, damage can occur as a consequence of a breach of international law.118 Further, and despite measures of other subjects of the international legal order that have an impact on the actual damage of the applicants, the courts have acknowledged a causal link between the pertinent EU measure and the damage.119

2.3.3.3 Summary The EU courts have not yet granted compensation to individuals because of a breach of a binding international legal provision. Although the courts have recognised that there was a damage and that this damage occurred as a result of EU conduct, actions for compensation have been considered unfounded because of a lack of direct effect of the international provision that was allegedly infringed.

115

116 117

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A. Peters, ‘Membership in the Global Constitutional Community’ in J. Klabbers, A. Peters and G. Ulfstein (eds.), The Constitutionalization of International Law (Oxford University Press, 2009), pp. 157–79; for an historical overview and discussion, see D. Shelton, V. O. Nmehielle and J. Cerone, ‘The Status of the Individual in International Law’, Am. Soc’y Int’l L. Proc., 100 (2006), 249–60; O. Vicun˜a, International Dispute Settlement in an Evolving Global Society (Cambridge University Press, 2004), pp. 29–84 (three chapters on individuals in international dispute settlement). See the quotation from Kampffmeyer in section 2.3.2.2 above. A. Reinisch, ‘Entscha¨digung fu¨r die unbeteiligten “Opfer” des Hormon- und Bananenstreites nach Art. 288 II EG?’, EuZW, 11(2) (2000), 42–51, 45. Case T-69/00, FIAMM, para. 170. 119 Ibid., paras. 179ff.

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2.3.4 Compensation for breaches of international law: suggesting a new approach Having discussed the necessity for applicants to show that the allegedly infringed international provision is directly effective in the EU legal order when claiming compensation before the EU courts, this section suggests a modification of the approach of the EU courts when dealing with compensation actions brought before them on the basis of an alleged breach of international law.120 Such modification would also contest the position that only EU conduct which could have been challenged in an annulment action can trigger a right to compensation.121 It is suggested here that a new approach might be necessary in order to resolve situations in which EU conduct that is regulated by more than one layer of supranational or international law is not of ‘direct and individual concern’ (to allow for direct challenge under Article 263(4) TFEU), while nonetheless having an adverse effect on the rights and interests of the applicant claiming compensation. The overall purpose of a new approach would be not to leave natural and legal persons without any judicial remedy in a probably increasing number of cases through the EU’s membership of international treaty regimes and organisations. As shown in the case overview in Chapter 1 and in section 2.3.3.1.2 above, the EU courts have so far applied the same technique when assessing the lawfulness of EU measures in the course of compensation actions as in the context of annulment actions, because of a failure to act and preliminary rulings. Accordingly, the courts have reviewed contested EU conduct in the light of international law only if they considered the allegedly infringed provision to be directly effective and thus enforceable. It is questioned here whether the extent to which the EU courts have exercised judicial self-restraint and applied their reasoning developed in the context of what could be called validity claims – which potentially have an impact on the existence of the contested EU measure – as well as in the context of compensation 120

121

See also Kuijper and Bronckers, ‘WTO Law in the European Court of Justice’, 1335; Thies, ‘Biret and Beyond’. See, e.g., Lord Mackenzie Stuart, who stated that only a measure can justify compensation that was ‘capable of being annulled had a party with a proper interest at the appropriate time chosen to initiate such action’: ‘The “Non-Contractual” Liability’, 505. According to this view, the secondary legal remedy (compensation action) is only independent of a primary legal remedy in a procedural way and not in substance.

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actions, which result in the payment of compensation, does find satisfactory support in the EU treaties. It is also shown that a modification of the present approach regarding the impact of international law on compensation actions would be consistent with the EU courts’ own case law on Member State liability. As a consequence of the modified approach herein suggested, the courts would no longer require provisions of international law to be directly effective when dealing with compensation claims. Instead, it would be sufficient if the provision of international law is binding on the EU (Article 216(2) TFEU) and – being assessed in a separate step – confers rights or benefits on individuals in order to claim compensation on the basis of its breach.122 In other words, the unlawfulness of EU conduct in compensation actions would be ‘reviewable’ in the light of international obligations without the precondition of direct effect. Arguably, ‘international unlawfulness’ (identified by the relevant international authority) might not necessarily lead to the EU courts’ recognition of the contested EU conduct being unlawful in the context of direct legal remedies, given the lack of direct effect of the invoked international provision. At the same time, the conduct in question might nonetheless be considered unlawful in the context of an action for compensation. This would allow for the evaluation of the existence of rights to compensation within the EU where political aims are pursued by an internationally unlawful conduct. As a consequence, the courts would be able to take account of both the need to respect the other institutions’ political scope for manoeuvre at the international level, and the need to uphold a high standard of judicial protection and a complete system of legal remedies where individuals suffer damage because of EU action. Even though liability for breaches of general principles and the principle of liability in the absence of unlawfulness might be more suitable when aiming at a satisfactory balance between general and individual interests (see Chapters 4 and 5), the reasons for waiving the requirement 122

It is indeed perceivable that an international legal provision is not meant to be directly enforceable but still confers rights/benefits on individuals. In particular, where there is no political willingness on the part of the international subjects ratifying the international treaty in question to make it directly effective in their domestic legal systems, there can still be the intention to improve the legal position of individuals through the international legal regime. The courts could assess the character of the provision in question without enabling claimants to enforce EU obligation under international law (e.g., under Article 263 TFEU).

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of direct effect in the context of compensation actions are presented in the following paragraphs.

2.3.4.1 Need for full judicial protection First, the rule of law and the need to provide a complete system of legal remedies or full judicial protection – being a general principle of EU law123 – might call for a comprehensive assessment of the EU’s compliance with international obligations in the course of compensation actions. The decision on whether or not to undertake such a legality review becomes particularly significant where a breach of international law is deliberately upheld for political reasons, without there being any possibility to directly challenge the EU measure in question.124 This is even more the case in areas of exclusive EU competence, where there is also no national measure that would give access to the national judiciary. For instance, the group of retaliation victims – being at the core of this book’s analysis – would have or have had no possibility to challenge the lawfulness of the EU legislation in question, neither in an annulment action before the EU courts nor before the national courts. This is not only due to the denial of the direct effect of WTO law as established by the courts, but also due to the fact that, for example, paperboard producers would not even be aware of a banana market regulation, let alone be granted standing under Article 263(4) TFEU to seek its annulment.125 Since retaliation under the WTO system is not linked to a specific industry, it is not foreseeable which products are affected by retaliatory measures until the retaliating WTO member publishes its list of products being affected by imposed duties.126 There is thus no route for retaliation victims to challenge public conduct that triggers the non-EU actor’s imposition of duties. The importance of

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125

126

See, e.g., M. Ruffert, ‘Rights and Remedies in European Community Law: A Comparative Review’, CML Rev, 34 (1997), 307–36, 330: ‘With respect to Articles 6 and 13 ECHR and national constitutional traditions the Court formulated the principle of effective judicial protection as a general principle of Community law.’ For a discussion on secondary remedies compensating for lack of primary remedies, see Detterbeck, ‘Haftung der Europa¨ischen Gemeinschaft’, 211ff. They would not be able to show ‘direct and individual concern’ as required for standing under Article 263(4) TFEU. Battery producers are not directly concerned by banana market legislation, nor are they affected ‘by reason of certain attributes which are peculiar to them or by reason of circumstances in which they are differentiated from all other persons’ in order to show their ‘individual concern’: Case 25/62, Plaumann, confirmed in Case C-50/00 P, Unio´n de Pequen˜os Agricultores, para. 32. See, e.g., in the context of the Bananas case, Chapter 1, notes 53ff, 65.

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full judicial protection of individuals even in the absence of directly challengeable measures was stressed by the EU courts in their own case law in the context of state liability, which will be discussed in more detail below.127

2.3.4.2 Different aims of the action Moreover, and as shown already above (see section 2.2), the aim and the outcome of a compensation action are different from the aim and the immediate impact of a successful action in which the validity of a EU measure is challenged. Whereas Article 263 TFEU aims to guarantee a general legality control of EU conduct, the purpose of a compensation action is to provide an effective means for individuals to obtain compensation for damages suffered as a consequence of public interference with their legal positions as laid down elsewhere in the legal system of the EU, possibly including those granted under international law. The outcome of a successful compensation action is different from an annulment action in that it does not lead to the declaration of the invalidity of the challenged EU measure.128 The reasoning of the EU courts not to look at the legality of the measure in the light of international obligations of the EU (unless it is directly enforceable), namely to respect the EU’s political institutions’ scope for manoeuvre, is not convincing in the context of a compensation action. It seems insufficient to consider, without further explanation, the financial threat of compensation payments as limiting the political institutions’ room for manoeuvre to the same extent as the potential annulment of the measure in question. Indeed, it might be a more suitable and acceptable way for institutions to uphold measures in the political interest while compensating individuals out of the EU’s budget – especially after the unlawfulness has been identified by the competent international judicial body. Differentiating between a legality review in the light of international law in the context of compensation actions and a legality review in annulment actions would also not contradict the EU courts’ approach taken in a ‘pure EU law’ context. Whereas the EU courts have required applicants to show ‘direct and individual concern’ under Article 263(4) TFEU (to make natural and legal persons action admissible), the courts have not asked for direct effect of the allegedly infringed EU law 127 128

Case C-224/01, Ko¨bler; Joined Cases C-6/90 and C-9/90, Francovich and others. See Article 264 TFEU; see further discussion, also of the ECJ’s different approach, in FIAMM et al., Chapter 3, section 3.2.

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provision upon which applicants rely when claiming compensation from Member States or the EU. The reason for enabling individuals to claim compensation – not least because of the fact that this will have no impact on the actual measure in question – is also supported by the EU courts’ own case law in the context of state liability, which will be discussed in the next section.129

2.3.4.3 Consistency with the principle of Member State liability Despite the EU courts’ current judicial self-restraint in the context of the ‘international unlawfulness’ of EU conduct, it would not be new for the EU courts to deal with different layers of law in the context of liability claims. With regard to Member State liability, the courts have been willing to allow EU law to justify a right to compensation, even where no primary legal remedy was provided or available for individuals to directly challenge the state measure at stake in the light of EU law.130 Seeking to guarantee a complete system of legal remedies, the courts have exercised a different kind of legality review where the annulment of a measure of public authority has been sought than in a situation where the purpose of the remedy is merely financial compensation.131 In several cases on the principle of Member State liability, the ECJ held that the lack of direct effect of a provision allegedly infringed could not hinder the Member States from being under an obligation to grant compensation to the applicants. Further, the Court emphasised that it was important to grant compensation even where no annulment of the measure that caused the damage was possible or desired. 2.3.4.3.1 Relevance of the Francovich decision In Francovich, the ECJ held Italy liable for not having implemented an EU Directive by the time provided for implementation and thereby having prevented its national, Francovich, from benefiting from certain provisions of the Directive at stake.132 What was decisive was the fact that the applicant could not benefit from the protection intended by the Directive because Italy had not complied with its obligations under (now) Article 288 TFEU133 and the pertinent Directive to implement 129 130 132 133

Case C-224/01, Ko¨bler; Joined Cases C-6/90 and C-9/90, Francovich and others. Joined Cases C-6/90 and C-9/90, Francovich and others. 131 Case C-224/01, Ko¨bler. Joined Cases C-6/90 and C-9/90, Francovich and others. According to Article 288(3) TFEU: ‘A directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods.’

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its content in national law. Thus, the ECJ required neither the treaty provision nor the relevant Directive provision to be directly effective before allowing an individual to rely on a breach of those provisions when claiming compensation. Instead, it was crucial whether or not the national legislation implementing the Directive would have conferred rights on individuals.134 2.3.4.3.2 Relevance of the Ko¨bler decision In Ko¨bler, the ECJ held Austria liable for a breach of EU law perpetrated by the Austrian judiciary by not referring a question to the ECJ despite its obligation under (now) Article 267 TFEU and thus not adopting an interpretation of EU law as would have been provided by the ECJ. In the liability decision, the ECJ reasoned that the ‘principle of state liability inherent in the EU legal order requires such reparation, but not revision of the judicial decision which was responsible for the damage’.135 The Court thus clearly distinguished between the primary and the secondary legal remedy: whereas the former would enable the applicant to ask for a revision of the judgment itself, the latter merely meant to grant compensation without having an impact on the existence and substance of the national court’s decision. In Ko¨bler, the ECJ considered the principle of liability to require reparation to be granted without being competent to revise the national judicial decision. When deciding on the scope of Member State liability under EU law, the Court refrained from interfering with the outcome of the national case in substance. The liability of Austria caused by the judge’s omission to open a preliminary ruling procedure under Article 267 TFEU was not conditional upon the concerned individual being entitled to request the national judge to refer a question to the ECJ. Nor was the unlawfulness identified in the context of liability linked to the annulment or further existence of the national judgment. Could the EU courts not take a similar approach in the context of infringements of international law?

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Cf. H. G. Fischer, ‘Staatshaftung nach dem Gemeinschaftsrecht’, EuZW, (1992), 41–4, 43. Case C-224/01, Ko¨bler, para. 39; for comment and analysis, see, e.g., W. Obwexer, ‘EuGH: Staatshaftung fu¨r offenkundig gegen Gemeinschaftsrecht verstoßendes Gerichtsurteil’, EuZW, 14(23) (2003), 726–8; M. Breuer, ‘State Liability for Judicial Wrongs and Community Law: The Case of Gerhard Ko¨bler v. Austria’, EL Rev, 29(2) (2004), 243–54.

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There seems to be no reason why individuals’ rights to compensation should be more limited in principle where damage has been caused by EU conduct with an international dimension. At the same time, however, the availability or scope of secondary remedies has to be assessed in the light of rights or interests that they aim to protect. Ko¨bler had originally brought his case before the national court in Austria to enforce his individual rights under EU law, in particular the principle of equal treatment. When he brought a compensation action later, his aim had shifted to being compensated financially for ‘non-realised’ rights under EU law. In order to apply Ko¨bler within the context of international law breaches by the EU, it would be necessary that the EU’s lack of compliance with international obligations constitutes a ‘non-realisation’ of law that was meant to confer rights or benefits to the applicant. In other words, while it would – in analogy to Ko¨bler – not be necessary to show the direct effect of the legal obligation, it would be necessary to show that the compliance with the international obligation in question would have given a right to or would have been in the interests of the applicant. Such an assessment would need to be undertaken by the EU courts on a case-by-case basis in the light of the allegedly infringed international legal obligation in question.136

2.4 EU liability in the absence of unlawfulness In order to introduce the full range of possible EU liability principles, this chapter concludes with a brief overview of the EU courts’ general approach concerning the principle of liability in the absence of unlawfulness, which arguably finds its legal basis in the same treaty provision as the principle of liability for unlawful conduct, namely Article 340(2) TFEU. Chapter 5 addresses the existence, scope and implications of such a principle under the EU legal order in more detail. In FIAMM, the GC, referring to the ECJ’s judgment in De Boer Buizen,137 stated that the absence of unlawfulness does not necessarily bar undertakings from obtaining compensation if they are required to bear a disproportionate part of the burden caused by EU conduct.138 It held 136

137 138

See Chapter 3 for discussion of a Ko¨bler analogy in the context of international trade disputes with regard to retaliation victims. Case 81/86, De Boer Buizen, para. 17. Case T-69/00, FIAMM, paras. 157ff; Case T-151/00, Le Laboratoire du Bain; Case T-301/00, Fremaux; Case T-320/00, Cartondruck; Case T-383/00, Beamglow Ltd.; Case T-135/01, Fedon et al.

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that (now) Article 340(2) TFEU referred to the general principles common to the law of the Member States, which are not confined to rules governing liability for unlawful conduct, as building the basis for the right to compensation. It concluded that ‘national laws on non-contractual liability allow individuals, albeit to varying degrees, in specific fields and in accordance with differing rules, to obtain compensation in legal proceedings for certain kinds of damage, even in the absence of unlawful action by the perpetrator of the damage’.139 Thus, ‘[w]hen damage is caused by conduct of the [EU] institution not shown to be unlawful, the [EU] can incur non-contractual liability if the conditions as to sustaining actual damage, to the causal link between that damage and the conduct of the [EU] institution and to the unusual and special nature of the damage in question are all met’.140 Comparable to the EU courts’ approach when developing the liability regime for unlawful conduct,141 or recognising and developing fundamental rights under EU law,142 the GC did not assess in which Member States’ legal systems such a principle exists and what form it takes; it considered it to be sufficient that there were some Member States in which the principle at stake existed.143 FIAMM obliged the GC for the first time to deal with liability in the absence of unlawful conduct where the EU had caused retaliation under the WTO system, which then allegedly caused damage for European exporters.144 The GC did not hesitate to apply the principle of liability in the absence of unlawful conduct. Previously, the EU courts had neither rejected nor explicitly recognised the existence of the principle of EU ‘liability for lawful acts’ – here called ‘liability in the absence of unlawfulness’ due to the international unlawfulness not being considered invokable before the EU courts. However, the courts had in several cases detailed the criteria that would need to be met in case the principle was to be recognised.145 Accordingly, a claimant must show unusual and special damage exceeding the limits of the economic risks inherent in the activities of the industry concerned. Consequently, under this liability system, it is not the conduct of the EU institutions (leading to the 139 142 143

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Case T-69/00, FIAMM, para. 160. 140 Ibid. 141 See notes 29ff above. Craig and De Bu´rca, EU Law, 5th edn, pp. 364–71, 370ff. This approach has also been considered to meet the standards of EU law development by Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 55. In Biret, the issue was not dealt with, since the arguments were brought forward too late in the proceedings: see Case C-93/02, Biret, paras. 67ff. See, e.g., Cases T-184/95 and C-237/98 P, Dorsch Consult v. Council [1998] ECR II-667 and [2000] ECR I-4549.

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damage) that should be assessed. Instead, the conduct’s consequences for certain individuals and the scope of loss suffered have to be intolerable in order to establish a ground for compensation.146 While Advocate General Maduro confirmed the existence of the principle concerning EU liability in the absence of unlawfulness, the ECJ did not.147 Despite the ECJ’s rejection of the principle of ‘liability in the absence of unlawfulness’ or ‘no-fault liability’, it is argued here that the application of such a principle – together with liability for breaches of general principles – could have been a legitimate route for the EU courts to balance general and individual interests in very peculiar and limited number of cases. Therefore, the existence, scope and impact of the principle on the right to compensation in the context of international trade disputes will be analysed in more detail in Chapter 5.

2.5 Conclusions The purpose of this chapter was to introduce to the role of liability actions in the EU’s system of judicial protection as well as the general catalogue of liability conditions under EU law, which will be applied to the particular situation of retaliation victims in the following chapters. This analysis also addressed the implications of the EU’s international legal obligations for the existence and scope of liability claims brought before the EU courts due to alleged infringements of those obligations. In this context, the chapter suggested a modification of the EU courts’ approach, in particular with respect to the currently established requirement of international law being directly effective in order for its breach to provide a basis for a right to compensation. To support this suggestion for modification, the chapter relied on the courts’ own approach taken with regard to state liability claims under EU law that have been brought before the national courts.

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Cf. S. Haack, ‘Die außervertragliche Haftung der EG fu¨r rechtma¨ßiges Verhalten’, EuR, 3 (1999), 395–403, 401. Cases C-120 and 121/06 P, FIAMM et al.; see Opinion of Advocate General Maduro of 20 February 2008.

3

Enforceability of the EU’s WTO law obligations in the EU legal order: EU liability due to WTO law infringement

The previous chapters have introduced the legal context of compensation actions brought before the EU courts in situations that are shaped by both international law and EU law. This chapter focuses more closely on the first set of legal grounds on which ‘retaliation victims’ in the context of international trade disputes have – so far unsuccessfully – claimed compensation from the EU before the EU courts: EU liability for breaches of WTO law and rulings. Taking into account the existing case law of the EU courts on this issue, which has been presented in Chapter 1, and based on the current liability regime in the EU legal order presented in Chapter 2, the following sections provide an analysis and critical assessment of the courts’ reasoning given in liability cases based on breaches of WTO law and rulings. The first section (3.1) of this chapter focuses on the assessment of ‘unlawfulness’ of EU conduct because of a breach of WTO law, taking as its starting point the criteria as shaped by the courts’ case law. These include the necessity of WTO obligations being directly effective in the EU legal order for annulment as well as compensation actions. The subsequent sections assess the further conditions for liability: ‘seriousness of the breach’ (3.2); ‘conferral of rights’ (3.3); and damage and causal link (3.4). Having concluded that WTO law is in principle not among the rules in the light of which EU legislation is reviewed (lack of direct effect), the courts have not entered much of the required assessment of these conditions so far. The assessment here thus relies to a large extent on the assumption that the courts would waive the condition of direct effect of WTO law obligations. The courts’ case law on state liability for non-implemented EU Directives (Francovich) is compared with and applied to EU liability for the non-implementation of Panel and Appellate Body Reports adopted by the DSB, being the 81

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international judicial authority deciding on details of WTO members’ obligations under the WTO agreements. It is shown in this chapter that, while the ECJ could waive the requirement of invoked WTO law provisions being directly effective in order to balance individual and general interests more satisfactorily, the negative outcome of compensation actions would most likely remain the same due to a lack of conferral of rights on the group of retaliation victims. Yet, it is claimed here that – whether or not the requirement of ‘direct effect’ is to be waived by the courts – the conditions of ‘unlawfulness because of an international law breach’ or ’direct effect’, ‘seriousness of the breach’ and the ‘conferral of rights’ in the specific context of compensation actions should be more clearly distinguished in the courts’ reasoning in order to meet fully the complexity of the effect of international legal obligations on the legality review of the EU courts, and, more importantly, the position of individuals being bound, regulated and protected by international and European trade law.

3.1 Unlawfulness of EU conduct in breach of WTO law As shown in Chapters 1 and 2, the courts have in principle denied direct effect of WTO law and rulings in their case law; it has also been shown that the courts considered direct effect of the infringed legal obligation a necessary condition when claiming compensation from the EU. Whereas the purpose of Chapters 1 and 2 was to introduce the current approach taken by the EU courts, this chapter sheds further light on and critically assesses the underlying reasoning of the courts. By looking at the general conditions of liability separately, it examines to what extent and on which basis the reasoning of the courts – when denying direct effect of the legal obligation under WTO law and rulings in the context of compensation actions – could be challenged. It is suggested – this time in the specific context of international legal obligations stemming from WTO law – that the application of conditions of liability should be reconsidered by the courts where the infringement of international obligations caused damages. The following critical assessment of the courts’ reasoning dealing with each condition of liability is pursued alongside/distinguishing different phases of an international trade dispute and the pertinent EU measures, which were introduced at the end of Chapter 1 (section 1.3). This allows an analysis that takes into account both the potentially changing nature of the breach (particularly relevant for ‘the seriousness of the breach’)

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and the potentially changing nature of the legal obligation under WTO law (particularly relevant for the criteria ‘direct effect’ and ‘conferral of rights’), which might have an impact on the right to compensation of those applicants whose damage occurred at a late stage of the international trade dispute in question, namely after retaliatory measures were imposed by other WTO members (‘retaliation victims’). It is thus useful to distinguish different time spans of an EU infringement of WTO law in the context of each liability criterion to allow a comprehensive assessment of the impact of WTO law infringements on EU liability. Although retaliation victims would never be in a position to claim compensation at the beginning of an international trade dispute (since no damage could have occurred at this stage), all identified distinguishable time spans are assessed in order to demonstrate the specific characteristics of the last one presented: (a) a breach of (primary) WTO law has not yet been identified by the DSB or by the EU courts; (b) a breach of (primary) WTO law has been identified by the DSB, but the period for compliance granted to the EU has not yet expired; and (c) the breach is continued by the EU despite the determination of the DSB and the expiry of the implementation period.

3.1.1 Breach of primary WTO law It has been shown in Chapter 1 that the EU courts have been reluctant to review EU legislation in the light of (primary) WTO law. In summary, a breach of WTO law is, according to the courts, only relevant for their own legality review if the allegedly infringed WTO law provision is directly effective and, because of this, is enforceable/invokable before domestic, national and EU courts. Despite extensive criticism concerning the denial of direct effect of GATT/WTO law,1 the EU courts have exercised judicial self-restraint and have considered themselves in principle not to be in a position to identify the unlawfulness of EU measures

1

For discussion regarding the GATT 1947, see, e.g., E.-U. Petersmann, ‘Die EWG als GATT-Mitglied – Rechtskonflikte zwischen GATT-Recht und Europa¨ischem Wirtschaftsrecht’ in M. Hilf and E.-U. Petersmann (eds.), GATT und die Europa¨ische Gemeinschaft (Baden-Baden: Nomos, 1986), pp. 159–63. Regarding the WTO agreements, in particular the Portugal decision, see S. Griller, ‘Judicial Enforceability of WTO Law in the European Union’, JIEL, 3(3) (2000), 441–72. See, for further reference to academic writing, below note 13.

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because of a breach of WTO law since none of the WTO agreements is of a nature and structure to allow the direct effect of its provisions.2 Whether or not a breach of WTO law has already been identified by the DSB at the WTO level, the EU courts have refused to embrace any WTO incompliance in their own judgments unless there was an EU measure ‘referring to’ or ‘implementing’ the WTO obligation in question.3 As already indicated in Chapter 1, the case law of the EU courts denying the invokability of WTO law provisions was developed in the context of preliminary rulings proceedings and annulment actions, which potentially would have led to the EU courts declaring the EU act allegedly in breach of WTO law to be void (see Article 264 TFEU [formerly Article 231 EC]).4 However, the courts have also refused to make WTO law provisions part of their legality review in the context of compensation actions.5 They have not always (explicitly) requested ‘direct effect’ of international law for their legality review under (now) Article 340(2) TFEU, but the EU courts have been reluctant to evaluate individual WTO law provisions in substance when assessing their capacity to ‘confer rights’ in the context of compensation actions.6

3.1.1.1 Current reasoning of the EU courts The EU courts’ reasoning for denying in principle the direct effect of WTO law has been in line with the approach taken with regard to the GATT 1947, whose ‘spirit’, ‘general scheme’ and ‘terms’ provided ‘great flexibility’ and would not allow direct enforcement in the courts.7

2

3

4

5

6

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Since Portugal, the courts have concluded that ‘having regard to their nature and structure, the WTO agreements [we]re 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’; see Case C-149/96, Portugal, para. 47. Cases C-27/00 and C-122/00, Omega Air, paras. 89ff; Joined Cases C-300/98 and C-392/98, Dior and others; Case C-377/98, Netherlands; Order in Case C-307/99, OGT; Case C-93/02, Biret; Case C-377/02, Van Parys; Case C-351/04, Ikea; Case T-174/00, Biret, para. 61. For a commentary on this provision, see A. Thies, ‘Article 264 TFEU’ in Smit et al. (eds.), Smit & Herzog, Vol. 4. Case C-104/97 P, Atlanta v. European Community, paras. 17–23; Case T-19/01, Chiquita Brands and others, paras. 161ff; Case T-69/00, FIAMM; Case T-151/00, Le Laboratoire du Bain; Case T-301/00, Fremaux; Case T-320/00, Cartondruck; Case T-383/00, Beamglow Ltd.; Case T-135/01, Fedon et al.; Cases C-120 and 121/06 P, FIAMM et al., para. 111. Case T-18/99, Cordis, paras. 46, 51; Case T-30/99, Bocchi, paras. 51, 56; Case T-52/99, T. Port, paras. 46, 51; Case T-3/99, Bananatrading, para. 43. Cases 21–4/72, International Fruit Company, paras. 7, 8, 18–28. For reference to further case law see Chapter 1, note 86.

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According to the ECJ, ‘the nature and structure’ of the WTO agreements – in other words, the characteristics of the WTO legal order itself – would prevent the courts from acknowledging the direct invokability of WTO provisions in actions brought by Member States8 as well as natural or legal persons.9 Not only the political motivation but also the explicit reasoning provided by the courts – when denying direct effect of WTO law – has been based on their intention not to interfere with the scope for manoeuvre of the political institutions adopting measures that have an impact on both the situation within the EU and outside it.10 Further, the courts concluded that because of the reluctance of other major trading partners to review domestic legislation in the light of WTO law, the EU courts could not exercise judicial review of EU legislation in the light of WTO law either (‘reciprocity’).11 Finally, the EU courts held that since the DSU of the WTO gave WTO members the option to agree on mutually acceptable compensation or to accept retaliatory measures on a temporary basis, the legal obligations of the EU under WTO law could not be enforced within the EU legal order.12

3.1.1.2 Critical assessment The EU courts’ reasoning for denying in principle the direct effect of WTO law – because of the nature, structure, wording and the purpose of the WTO legal order itself – and its enforceability in EU courts has been

8 9

10 11 12

Case C-149/96, Portugal, paras. 40ff; Case C-377/98, Netherlands. Cases C-27/00 and C-122/00, Omega Air, paras. 89ff; Joined Cases C-300/98 and C-392/98, Dior; Order in Case C-307/99, OGT; Case C-93/02, Biret; Case C-377/02, Van Parys; and several judgments of the (now) GC, such as Case T-174/00, Biret, para. 61. Case C-149/96, Portugal, para. 46; Cases C-120 and 121/06 P, FIAMM et al., para. 116. Case C-149/96, Portugal, paras. 43ff; Case C-120 and 121/06 P, FIAMM et al., para. 130. Recently confirmed in Cases C-120 and 121/06 P, FIAMM et al., paras. 117, 130. See also Case C-149/96, Portugal, para. 40; Case C-377/02, Van Parys, paras. 48, 51ff. Four weeks earlier, the same conclusion was reached by the (now) GC in Case T-19/01, Chiquita Brands and others, in the context of an action for damages; according to the (now) GC, ‘the DSU does not establish a mechanism for the judicial resolution of international disputes by means of decisions with binding effects comparable with those of a court decision in the internal legal systems of the Member States’ (para. 162), and since members had, even after the expiry of the implementation period and measures under Art. 22 DSU, ‘place for negotiation’ (para. 164), ‘[t]he Community judicature cannot . . . review the legality of the Community measures in question without depriving Article 21.6 of the DSU of its effectiveness’ (para. 166). For a comment on this, see Lavranos, ‘The Chiquita and Van Parys Judgments’; Steinbach, ‘Zur Rechtswirkung’; for references to further literature, see Chapter 1, note 131.

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subject to extensive debate in academic writing.13 Some authors have criticised the EU courts’ denial of direct effect, of which some wanted to limit the direct effect of WTO law to the time after a dispute had been dealt with by the DSB (see also discussion below). The arguments brought forward by these scholars included the decreased ‘flexibility’ of the WTO agreements compared to the GATT 1947, the adoption of the DSU complementing the WTO agreements to strengthen its ruleorientation, and DSB rulings becoming thus comparable to decisions of

13

See, e.g., M. J. Hahn and G. Schuster, ‘Le droit des E´tats Membres de se pre´valoir en justice d’un accord liant la Communaute´’, RGDIP, 2 (1995), 367–84; A. Epiney, ‘Zur Stellung des Vo¨lkerrechts in der EU’, EuZW (1999), 5–11; F. G. Jacobs, ‘Judicial Review of Commercial Policy Measures after the Uruguay Round’ in N. Emiliou and D. O’Keefe (eds.), The European Union and World Trade Law: After the GATT Uruguay Round (Chichester: Chancery Law Publishing, 1996), pp. 329–42; J. M. Beneyto, ‘The EU and the WTO: Direct Effect of the New Dispute Settlement System?’, EuZW (1996), 295–9; A. Desmedt, ‘European Court of Justice on the Effect of WTO Agreements in the EC Legal Order’, LIEI, 27(1) (2000), 93–101; P. M. Eisenmann (ed.), The Integration of International and European Community Law into the National Legal Order (The Hague: Kluwer Law International, 1996); N. Neuwahl, ‘Individuals and the GATT: Direct Effect and Indirect Effects of the General Agreement on Tariffs and Trade in Community Law’ in Emiliou and O’Keefe (eds.), The European Union and World Trade Law, pp. 313–28; P. Eeckhout, ‘The Domestic Legal Status of the WTO Agreement: Interconnecting Legal Systems’, CML Rev, 34(1) (1997), 11–58; M. Hilf, ‘The Role of National Courts in International Trade Relations’, MJIL (1997), 321–56; Cottier, ‘Dispute Settlement in the World Trade Organization’; J. P. Trachtmann, ‘Bananas, Direct Effect and Compliance’, EJIL, 10(4) (1999), 655–78; A. Dashwood and C. Hillion (eds.), The General Law of EC External Relations (London: Sweet & Maxwell, 2000); N. Komuro, ‘The EC Banana Regime and Judicial Control’, JWT, 34(5) (2000), 1–87; J. Jackson (ed.), The Jurisprudence of GATT and the WTO (Cambridge University Press, 2000); J.-V. Louis, ‘Some Reflections on the Implementation of WTO Rules in the Community Legal Order’ in M. Bronckers and R. Quick (eds.), New Directions in International Economic Law, Essays in Honour of J.H. Jackson (The Hague: Kluwer Law International, 2000), pp. 493–507; S. Mauderer, Der Wandel vom GATT zur WTO und die Auswirkungen auf die Europa¨ische Gemeinschaft unter besonderer Beru¨cksichtigung der unmittelbaren Anwendbarkeit des prima¨ren WTO-Rechts (Osnabru¨ck: Univ-Verl. Rasch, 2001); T. Cottier, ‘A Theory of Direct Effect in Global Law’ in A. von Bogdandy, P. C. Mavroidis and Y. Me´ny (eds.), European Integration and International Co-ordination – Studies in Transnational Economic Law in Honour of Claus-Dieter Ehlermann (The Hague: Kluwer Law International, 2002), pp. 99–123; Eeckhout, ‘Judicial Enforcement’; Bronckers, ‘The Relationship of the EC Courts with other International Tribunals’; J. Jackson, ‘Direct Effect of Treaties in the U.S. and the EU, the Case of the WTO: Some Perceptions and Proposals’ in A. Arnull, P. Eeckhout and T. Tridimas (eds.), Continuity and Change – Essays in Honour of Sir Francis Jacobs (Oxford University Press, 2008), pp. 361–82; P. Eeckhout, ‘Remedies and Compliance’ in Bethlehem et al. (eds.), The Oxford Handbook of International Trade Law, pp. 437–59.

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other judicial bodies requiring prompt compliance.14 Other scholars have acknowledged the political necessity leading to the courts’ reasoning and conclusions.15 Without re-opening the discussion of the advantages, disadvantages or desirability of the direct effect of WTO law within the EU legal order in principle, it is questioned here whether the courts’ reasoning for denying direct effect is valid for all constellations at every moment of an international trade dispute. The EU courts considered particular aspects of the WTO legal order and dispute settlement system – not just their general nature and structure, but also, for example, provisions such as the option for members to accept retaliation on a temporary basis – when ruling on the ‘unenforceability’ of WTO obligations. The fact that the courts did so encourages us to look at the different stages of a WTO dispute, and the WTO members’ legal/political options under WTO law at each of those stages, when assessing the direct enforceability of WTO obligations. Although the nature and structure of the WTO legal order itself remains the same throughout the dispute brought before the DSB, the degree to which a pertinent WTO obligation is enforceable in the EU 14

15

For a summary of this approach, see Griller, ‘Judicial Enforceability of WTO Law’, referring in note 28 to, e.g., Cottier, ‘Dispute Settlement in the World Trade Organization’, 369ff; U. Everling, ‘Will Europe Slip on Bananas? The Bananas Judgement of the Court of Justice and National Courts’, CML Rev, 33(3) (1996), 401–37, 421ff; K. J. Kuilwijk, The European Court of Justice and the GATT Dilemma: Public Interest versus Individual Rights? (Beuningen: Nexed Editions, 1996); P. Lee and B. Kennedy, ‘The Potential Direct Effect of GATT 1994 in European Community Law’, JWT, 30(1) (1996), 67–89; E.-U. Petersmann, ‘Darf die EG das Vo¨lkerrecht ignorieren?’, EuZW (1997) 325–31; E.-U. Petersmann, ‘GATT/WTO-Recht: Duplik’, EuZW (1997), 651–3; A. Weber and F. Moos, ‘Rechtswirkungen von WTO Streitbeilegungsentscheidungen im Gemeinschaftsrecht’, EuZW, 10(8) (1999), 229–36; G. Zonnekeyn, ‘The Legal Status of WTO Panel Reports in the EC Legal Order’, JIEL, 2(4) (1999), 713–22. For a summary of this approach, see Griller, ‘Judicial Enforceability’, referring in note 34 to, e.g., Berkey, ‘The European Court of Justice’; F. Castillo de la Torre, ‘The Status of GATT in EC Law, Revisited’, JWT, 29(1) (1995), 53–68, 64ff; P. Hilpold, Die EU im GATT/ WTO-System (Frankfurt: Peter Lang, 1999), pp. 165ff; P.-J. Kuijper, ‘The New WTO Dispute Settlement System. The Impact on the European Community’, JWT, 29(6) (1995), 49–71; J. Sack, ‘Von der Geschlossenheit und den Spannungsfeldern in einer Weltordnung des Rechts’, EuZW (1997), 650–1; J. Sack, ‘Noch einmal: GATT/WTO und europa¨isches Rechtsschutzsystem’, EuZW (1997), 688–704; C. Timmermans, ‘L’Uruguay Round: sa mise en oeuvre par la Communaute´ europe´enne’, RMUE, 4 (1994), 175–83, 178. For a general discussion of the effect of international law in the EU and the ‘direct effect condition’ serving a political function (‘controlling the influx of international legal norms’, serving as a ‘brake on the number of potential litigators’), see Klabbers, ‘International Law in Community Law: The Law and Politics of Direct Effect’, YEL (2002), 263–98.

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courts might vary. In particular, an enforced obligation might become clearer and more precise – which is an established condition for direct effect in addition to the nature of the agreement itself16 – because of the adoption of Panel and Appellate Body Reports by the DSB. While the courts have generally been more willing to acknowledge the direct effect of provisions of association,17 partnership18 and cooperation19 agreements, they have also made decisions adopted by Councils (established on the basis of those international agreements), which specify the exact content of the contracting parties’ rights and obligations, a condition of the direct effect of the international legal provision in question.20 This justifies an assessment of the potentially changing character of a provision of WTO through decisions adopted by the competent international authority (the DSB), which has been established on the basis of the WTO agreements. Accordingly, the following assessment will differentiate between different time spans of a EU’s breach of WTO law relied on when claiming compensation: (a) a breach of primary WTO law before the dispute is brought before the DSB; (b) a breach of WTO law that has already been 16

17

18 19

20

In its judgment in Case T-174/00, Biret, the (now) GC stated in para. 60: ‘Thus, in Case 104/81, Kupferberg [1982] ECR 3641, paragraph 17, the Court held that the effects within the Community of the provisions of an international agreement may not be determined without taking account of the international origin of the provisions in question and that in conformity with the principles of international law the contracting parties are free to agree what effect the provisions of the agreement are to have in their internal legal order (see also Opinion of Advocate General Gulmann in C-280/93, Germany v. Council [1994] ECR I-4973, at I-4980, paragraph 127). In particular, in Demirel, the Court held at paragraph 14 that a provision in an agreement concluded by the Community with non-member countries must be regarded as being directly applicable when, regard being had to its terms and the purpose and nature of the agreement itself, the provision contains a clear and precise obligation which is not subject, as regards its implementation or effects, to the adoption of any subsequent measure. The question whether such a stipulation is unconditional and sufficiently precise to have direct effect must be considered in the context of the agreement of which it forms part’ (emphasis added). Case C-63/99, Gloszczuk; Case C-235/99, Kondova; Case C-257/99, Barkoci and Malik; Case C-268/99, Jany. For further comment, see Hillion, ‘Cases C-63/99 Secretary of State for the Home Department ex parte Wiesław Głoszczuk and Elzbieta Głoszczuk et al.’ CML Rev, 40 (2003), 465–91. See also Case C-97/05, Gattoussi. Case C-265/03, Simutenkov. Case C-18/90, Kziber [1991] ECR I-199; Case C-58/93, Yousfi [1994] ECR I-1353; Case C- 103/94, Krid [1995] ECR I-719; Case C-126/95, Hallouzi-Choho [1996] ECR I- 4807; Case C-113/97, Babahenini [1998] ECR I-183; Case C-416/96, El Yassini [1999] ECR I-1209; Case C-23/02, Alami [2003] ECR I-1399. Case C-192/89, Sevince [1990] ECR 3461, paras. 14ff and 26; Case C-502/04, Ergu¨n Torun [2006] ECR I-1563, para. 19. For further discussion and reference to case law, see Eeckhout, EU External Relations Law, pp. 333ff, 340, note 58.

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identified by the DSB, but the period granted for compliance has not yet expired; and (c) a breach of WTO law that is upheld despite the determination of the DSB and the expiry of the ‘grace period’ granted by the DSB.21 As indicated in the opening section of this chapter, only the last time span is of relevance for the right to compensation of retaliation victims, since retaliatory measures are imposed only after the expiry of the ‘grace period’; in other words, damage to retaliation victims can only occur at this stage.22 However, in order to identify any specific characteristics of stage (c), the two other stages are also briefly discussed in the following sections.

3.1.1.2.1 Breach of WTO law before the dispute is brought before the DSB The ECJ has been criticised for not taking into account the EU’s legal obligations under WTO law when reviewing EU measures challenged in a legal action before it. According to this criticism, the fact that Article 216 TFEU (formerly Article 300(7) EC) provides that international agreements concluded by the EU become an integral part of the European legal order and the WTO agreements aimed at the liberalisation and stabilisation of 21

22

For the distinction between different time spans of an international trade dispute, see Eeckhout, ‘Domestic Legal Status’, 54ff; Cottier, ‘Dispute Settlement in the World Trade Organization’, 369ff; Cottier, ‘A Theory of Direct Effect’, 111ff; G. Zonnekeyn, ‘The Status of Adopted Panel and Appellate Body Reports in the European Court of Justice and the European Court of First Instance’, JWT, 34 (2000), 93–108; Reinisch, ‘Entscha¨digung’, 48ff; cf. also Advocate General Lenz in Case C-469/93, Amministrazione delle finanze dello Stato v. Chiquita Italia SpA, para. 22; A. Thies, ‘Biret and Beyond’, 1668; for a discussion focused on the development of the ‘implementation principle’, considering cases where the infringing EU legislation was amended in order to comply with the WTO ruling, see Eeckhout, ‘Judicial Enforcement’, 107ff; and G. Zonnekeyn, ‘The Latest on Indirect Effect of WTO Law in the EC Legal Order – The Nakajima Case Law Misjudged?’, JIEL, 4 (2001), 597–608. At the same time, however, the following analysis shows that a right to compensation of other traders being damaged at an earlier stage of the dispute by conduct of the EU in breach of WTO law has been and probably will also be denied by the courts with regard to the time spans (a) and (b), even if either the direct effect of WTO law was acknowledged or the condition of ‘direct effect’ was waived in the context of compensation actions. The reason for this is that the WTO regime does not trigger any ‘negative consequence’ (such as the suspension of concessions) without the case being heard and decided by the DSB and the defendant having been given a reasonable period to comply with the Panel and Appellate Body Reports. In other words, the distinction between an annulment and a compensation action brought before the EU courts is not of much help here. Even compensation actions would have a negative impact on the EU that is not covered by WTO law; obligations/limitations under WTO law cannot go further than what is laid down in the WTO Agreements. For such reasoning, see Case C-93/02, Biret, para. 62.

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international trade in the interests and for the protection of traders (operating in the territory of WTO members) was considered sufficient to claim direct effect of sufficiently precise provisions and make them enforceable before the national and EU courts.23 Arguably, however, the EU and other WTO members did not intend to create obligations that become enforceable in national or regional courts when concluding the WTO agreements. Probably no other conclusion can be drawn from the contracting parties’ statements made at the time of adoption of the WTO agreements; following the signature of the Final Act concluding the multilateral trade agreements of the Uruguay Round and all WTO agreements (subject to ratification) on 15 April 1994, the EU Council stated in the introduction to its Decision of 22 December 1994 (as regards matters within its competence) the following: Whereas by its nature, the Agreement establishing the World Trade Organization, including the Annexes thereto, is not susceptible to being directly invoked in Community [now EU] or Member State courts.24

It could be questioned to what extent the Council has the power to influence the legal status of an international agreement in the EU legal order by making a statement within the EU after the agreement has been signed by its contracting parties at the international level; Article 216(2) TFEU neither suggests that the effect of international 23

24

See comments on Portugal and further academic debate, e.g., Griller, ‘Judicial Enforceability’; M. Hilf and F. Schorkopf, ‘WTO und EG – Rechtskonflikte vor den EuGH?’, Europarecht, 35 (2000), 74–91; A. Desmedt, ‘ECJ Restricts Effect of WTO Agreements in the EC Legal Order’, JIEL, 3 (2000), 191–2; A. Rosas, ‘Annotation Case C-149/96, Portugal v. Council’, CML Rev, 37 (2000), 797–816; G. Zonnekeyn, ‘The Status of WTO Law in the Community Legal Order: Some Comments in the Light of the Portuguese Textiles Case’, EL Rev, 25 (2000), 293–302; F. Berrod, ‘La Cour de justice refuse l’invocabilite´ des accords OMC: essai de regulation de la mondialisation’, Revue trimestrielle de droit europe´en, 36(3) (2000), 419–50; S. Peers, ‘Fundamental Right or Political Whim? WTO Law and the European Court of Justice’ in G. de Bu´rca and J. Scott (eds.), The EU and the WTO – Legal and Constitutional Issues (Oxford: Hart Publishing, 2001), pp. 111–30; A. von Bogdandy and T. Makatsch, ‘Collision, Co-existence or Co-operation? Prospects for the Relationship between WTO Law and European Union Law’ in de Bu´rca and Scott (eds.), The EU and the WTO, pp. 143–50; N. van den Broek, ‘Legal Persuasion, Political Realism and Legitimacy: The European Court’s Recent Treatment of the Effect of WTO Agreements in the EC Legal Order’, JIEL, 4(2) (2001), 411–40. Council Decision 94/800/EC of 22 December 1994, OJ 1994 No. L336, pp. 1–2. See for a similar declaration of the US Section 102 of the Uruguay Round Agreements Act (19 U.S.C. 3512 (a) (1)), Pub. L. No. 103–465, 108 Stat. 4809 (1994); D. Leebron, ‘Implementation of the Uruguay Round Results in the United States’ in J. Jackson and A. Sykes (eds.), Implementing the Uruguay Round (New York: Oxford University Press, 1997), pp. 175–242, 218, 222.

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agreements on the EU legal order is to be determined by the Council, nor that the Council does this for each agreement separately.25 However, looking at the wording of the WTO agreements, the contracting parties envisaged entering into ‘reciprocal and mutually advantageous arrangements’ in the Preamble of the Agreement Establishing the WTO,26 which arguably shows that they wanted the WTO to be nothing but a ‘global intergovernmental endeavour’.27 Further, and subject to further analysis in section 3.4 below, the WTO agreements neither explicitly confer rights on individuals28 nor enable individuals to participate in international trade disputes.29 The WTO agreements are also not mandating direct effect in the domestic legal systems of the Member States.30 It is possible that future developments – perhaps comparable to those that took place in the process of the European integration – will dynamically modify the nature of certain obligations. However, a political will of the WTO members to commit to such development cannot yet be observed. Further, the WTO judiciary has so far neither suggested nor required the direct effect of WTO law within the jurisdictions of the WTO members.31 Although it noted in a footnote that this statement was made ‘as a matter of fact, without implying any judgment in the issue’, the panel in United States – Sections 301–310 of the Trade Act of 1974 referred to domestic interpretations and held that: under the doctrine of direct effect, which has been found to exist most notably in the legal order of the EC [now the EU] but also in certain free trade agreements, obligations addressed to States are construed as creating legally enforceable rights and obligations for individuals. Neither the GATT nor the WTO has so far been interpreted by GATT/WTO institutions as a legal order producing 25

26

27

28

29

30

Compare W. Meng, ‘Gedanken zur Frage unmittelbarer Anwendbarkeit von WTO-Recht in der EG’ in U. Beyerlin, M. Bothe, R. Hofmann and E.-U. Petersmann (eds.), Recht zwischen Umbruch und Bewahrung – Festschrift fu¨r Rudolf Bernhardt (Berlin: Springer, 1995), pp. 1063–86, 1070; V. Epping, Die Außenwirtschaftsfreiheit (Tu¨bingen: Mohr Siebeck, 1998), pp. 616ff. For the full text of all WTO Agreements, see www.wto.org/english/docs_e/legal_e/ legal_e.htm#agreements. A. Rosas, ‘Implementation and Enforcement of WTO Dispute Settlement Findings: An EU Perspective’, JIEL, 4(1) (2001), 131–44, 139. A different view is held by E.-U. Petersmann, ‘The WTO Constitution and Human Rights’, JIEL, 3(1) (2000), 19–25. For a critique of the Portugal decision, see also G. Zonnekeyn, ‘The Status of WTO Law in the EC Legal Order’, JWT, 34(3) (2000), 111–25. According to the DSU, only members (states) can request consultations and seek the establishment of a panel, etc.; see, e.g., Articles 4 and 6 DSU. Eeckhout, ‘Judicial Enforcement’, 93 and 94. 31 Ibid., 99.

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direct effect. Following this approach, the GATT/WTO did not create a new legal order the subjects of which comprise both contracting parties or Members and their nationals.32

The reports of the WTO Panel are not legally binding precedents,33 but it cannot easily be assumed that the WTO judiciary will radically change its approach in the future.34 Although the adjudicatory system of the WTO has strengthened ‘the rule-oriented approach and offers an element of legitimacy attached to the rule-of-law concept’, the dispute settlement organs are not expected to be willing or able to ‘constitutionalise’ the agreements like the ECJ did in the context of the European integration35 unless this reflects the political will of WTO members. Furthermore, it might not be in the interests of a well-functioning WTO legal system to have all domestic courts ruling on WTO law provisions by making those provisions directly enforceable. Although the growth of case law of the DSB in the future could provide further assistance for domestic courts, not all trade issues dealt with in domestic

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WT/DS152/R at para. 7.72. According to Article 7 DSU, panels are required ‘to examine, in the light of the relevant provisions in . . . the matter referred to the DSB . . . and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in that/those agreement(s)’. See, however, Collier and Lowe – probably by taking pattern from the European Law terminology – who state that panel reports ‘form part of the WTO acquis’ and ‘exercise a considerable influence on later panels’: The Settlement of Disputes in International Law (Oxford University Press, 1999), p. 101. See also Panel Report, US – Continued Existence and Application of Zeroing Methodology, of 1 October 2008, para. 7.179: ‘The Appellate Body suggests that security and predictability in the dispute settlement system per se is a purpose served by the development of a consistent body of case law based on panels following the reasoning of adopted Appellate Body reports [AB Report, US – Stainless Steel (Mexico), WT/DS344/AB/R, adopted 20 May 2008, para. 160]. We agree that security and predictability in the multilateral trading system may also be furthered by the development of consistent jurisprudence and applying it to the same legal questions, absent cogent reasons to do otherwise. In our view, it is obviously incumbent upon any panel to consider prior adopted Appellate Body reports, as well as adopted panel reports, and adopted GATT panel reports, in undertaking the objective assessment required by Article 11. Prior adopted reports form part of the GATT/WTO acquis, and, as stated by the Appellate Body, create legitimate expectations among WTO members, and, therefore, should be taken into account where they are relevant [AB Report, Japan – Alcoholic Beverages II, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 14]. However, we do not consider that the development of binding jurisprudence is a contemplated element to enable the dispute settlement system to provide security and predictability to the multilateral trading system.’ E. Stein, ‘International Integration and Democracy: No Love at First Sight’, AJIL, 95 (2001), 489–534, 502. See also Jackson, The Jurisprudence of GATT and the WTO, p. 122.

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proceedings would already have been part of a WTO dispute.36 Domestic courts could therefore not refer to detailed rulings of the DSB but could interpret the WTO provisions with varying backgrounds and expertise. The result would be a diverging jurisprudence on WTO members’ obligations. A move towards a more uniform interpretation of WTO provisions could be achieved through the introduction of a system of preliminary references, comparable to that under Article 267 TFEU (formerly Article 234 EC), requiring a modification of WTO law.37 However, as long as such a procedure does not exist, the direct application in domestic courts might do more harm than good with regard to a consistent development of international trade law. It can therefore be concluded that the case law of the EU courts principally denying the direct effect of WTO law is not in conflict with the current international perspective on the effect of WTO law in domestic systems. Of course, this does not mean that there is no interest in keeping WTO law ‘effective’ in all WTO members’ legal systems through political pressure at an intergovernmental level. Moreover, where the necessary means are provided by domestic legal systems, individuals’ claims can contribute to the enforcement of WTO law (see discussion below in section 3.1.2 on the principle of implementation). However, primary WTO law obligations are enforceable at the international level only through mechanisms initiated by other WTO members; neither the WTO agreements nor the DSB rulings have conveyed to the internal legal and judicial system of WTO members a role to play in the enforcement of rights and obligations under WTO law. It is likely that the EU courts will continue to deny both the direct effect of (primary) WTO law in principle and any right to compensation because of its breach.

3.1.1.2.2 Breach of WTO law identified by the DSB It has been questioned whether the direct effect of WTO law could actually be denied once an infringement of WTO law has been clearly established by the competent international judicial body (the DSB); accordingly, the EU would have no choice but to annul the measure in question in order to comply with the WTO ruling once the

36

37

Cottier, ‘Dispute Settlement in the World Trade Organization’, 368; Eeckhout, ‘Judicial Enforcement’, 97. Eeckhout, ‘Judicial Enforcement’, 99.

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obligation of the EU has been precisely and unconditionally identified by the DSB.38 As shown in Chapter 1, the Bananas and Hormones cases were brought before the DSB. The WTO tribunals, the panel and the Appellate Body – which ‘qualify as independent and competent adjudicatory bodies’39 – identified specific WTO obligations being infringed by the EU.40 The DSB adopted these reports, which became binding on the EU as it was a WTO member.41 Should the existence of DSB rulings have an impact on the enforceability of WTO obligations before the EU courts?42 In the past, the courts have in principle recognised that decisions of international judicial bodies could be binding on the ECJ where those bodies interpreted the international treaty on the basis of which they had been established, as long as the EU was one of the contracting parties to the international treaty in question.43 In a few recent cases, the courts have also referred in their decisions to rulings of the International Court of Justice,44 the European Court of Human Rights (ECtHR) (while not 38

39

40

41

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43 44

S. Ho¨rmann and G. Go¨ttsche, ‘Die Haftung der EG fu¨r WTO-Rechtsverletzungen – Neue Tendenzen in der EuGH-Rechtsprechung’, RIW, 9 (2003), 689–98, 694; P. Eeckhout, ‘The Effect of WTO Dispute Decisions in EU Law – Autonomy or Autarky?’ in I. Govaere, R. Quick and M. Bronckers (eds.), Trade and Competition Law in the EU and Beyond (Cheltenham: Edward Elgar, 2011), pp. 226–39; see also Alemanno, ‘Judicial Enforcement’. According to Bronckers, an international adjudication is usually seen to involve (1) independent judges applying (2) relatively precise and pre-existing legal norms after (3) adversary proceedings, (4) respecting basic principles of procedural fairness, in order to achieve (5) reasoned decisions in which (6) one party wins; see Bronckers, ‘The Relationship’, 616, with reference to further literature in note 80. Hormones, WT/DS26 and 48/R and WT/DS26 and 48/AB/R; Bananas, WT/DS27/R/ECU, GTM, HND, MEX and USA and WT/DS27/AB/R. For a recent discussion of this, see Eeckhout, ‘Remedies and Compliance’; for the famous debate on the question of reports being binding, see J. Hippler Bello, ‘The WTO Dispute Settlement Understanding: Less is More’, AJIL, 90 (1996), 416; and J. Jackson, ‘International Law Status of WTO Dispute Settlement Reports: Obligation to Comply or Option to “Buy Out”?’, AJIL, 98 (2004), 109–25. For a discussion on the relationship of the EU courts with other international judicial bodies in general, see Bronckers, ‘The Relationship’; F. G. Jacobs, ‘Judicial Dialogue and the Cross-fertilization of Legal Systems: The European Court of Justice’, TILJ, 38 (2003), 547–56, 553. Opinion 1/91, paras. 39ff. See Bronckers, ‘The Relationship’, 603, referring in note 10 to Case T-231/04, Greece v. Commission [2007] ECR II-63 (containing reference to the 1926 judgment of the Permanent International Court of Justice in German Interests in Polish Upper Silesia and the subsequent practice of the ICJ); Case C-162/96, Racke [1998] ECR I-3655 (containing reference to the 1997 judgment of the ICJ in Gabcı´kovo-Nagymaros Project); Cases T-306 and 315/01, Yusuf et al. v. Council [2005] ECR II-3533 (referring to the 1984 judgment of the ICJ in Nicaragua).

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feeling bound by the ECtHR’s rulings and retaining the possibility of giving a diverging interpretation of fundamental rights under EU law),45 the EFTA Court (acknowledging its influence but not an obligation to take account of its judgments)46 and the WTO Appellate Body.47 The EU courts have, however, not acknowledged the ‘direct effect’ of those rulings delivered by other international tribunals but have used the respective judgments as guidance on or support for their own interpretation of the law in question (on the principle of consistent interpretation, see below, section 3.1.3). The courts have acknowledged the ‘direct effect’ of decisions adopted by councils that had been established on the basis of bilateral association and cooperation agreements concluded by the EU with third states.48 There is no inconsistency in approach, however, if one considers the decisions adopted by Association Councils and similar institutions of cooperation agreements to have ‘law-making nature’, whereas the rulings of international tribunals are of an ‘interpretive nature’.49 In the specific context of the Hormones dispute, the (now) GC has held that the Panel and Appellate Body Reports adopted by the DSB are directly linked to the effect of the pertinent WTO law provisions whose direct effect had already been denied;50 as a consequence, the Court did not adjust its legality review as a result of the DSB ruling requesting the EU to bring its legislation into line with WTO law. This also seems to be in compliance with the courts’ case law on the direct effect of Association Council decisions, whether being of a law-making

45

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47 48 49

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See, for more detail, Bronckers, ‘The Relationship’, 604, referring in note 13 to Case C-301/04 P, Commission v. Tokai [2006] ECR I-5915, Advocate General Geelhoed’s Opinion in this case for detailed discussion, and for a general discussion, inter alia, S. Douglas-Scott, ‘A Tale of Two Courts: Luxembourg, Strasbourg and the Growing Human Rights Acquis’, CML Rev, 43(3) (2006), 629–65. See, for more detail, Bronckers, ‘The Relationship’, 605, referring in note 18 to Case C-192/01, Commission v. Denmark [2003] ECR I-9693; V. Skouris, ‘The ECJ and EFTA Court under the EEA Agreement: A Paradigm for International Cooperation between Judicial Institutions’ and M. Bronckers, ‘Exceptions to Liberal Trade in Foodstuffs: The Precautionary Approach and Collective Preferences’ in C. Baudenbacher, P. Tresselt and T. Orlygsson (eds.), The EFTA Court: Ten Years On (Oxford: Hart Publishing, 2005), pp. 125–6 and 105–6 respectively. Case C-245/02, Anheuser-Busch v. Budvar, para. 49. Case C-192/89, Sevince, paras. 14ff and 26; Case C-502/04, Ergu¨n Torun, para. 19. Von Bogdandy, ‘Legal Effects’, 49, referring to rulings of the DSB and Article 3(2) DSU. Case T-174/00, Biret.

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or an interpretive nature. Even where the courts held that decisions of Association Councils specifying or interpreting provisions of international agreements were directly effective, the courts also required the nature and purpose of the agreement allowing such direct effect.51 In the Biret appeal decision, the ECJ considered the mere lack of direct effect of the underlying WTO rules insufficient to explain or justify that a decision of the DSB (identifying a breach of WTO rules) could not be taken into account.52 However, the ECJ also held that applicants could not enforce the WTO law infringement on the sheer basis that it had been authoritatively identified by the DSB. According to the ECJ, WTO law does not yet, at this stage of an international trade dispute, call for any consequences at the WTO level, but allows a ‘reasonable period of time’ (Article 21(3) DSU) for bringing the national/EU measure into compliance with the member’s WTO law obligations.53 As a consequence, the domestic/EU courts were under an obligation not to give effect to the Panel and Appellate Body Reports adopted by the DSB as long as the international ‘grace period’ had not expired. In the context of the Bananas dispute, the ECJ took a firmer approach in FIAMM et al. and denied in more general terms the impact of DSB rulings on the scope of its legality review of EU measures. The ECJ held that: A DSB decision, which has no object other than to rule on whether a WTO member’s conduct is consistent with the obligations entered into by it within the context of the WTO, cannot in principle be fundamentally distinguished from the substantive rules which convey such obligations and by reference to which such a review is carried out, at least when it is a question of determining whether or not an infringement of those rules or that decision can be relied upon before the Community [now EU] courts for the purpose of reviewing the legality of the conduct of the Community [now EU] institutions. A recommendation or a ruling of the DSB finding that the substantive rules contained in the WTO agreements have not been complied with is, whatever the precise legal effect attaching to such a recommendation or ruling, no more capable than those rules of conferring upon individuals a right to rely thereon before the Community courts for the purpose of having the legality of the conduct of the Community institutions reviewed.54

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Case C-192/89, Sevince, paras. 14ff and 26, where decisions adopted by the Association Council were held to be directly effective since they were ‘clear, precise and unconditional’ and because of the purpose and nature of the decisions that formed part of the agreement; recently confirmed in Case C-502/04, Ergu¨n Torun, para. 19. Case C-93/02, Biret, paras. 56–9. 53 Ibid., para. 62. Cases C-120 and 121/06 P, FIAMM et al., paras. 128ff.

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According to the ECJ, the courts need to preserve the institutions’ leeway to exercise their discretion and negotiation power vis-a`-vis their trading partners, which has been provided by the WTO agreements (and its characteristics of reciprocity and flexibility), also with regard to the adoption of measures in response to DSB rulings.55 DSB rulings do not add or diminish rights and obligations provided in the agreement concerned, and do not require WTO members to confer rights on individuals that they do not hold by virtue of those agreements in the absence of such rulings.56 It is expected here that the EU courts will follow the approach established in Biret in the future and will refrain from judicial review where (lawful) leeway is granted internationally for the implementation of DSB rulings at the EU level.57 From an international law perspective, although the EU is legally bound to comply with WTO law by the expiry of the implementation period granted by the DSB, the WTO dispute settlement system provides what could be called a ‘procedural scope for manoeuvre’58 beforehand. There is no particular means prescribed with regard to ‘how to comply’. The complete annulment might not be the (only) available option in order to comply with a DSB ruling; there might still be discretion regarding the ways to end the infringement.59 However, if the EU has this discretion, the courts should not interfere with it by acknowledging the direct effect of WTO obligations and thus making them directly enforceable in annulment or compensation actions; the reach of an international legal obligation or limitation of the institutions cannot go further than what is laid down in the international agreements. The self-restraint exercised by the ECJ with regard to a review of EU measures in the light of WTO law in order not to render ‘ineffective the grant of a reasonable period for compliance’ corresponds to this line of reasoning.60 It goes without saying that the conclusion reached in this section – namely that reports identifying an infringement and being adopted by the DSB have no impact on EU liability before the expiry of the implementation period – relates only to liability for unlawful conduct where the courts require the direct effect of the WTO law in question. Liability in the absence of unlawfulness (see Chapter 5) – where recognised as a legal principle – does not rely on the conduct but on the consequences of EU measures and thus can in principle lead to different results with 55 58

Ibid., para. 130. 56 Ibid., para. 131. 57 Thies, ‘Biret and Beyond’, 1668ff. Ibid., 1672. 59 Ibid., 1669. 60 Case C-93/02, Biret, para. 62.

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regard to a right to compensation, even at an early stage of an international trade dispute.

3.1.1.2.3 Breach of WTO law after the expiry of the grace period Arguably, with the expiry of the implementation period granted by the DSB, the EU loses the judicially established temporary ‘tolerance’ of its WTO law infringements under the WTO system. Even though there might be a (trade-)political or practical option of the EU – namely to accept retaliatory measures or provide compensation – there is a lack of legal justification under the WTO agreements to continue the breach of WTO law. It has thus been claimed that the WTO obligation in question should become directly enforceable before the EU courts with the expiry of the implementation period granted by the DSB.61 While it is again claimed here that DSB rulings are legally binding and have to be complied with according to WTO law,62 it is assessed in the following paragraphs what impact the option to accept retaliatory measures, while continuing an infringement of WTO law, has on the enforceability of this infringement before the EU courts. In the Bananas and Hormones cases, the EU upheld the legislation in question – which had been considered unlawful by the competent international authority, the DSB – even after the expiry of the implementation period granted by the DSB under Article 21(3) DSU.63 The question whether the expiry of the ‘grace period’ granted by the DSB had an impact on the enforceability or direct effect of the WTO law infringement has been of particular relevance for the group of retaliation victims, who claimed compensation for damage that occurred as a direct consequence of the continued breach of WTO law and the related retaliatory measures that have been authorised under the WTO system.

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See the Opinion of Advocate General Alber in Case C-93/02, Biret at para. 86; Zonnekeyn, ‘The Status of Adopted Panel and Appellate Body Reports’, 103; Thies, ‘Biret and Beyond’, 1672. See note 41 above. See Chapter 1, sections 1.1.1 and 1.1.2, and the summaries of the disputes: www.wto. org/english/tratop_e/dispu_e/cases_e/ds26_e.htm; www.wto.org/english/tratop_e/ dispu_e/cases_e/ds48_e.htm; and www.wto.org/english/tratop_e/dispu_e/cases_e/ ds27_e.htm.

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Biret marked the first time that the ECJ addressed a situation in which the infringement of WTO law had already been identified by the DSB and the reasonable period of time granted by the DSB had expired without the EU having acted in order to comply with its WTO obligations.64 Although there was no need for the ECJ to deal with this constellation in detail, since other conditions for a successful (non-contractual liability) claim were not met, it did not exclude the possibility of acknowledging WTO obligations as part of its legality review once the ‘grace period’ granted by the DSB had expired. Subsequent to this decision, some thought that the ECJ had left the door open in Biret to allow applicants in subsequent cases to rely on WTO law infringements in actions before the EU courts where the international trade dispute had reached the stage of ongoing infringement of WTO law and the imposition of retaliatory measures.65 In Van Parys, however, the ECJ made clear that the possibility for WTO members to reach a negotiated agreement, even after the implementation period had expired, required the courts to refrain from setting aside domestic rules which were inconsistent with WTO agreements; the legislative and executive organs of the contracting parties must retain the possibility afforded by Article 22 DSU of reaching negotiated settlement, even if only on a temporary basis.66 According to the Court, the DSB rulings in question were also not ‘referred to’ or ‘implemented’ by subsequent EU measures, which would have made them directly effective under the Nakajima/Fediol exception (the ‘implementation principle’).67 Already before Biret and Van Parys, Cottier had argued – in the context of annulment actions – that because the DSU provides for temporary

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In Case C-104/97 P, Atlanta v. European Community, para. 21, the ECJ stated that the applicant could have maintained his plea regarding the infringement of WTO law by referring to the dispute settlement system set up within the WTO in 1995. However, the Court did not give any indication of what the result of that plea would have been. See also Advocate General Alber in his Opinion in Case C-93/02, Biret, para. 72. Ho¨rmann and Go¨ttsche, ‘Die Haftung der EG fu¨r WTO-Rechtsverletzungen’; Alemanno, ‘Judicial Enforcement’; Thies, ‘Biret and Beyond’. Case C-377/02, Van Parys, paras. 48, 51ff. See above note 12 and Chapter 1, note 131. Case T-19/01, Chiquita Brands and others, paras. 162, 164, 166. Case C-377/02, Van Parys, para. 52. For further discussion of the implementation principle, see below section 3.1.2.

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retaliation, the courts should not immediately make the concerned WTO law provisions directly effective; as long as the DSU does not regulate the timeframe for countermeasures, the unlawfulness of the EU measure should not be invokable.68 Since it is not determined by the DSU when the time for temporary retaliation finishes (see Article 22(8) DSU), the reports could never have an impact on the effect of WTO law in the EU legal system. Following Cottier’s view, Pitschas added in his comment on Biret that the dispute settlement system of the WTO needed to be differentiated from the international body addressed in Opinion 1/9169 because it provided for other (temporary) means of redress for the contracting parties in breach of the WTO agreements, whereas other international judicial bodies required an unconditional implementation of their decisions.70 A WTO member that fails to implement the reports adopted by the DSB within the time period granted by the DSB can, according to Article 22 DSU, agree with the other party/parties on ‘mutually acceptable compensation’ or accept being targeted by ‘the suspension of concessions or other obligations’ while continuing the breach of WTO law. Despite those alternative means being authorised (and monitored) by the WTO, the measure or measures originally challenged remain unlawful during their application. It is well known in the context of public international law that states cannot be forced to comply with their obligations in the same way as individuals under their domestic legal systems through police measures, fines and imprisonment. Nonetheless, the imposition of countermeasures, here retaliatory measures, neither nullifies nor justifies the unlawfulness of the other state’s measure in question; rather, it is a common means to enforce commitments.71 The sheer fact that the WTO dispute settlement system comprises detailed rules even on countermeasures should not be used as an argument against any judicial review in the

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Cottier, ‘Dispute Settlement in the World Trade Organization’, 374; Cottier, ‘A Theory of Direct Effect’, 111ff. See also Advocate General Le´ger in Case C-351/04, Ikea, para. 96. Opinion 1/91, paras. 39ff. C. Pitschas, ‘EuGH: Kein Schadensersatz wegen Importverbots fu¨r Hormonfleisch’, EuZW, 24 (2003), 758–63, 762ff. Eeckhout, ‘Domestic Legal Status’, 55; and Advocate General Alber in his Opinion in Case C-93/02, Biret at para. 88; Thies, ‘Biret and Beyond’, 1673; Eeckhout, ‘Remedies and Compliance’.

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light of WTO law. The WTO dispute settlement system should rather be seen as ‘a wider-ranging and further developed international regime that even controls countermeasures insofar as they can merely be put in place in accordance with a specific system of administration and under the supervision of the DSB’72 or a ‘system which is in many ways much stronger than most other dispute settlement systems established by multilateral agreements’.73 However, this does not necessarily mean that the ‘direct effect’ of the underlying WTO law provisions is appropriate or desirable, since it is still questionable whether individuals should be in a position to request the annulment of EU measures, preventing the disputing parties from finding any other agreement at the WTO level.74 However, it is questioned here whether the ECJ has provided sufficiently consistent reasoning when refraining from any scrutiny of EU conduct on the basis of the ‘scope for manoeuvre’ argument. At first sight, the Court’s claim not to review EU measures in the light of WTO law (in principle) seems incompatible with its actual willingness to assess the scope of discretion left to WTO members under the DSU, i.e., to accept retaliation while continuing a breach of WTO law. More specifically, the Court first seems to have applied WTO law directly where it enlarges the ‘scope for manoeuvre’ by respecting the EU’s ‘options’ under the DSU – possibly recognising legal discretion not provided by international law. Yet, the Court has refused to apply WTO law directly where WTO law would constrain the political and legislative EU institutions by allowing for the review of their conduct in the light of WTO law, even in the context of EU compensation actions. In order to justify this ‘inconsistency’ in approach, one could claim that the Court needs to assess the ‘scope for manoeuvre’ of WTO members under WTO law in order to decide whether or not the general character of the WTO agreements prohibits the direct effect of their individual provisions (before even looking at those individually).75 Nevertheless, it seems worthwhile to shed some light on possible ways for the courts to avoid the identified inconsistency in the interests of legal certainty. Three different scenarios are presented here:

72 74 75

Thies, ‘Biret and Beyond’, 1673. 73 Eeckhout, ‘Remedies and Compliance’, 444. See also Eeckhout, ‘Judicial Enforcement’, 93. For a discussion of whether the first step in the ‘direct effect’ assessment (before entering any legality review), namely to evaluate the nature of the international agreement in question, is a merely technical or substantive question and further reference to literature, see von Bogdandy, ‘Legal Effects’, 50.

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international trade disputes and eu liability (1) The courts could acknowledge that the legal system established by the WTO agreements does not prohibit ‘direct effect’ entirely; as a consequence, the courts would look at WTO law provisions individually, i.e., not only ‘options’ under the DSU but also ‘obligations’ under substantive WTO agreements would be taken into account by the courts in their legality review. This solution seems straightforward: in a first step, the court would consider itself competent – according to Article 19 TEU and Articles 263(2) and 216(2) TFEU – to enter into a legality review taking the breach of law (as determined by the DSB) into account, and in a second step, the court would address whether under WTO law (including the DSU), WTO members enjoy discretion that allows them to continue a breach of WTO law temporarily which needs to be respected by the domestic judiciary. No applicant in an EU court proceeding could reasonably require the courts to apply WTO law to an extent that goes beyond the system established by the WTO agreements.76 This scenario would, however, require the courts to depart from their conclusion in Portugal, namely that the ‘nature and structure of the agreements’ in principle do not allow the direct effect of WTO law. (2) The courts could continue to hold that the nature and structure of the WTO agreements do not permit the direct effect of any of their provisions in principle; as a consequence, and in order to be consistent with regard to which effect to give to WTO law, however, the courts would also refrain from addressing questions of legal or political options under the DSU. It should be highlighted again that it has been the ‘options’ under the DSU that the courts have used for their reasoning, namely that the ‘nature and structure of the agreements’ do not permit the direct effect of WTO law provisions in principle. It would probably be difficult to find an alternative legal reasoning for this conclusion – in addition to that of ‘reciprocity’ – in particular considering that many provisions of the WTO agreements are (at least) as ‘clear and precise’ as provisions of other international agreements whose direct effect the courts have acknowledged. This might have been the reason why the ECJ focused on the procedural law of the DSU when denying the direct effect of substantive WTO law in the first place. (3) The courts could continue to deny direct effect where EU measures are directly challenged while not requiring the direct effect of invoked provisions in the context of compensation actions. Thus, in the context of compensation actions, the courts could take into account the ‘options’ of WTO members under the DSU in order to assess the ‘seriousness of the breach’ (see section 3.3 below) being one condition for EU liability. Accordingly, the courts would need to examine how the legal or

76

It might be helpful to decide more explicitly at the WTO level on the nature of obligations resulting from the agreements and the DSB rulings delivered.

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political options under the DSU affect the EU institutions’ discretion and whether or not these options prevented the institutions from ‘manifestly and gravely disregarding the limits’ of such discretion – all of those factors being established assessment criteria in the context of liability. At the same time, the provisions of the substantive WTO law invoked by the applicants as well as the relevant DSU provisions would need to be assessed specifically with regard to their ‘conferral of rights on individuals’, which is arguably distinct from the criterion of direct effect (see section 3.4 below).

In sum, scenario (3) would allow the courts not to interfere with the scope for manoeuvre of the EU institutions (by allowing them to continue WTO law breaches) while still taking the ‘degree of their wrongdoing’ into account to allow a fair balancing of interests involved. However, such a scenario has been explicitly rejected by the ECJ in the context of a compensation action in FIAMM et al.77 Scenarios (1) and (2) are also probably unrealistic for the EU courts to follow, as it seems difficult to overcome the hurdle that the ECJ established in Portugal (and has confirmed many times since) in a rather general way: the ECJ denied the direct effect of substantive law WTO obligations precisely because of the options given procedurally. Accordingly, the ‘scope for manoeuvre’ is necessary for (political) decisions taken that have implications for the international level of trade relations; it is questionable whether this ‘scope for manoeuvre’ can be limited as long as a (trade-)political option exists after the implementation period has expired.78 Although there is no possibility of negotiating the breach of WTO law as such, WTO members have the de facto option of continuing the breach.79 Already in Portugal, the ECJ emphasised the need to maintain the WTO members’ option of accepting temporary sanctions under Article 22 DSU;80 such a need to refrain from judicial review in the light of WTO law has been recognised again by the Court in Van Parys and FIAMM et al. where retaliatory measures had actually been imposed.81 In a nutshell, the EU courts’ reasoning when denying the direct effect of WTO obligations before the DSB’s involvement in the case remains the same with regard to the period following the expiry of the implementation period. As stated before, according to the established two-step assessment, EU measures are reviewed only in the light of international 77 78 80 81

Cases C-120 and 121/06 P, FIAMM et al., para. 120. Thies, ‘Biret and Beyond’, 1674. 79 Ibid., 1674. Case C-149/96, Portugal, para. 40. Case C-377/02, Van Parys, paras. 48, 51ff; Cases C-120 and 121/06 P, FIAMM et al., para. 130.

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agreements if: (a) the nature and broad logic of the agreement does not preclude this; and (b) the provision is sufficiently clear and precise.82 The courts’ reasoning and denial of direct effect is based on the nature of the WTO agreements, which means that – despite the courts sometimes blurring the different conditions of liability – the wording of the actual infringed provision in question is irrelevant. The courts have not recognised any ‘unlawfulness’ of EU measures because of a breach of WTO law due to the denial of direct effect. While the courts have been willing to take WTO law and, in particular, the DSU into account in order to justify broader competences of the EU institutions to continue a breach of WTO law, a change of the case law in the interests of traders operating under the WTO regime seems unlikely, in particular considering the recent FIAMM et al. decision of the ECJ.83

3.1.1.2.4 Conclusion The EU courts deny the direct effect of WTO obligations for political reasons, i.e., to respect the political and legislative institutions’ scope for manoeuvre at the international level, which is also enjoyed by the major trading partners of the EU under WTO law. It is not expected that the courts will acknowledge the direct effect and enforceability of WTO obligations before the EU courts. If anything, the potential change regarding the impact of WTO law infringements on the EU courts’ legality review that might be triggered because of the expiry of the implementation period granted by the DSB is related to the ‘seriousness of the infringement’ and the ‘character of the infringed rule’ (see sections 3.3 and 3.4 below); both, however, require the courts’ recognition of WTO law as being part of the body of law in the light of which the challenged EU measure is reviewed, which has been denied again in FIAMM et al.84 The ECJ has also explicitly refused in FIAMM et al. to waive the requirement of ‘direct effect’ in the specific context of compensation actions (see Chapter 2, section 2.3.4 and Chapter 6, section 6.1.2).85 As a consequence, the different time spans of an international trade dispute and, more particularly, the expiry of the implementation period granted by the DSB have not yet been taken into account in this context, which would have: (a) enabled applicants to show the ‘seriousness of a breach’ more easily once a breach of WTO law had been identified by 82 83

For a recent confirmation of this test, see Case C-308/06, Intertanko, para. 45. Cases C-120 and 121/06 P, FIAMM et al. 84 Ibid. 85 Ibid., para. 120.

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the DSB and continued even after the expiry of the ‘grace period’; and (b) allowed the modification of the ‘conferral of rights’ through potential additional obligations under the DSB once reports are adopted, the ‘grace period’ has expired and/or retaliatory measures have been imposed.

3.1.2 Exceptional direct effect of WTO primary law: the implementation principle It has been introduced in Chapter 1 and mentioned above that the courts have already reviewed EU measures in the light of WTO law where the exceptions under the so-called implementation principle were established, namely where the particular WTO law obligation was ‘expressly referred to’ or ‘implemented’ by EU legislation.86 These exceptions had been introduced by the ECJ in Nakajima87 and Fediol.88 Accordingly, provisions of the GATT 1947 could be invoked in order to have an EU act annulled or to claim compensation89 if the EU’s legislative act in question was implementing or referring to the GATT obligation at stake. The ECJ confirmed these exceptions in Portugal with regard to the WTO agreements by stating: It is only where the Community intended to implement a particular obligation assumed in the context of WTO, or where the Community measure refers expressly to the precise provisions of the WTO agreements, that it is for the Court to review the legality of the Community measure in question in the light of the WTO rules.90

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For these exceptions with regard to the GATT 1947, see Case 70/87, Fediol, paras. 19–22; and Case C-69/89, Nakajima, para. 31. The ECJ confirmed the existence of these exceptions with regard to the WTO Agreements in Case C-149/96, Portugal, para. 47. For an examination of further application of the so-called ‘implementation principle’ in the EU courts’ jurisprudence, see Eeckhout, ‘Judicial Enforcement’, 104ff; Zonnekeyn, ‘The Latest on Indirect Effect’. Case C-69/89, Nakajima, para. 31. 88 Case C-70/87, Fediol, paras. 19–22. W. Berg and T. Mu¨ller, ‘Die WTO-Widrigkeit des Byrd-Amendments und Schadensersatz fu¨r Amtshaftung’, RIW, 49(6) (2003), 419–21, at note 9. Case C-149/96, Portugal, para. 49. This was confirmed by the (now) GC in Case T-174/00, Biret, para. 63. Compare also the Resolution of the European Parliament on the relationship between international law, Community law and the constitutional law of the Member States where the Parliament called for a clear provision to be included in the (then) EC Treaty that international law is only directly applicable by declaration of an internal legal act of the (then) EC or after transposition of the substance into (then) EC legislation, OJ C325, 27 October 1997, p. 26, para. 14.

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Thus, the courts have wanted to review the legality of EU measures only in the light of WTO law if the EU institutions have manifested their ‘will’ to incorporate the specific WTO law obligation in question in the EU legal order. The reason for this is that the political and legislative scope for manoeuvre should not be constrained unless the EU institutions themselves have explicitly made these obligations part of the EU legal order.91 The courts seem to thereby aim for a balance between the need to comply with WTO agreements at the international level, because of the EU’s general commitment as a contracting party, and the interest in making WTO obligations directly enforceable before the EU courts, because of the EU’s specific self-commitment to make these part of its own legal order. In other words, while the general adoption of the WTO agreements by the EU institutions is not sufficient to make WTO law obligations directly effective and part of the courts’ legality review of EU measures, the specific ‘implementation of’ or ‘reference to’ precise obligations is. It could be argued that by signing the DSU as part of the WTO agreements, the EU undertook pro futuro the implementation of provisions of the WTO agreements as interpreted and applied by the DSB in a specific case. Article 216(2) TFEU, together with the WTO agreements, mandates the EU institutions to follow a specific procedure for the settlement of an international trade dispute brought to the DSB under the DSU. In the course of this procedure, the dispute settlement system of the WTO provides room for negotiations until the end of the implementation period granted by the DSB.92 After the expiry of this period, the reports defining a non-negotiable infringement of WTO law93 could be regarded not only to be binding – like primary WTO law – but also manifesting the intention of all WTO members (including the EU) to bring the concerned measure into compliance. It is argued that this would not grant direct effect to all WTO agreements – as rejected by the case law of the EU courts – through the back door, given that only those provisions that were already interpreted and applied by the DSB in a specific dispute would be taken into account by the courts when assessing the 91

92 93

See also Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., Opinion of 20 February 2008, para. 41. See Articles 3(7), 5(5), and 11 DSU. A question to be distinguished is to what extent the Member States involved in the dispute can agree on a ‘mutually acceptable compensation’ within the meaning of Article 21(2) DSU to temporarily balance the economic harm suffered because of the WTO law infringement.

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lawfulness of EU conduct. Nevertheless, such a concept seems farreaching, as it is based on the argument that the EU, by ratifying the DSU, ‘consciously intended’ to implement any WTO law provision which became part of a WTO dispute according to a DSB ruling – which in principle entails all WTO law provisions. It must thus be concluded that, even where the DSB has already adopted the Panel and Appellate Body Reports applying certain WTO law provisions, applicants relying on WTO law provisions before the EU courts need to show that these have been ‘implemented’ or ‘referred to’ in EU legislation in order to invoke the ‘implementation principle’, as has been reiterated in the context of the Bananas and Hormones cases.

3.1.2.1 Implementation principle in the Bananas case Applicants in actions brought before the EU courts in the context of the Bananas case relied on the implementation principle when claiming compensation. They claimed that the EU had attempted to implement the DSB rulings in order to comply with its obligations under WTO law and, as a consequence, that the ruling and the EU’s obligations under WTO law on which it is based were made directly effective within the EU legal order.94 As a consequence, it would have been possible to rely (directly) on WTO law ‘through’ the modified regulation – which was considered to still be in violation of WTO law95 – in order to constitute a breach of law justifying a right to compensation. As stated in the previous section, according to the EU courts’ case law, this would have required that the EU, by its amending legislation, intended to implement a particular obligation. The EU intended to bring its legislation into conformity with WTO law by amending it subsequent to the ruling of the DSB. In the second recital of the preamble of the amending banana regulation, the Council stated:

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For an overview of the EU’s different attempts to bring the banana market regulation into compliance with WTO law, see S. Peers, ‘WTO Dispute Settlement and Community Law’, ELR, 26(6) (2001), 605–15. WTO Arbitration, European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/DS27/ARB, 9 April 1999; and Panel Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of the DSU by Ecuador, WT/DS27/RW/ECU, 12 April 1999.

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Whereas the Community’s international commitments under the World Trade Organization . . . should be met, whilst achieving at the same time the purposes of the common organisation of the market in bananas.96

Hence, the Council as the competent authority expressed its will for implementation (arguably in the Nakajima sense) when it was amending the basic banana regulation and instructed the Commission to implement the DSB ruling and mandated compliance.97 This could have enabled – and obliged – the EU courts to review the adopted acts in the light not only of primary WTO law but also of the adopted rulings.98 As a consequence of the Council regulation, the Commission amended the banana regulation (Regulation No 2362/98). However, the Commission neither explicitly referred to the WTO rulings nor to the implementation will of the Council. The GC therefore concluded not to apply the Nakajima exception in the present context by stating: Neither the reports of the WTO Panel of 22 May 1997 nor the report of the WTO Standing Appellate Body of 9 September 1997 which was adopted by the Dispute Settlement Body on 25 September 1997 included any special obligations which the Commission intended to implement, within the meaning of the case law, in Regulation No 2362/98 (see with regard to the 1947 GATT, Case C-69/89 Nakajima v. Council [1991] ECR I-2069, paragraph 31). The regulation does not make express reference either to any specific obligations arising out of the reports of WTO Bodies, or to specific provisions of the agreements contained in the annexes to the WTO Agreement.99

There is the risk of reducing the principle of implementation to a mere formality and of leaving the question of direct effect to the (arbitrary) decision of political institutions. Can the Commission avoid any impact of WTO law on the courts’ legality review by ‘keeping silence’ despite the Council’s explicit reference to the WTO law obligation? If one EU institution intends to comply and to implement specific obligations while another EU institution does not intend to do so, whose approach determines the effect of WTO obligations under the principle of implementation? Where challenged and modified EU measures are based on internal market competences despite their impact on external relations (see Chapter 1, section 1.3), would it be the Commission or the Council deciding on the direct effect of underlying WTO law? These questions cannot be dealt with conclusively within the scope of this book, but 96 97 99

See second recital of the Preamble of Regulation No 1637/98, OJ 1998 No. L210, p. 28. See Eeckhout, ‘Judicial Enforcement’, 109. 98 See ibid. Case T-18/99, Cordis, para. 59; Case T-30/99, Bocchi, para. 64; Case T-52/99, T. Port, para. 59.

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seem to be of great importance with regard to the distribution of power between the Member States and the EU, and their interest in the compliance with and/or the implementation of WTO law obligations. There had been hope that the (now) GC’s decision in Cordis et al. was not the last word of the EU courts since the arguments of the party regarding the implementation principle had been brought before the GC only in a ‘rather confusing way at the oral hearing’.100 However, the ECJ confirmed the approach of the GC in the same context and ruled very clearly in its Order given in a preliminary ruling procedure that none of the amending banana regulations was ‘designed to implement’ or ‘refer expressly’ to GATT obligations.101

3.1.2.2 Implementation principle in the Hormones case In the context of the Hormones case, the (now) GC found that since the relevant (now) EU Directives were adopted several years before the SPS Agreement – of which some provisions were claimed to be infringed – came into force, they could logically neither ‘implement a particular obligation’ of the Agreement nor ‘refer expressly’ to some of its provisions.102 After the Hormones case had been brought before the DSB and WTO law breaches had been identified, the EU refused to lift the import ban.103 Since there was no EU legislation implementing the WTO rulings on Hormones when Biret et al. brought their compensation actions before 100 101

102

103

See Eeckhout, ‘Judicial Enforcement’, 108. Case C-307/99, OGT, para. 28: ‘However . . . no such exceptional situation exists in the present case. The common organisation of the market of bananas, as introduced by Regulation No 404/93 and subsequently amended, is not designed to ensure the implementation in the Community legal order of a particular obligation assumed in the context of GATT, nor does it refer expressly to specific provisions of GATT.’ Case T-174/00, Biret, para. 64: ‘since Directives 81/602 and 88/146 were adopted on 1 January 1995, several years before the entry into force of the SPS Agreement, it is not logically possible for them either to give rise to a specific obligation entered into under that agreement or to refer expressly to some of its provisions.’ Although the ECJ held that the (now) GC had made errors of law, it did not come to a different conclusion in this respect: see Case C-93/02, Biret, paras. 53ff. See a summary of the amending legislative process in Case T-174/00, Biret, para. 15: ‘On the basis of the results of further analysis of the risks associated with the use of the substances in question the Commission adopted on 24 May 2000, and submitted to the Parliament and the Council on 3 July 2000, the proposal for Directive 2000/C 337 E/25 of the European Parliament and the Council amending Directive 96/22 (OJ 2000 C 337 E, p. 163) and seeking in particular to maintain the prohibition on the use of oestradiol 17/ß as a permanent measure, and on the use of the five other substances prohibited under Directive 96/22 as a temporary measure pending further scientific reports’ (emphasis added).

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the EU courts,104 the ‘implementation principle’ discussion was of no immediate relevance in these actions.105 This has subsequently changed. In 2000, the Commission submitted a proposal to amend the legislation.106 On 22 September 2003, Directive 2003/74/EC of the European Parliament and the Council amended Directive 96/22/EC ‘in the light of the results’ of the DSB reports. In October 2003, the EU communicated to the DSB that with the new Directive (2003/74/EC) in force, the EU had fully implemented the recommendations and rulings of the DSB; as a consequence, the suspension of concessions to the EU by the USA and Canada were no longer justified.107 However, neither the USA nor Canada acceded to the request of the EU, and the dispute continued.108 The panel reports, as modified by the Appellate Body, which concluded that the EU had not removed the inconsistency with the SPS Agreement, were adopted by the DSB on 14 November 2008.109 As discussed in Chapter 1, the dispute was ended through the adoption of a Memorandum of Understanding between the parties.110 The author is not aware of any annulment or compensation actions brought before the EU courts in which the applicants relied on the implementation principle in order to invoke the DSB Hormones ruling to challenge the latest Directive (2003/74/EC).

3.1.3 Corollary breach of the competence norm under the EU treaties because of the principle of consistent interpretation? According to the principle of consistent interpretation, the EU courts are under an obligation to interpret, as far as possible, contested EU legislation in the light of and in conformity with the EU’s international obligations.111 The EU courts have in several cases required national law 104 105 106

107 108

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See Eeckhout, ‘Judicial Enforcement’, 109. Case T-174/00, Biret; Case C-93/02, Biret. See the proposal for Directive 2000/C 337 E/25 of the European Parliament and the Council amending Directive 96/22, OJ 2000, C 337 E/163. Hormones (US and Canada), WT/DS26/22, WT/DS48/20, Doc. No. 03–3759, 28 October 2003. See the summary of the disputes: www.wto.org/english/tratop_e/dispu_e/cases_e/ ds26_e.htm; www.wto.org/english/tratop_e/dispu_e/cases_e/ds48_e.htm. See www.wto.org/english/tratop_e/dispu_e/cases_e/ds320_e.htm and www.wto.org/ english/tratop_e/dispu_e/cases_e/ds321_e.htm for regular updates on these cases. See Chapter 1, notes 35–9. Case C-61/94, Commission v. Germany, para. 52; see the Opinion of Advocate General Jacobs on Case C-76/00 P, Petrotub SA and Republica SA v. Council [2003] ECR I-73, confirming the principle of consistent interpretation, paras. 50ff, and ECJ judgment, para. 57.

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to be interpreted in the light of WTO law, in particular in the light of provisions of the TRIPs Agreement.112 The courts referred to the principle of consistent interpretation with regard to EU law that was potentially conflicting with WTO law obligations.113 The use of the principle of consistent interpretation was thus relevant for the actual application of EU law.114 In the context of actions brought by retaliation victims due to an alleged breach of WTO obligations under the GATT, the principle of consistent interpretation was neither relied on nor applied, as there was no legislation relevant for retaliation victims that could have required an interpretation in the light of the EU’s WTO law obligations. It is questioned here, however, whether the competence norm under the EU Treaty, on which the EU legislation – here the legislation on the banana market and hormone-treated beef – had been adopted, might require an interpretation in the light of the WTO obligations. As argued in Chapter 1, the EU’s competence norms, on which the institutions relied when adopting and upholding a measure in breach of WTO law, are limited because of the EU Member States’ own commitment to the WTO as well as the WTO agreements possibly constraining the EU’s activities. Would the examination of the scope of EU primary law competence norms under reference to limitations through WTO law obligations be comparable to the model of ‘consistent interpretation’? It seems difficult to apply the principle of consistent interpretation when dealing with the scope of EU powers provided under the EU treaties. Primary law prevails over international law, including the WTO agreements, in the EU legal system. It is therefore questionable whether the scope of competences under the treaties can be interpreted ‘in the light of’ international obligations. Since both the banana market regulation and the hormone-treated beef legislation were based directly on the (then) EC Treaty, it seems unlikely that the principle of consistent interpretation could be of use for justifying a right to compensation in the context of compensation actions brought by retaliation victims. Furthermore, if the competence norms were to be interpreted in the light of WTO law, the legal and political options of WTO members regarding derogation from WTO obligations would have to be taken 112

113 114

Case C-53/96, Herme`s; Joined Cases C-300 and 392/98, Dior; Case C-89/99, Schievin-Nijstad vof and others [2001] ECR I-5851. For further discussion of case law, see Eeckhout, EU External Relations Law, pp. 355ff. Case C-70/94, Werner, para. 23; Case C-83/94, Leifer and others, para. 24. Cottier, ‘A Theory of Direct Effect’, 111.

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into consideration. Advocate General Maduro reiterated in his Opinion in the FIAMM and Fedon appeal proceedings that there is only an obligation for the EU courts to interpret EU law in a consistent manner where this is possible; he concluded that it would not be possible for the EU courts to constrain the capacity of the EU institutions to adopt or uphold a measure clearly in breach of WTO law while preferring to seek a negotiated solution to the trade dispute.115

3.2 Sufficiently serious breach It has been assessed in Chapter 2 under which circumstances the EU courts might consider a breach of international legal obligations to be sufficiently serious to justify a right to compensation under Article 340(2) TFEU.116 Due to the lack of direct effect of WTO law, the courts have not recognised any ‘unlawfulness’ of EU conduct that could have been invoked in the context of judicial proceedings before the EU courts. As a consequence, the courts have not yet turned to an examination of whether or not alleged WTO law breaches were sufficiently serious to justify a right to compensation. The analysis presented in this section is therefore based on the assumption that the courts will either acknowledge direct effect in some circumstances (e.g., where the implementation principle is applied) or will waive the requirement of direct effect in the context of compensation actions in the future.117 In both situations, the courts would be required to address the seriousness of the breach identified before acknowledging a right to compensation under EU liability principles. In general, the EU courts have considered breaches of law to be sufficiently serious where institutions ‘manifestly and gravely disregarded the limits of their discretion’.118 The particular challenge in the present context is to define the scope of institutional discretion, which is possibly shaped not only by EU law but also by WTO law. Do the WTO agreements have an impact on the scope of discretion enjoyed by the EU institutions when adopting or upholding measures that not only have EU domestic implications but also fall within the scope of application of the WTO system? If so, what does this entail for the EU courts’ assessment of the 115 116 117 118

Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 39. See Chapter 2, section 2.3.3.2.1. See Chapter 2, section 2.3.4 and Chapter 6, section 6.1.2. Case C-352/98 P, Bergaderm, para. 43; Case C-312/00 P, Commission v. Camar and Tico, para. 54.

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seriousness of WTO law breaches where compensation is claimed for consequences of international trade disputes triggered by the EU? It is argued here that the courts have considered the EU’s scope of discretion to be shaped by the WTO system when taking into account the options of WTO members to accept retaliatory measures instead of complying with WTO obligations. Even though the courts have refrained from assessing the compliance of EU legislation with WTO law provisions due to a lack of direct effect, they have referred to discretion provided under the WTO agreement (i.e., the DSU) that – according to the EU courts – entitles the EU to derogate temporarily from its international obligations.119 The retaliation regime provided by the WTO system has therefore served the EU courts to acknowledge – arguably enlarged – political or legislative powers of the EU.120 This is problematic because the courts did not address the implications of the exercise of those powers for the position of natural and legal persons affected by the consequences of its application, which are possibly more severe than in internal situations, in which the EU acts only on the basis of its own legal order. To further disentangle the different elements of the EU courts’ judicial review at the intersection of EU and WTO law, it is suggested that a distinction should be drawn between the use of political and legal scope for manoeuvre of the institutions that the courts have meant to respect or protect in the context of compensation actions. It is worth remembering here that in international trade-related cases, the EU courts have considered the scope of discretion granted by the DSU as part of the actual basis or justification for their general denial of direct effect.121 This has led to their conclusion that the WTO agreements would not allow for the direct effect of their individual provisions, which is the first of the two steps in the assessment of an international legal provision’s direct effect.122 It is suggested here that the courts have thereby considered the WTO members’ option to continue a breach of WTO law (‘scope for manoeuvre’) as part of their political discretion of the institutions that the courts should not interfere with, given that direct effect was also denied once the international legal obligation to comply with WTO law had been clearly established by the DSB.123 At the same 119

120 121 123

See, e.g., Case C-377/02, Van Parys, paras. 51 and 53; Case T-19/01, Chiquita, paras. 161ff. See also section 3.1.1.2.1 above and Chapter 6, section 6.3 below. See note 12 above. 122 See notes 75 and 82 above. See discussion at sections 3.1.1.1 and 3.1.1.2.2 and 3.1.1.2.3 above.

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time, however, when assessing the limits to discretion in the context of liability claims, the courts have referred to what could be called legal discretion provided by (directly effective) EU law, as the courts’ assessment in principle seems to start from the assumption that at the time of the adoption of the contested measure, a variety of seemingly lawful options existed, which the institutions were ‘entitled’ to choose from – or to ‘misjudge’. While such action should be subject to judicial review in principle, the courts respect the institutions’ discretion by only acknowledging compensation rights if the limits have been ‘manifestly and gravely’ disregarded. Assuming that the direct effect of the WTO law obligation in question were to be acknowledged, or no longer required in the context of compensation actions, it is suggested that the EU courts would need to look into the scope of the EU’s legal obligations under WTO law and the extent to which they have been specified through the rulings of the DSB. It would then be a separate question for the courts to assess whether the scope of discretion granted to all WTO members in disputes brought before the DSB were to prevent the breach of law being sufficiently serious for EU liability purposes. Instead of leaving the political institutions with complete leeway, this would ensure the judiciability of their conduct. It is suggested here that the expiry of the implementation period granted by the DSB ends the legal discretion of WTO members not to comply with their WTO obligations; the temporary acceptance of retaliatory measures has no impact on the existence of a breach of WTO law. It thus seems arguable that the EU commits a ‘sufficiently serious breach’ once the WTO law obligations not only exist but are also deliberately not complied with despite the DSB ruling and the expiry of the implementation period.

3.3 ‘Conferral of rights’: ‘right holders’ or ‘beneficiaries’? In order to justify a right to compensation for EU conduct in breach of WTO law, it is also necessary to show that the infringed WTO law provision is conferring rights on individuals.124 In Cordis, Bocchi, T. Port and Bananatrading, the (now) GC denied the conferral of rights on the basis on which the ECJ had decided not to invalidate EU legislation because of a breach of WTO law, namely not to interfere with the other institutions’ 124

See already Joined Cases 5, 7 and 13–24/66, Kampffmeyer; Case 5/71, Scho¨ppenstedt; see also T. Tridimas, ‘Liability for Breach of Community Law: Growing Up and Mellowing Down?’, CML Rev, 38(2) (2001), 301–32, 328.

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scope for manoeuvre at the international level, and rejected an action for compensation as unfounded.125 It referred to the Portugal126 decision and held that it was not possible to challenge the validity of EU legislation in the light of these international provisions.127 In Intertanko, the ECJ held that the United Nations Convention on the Law of the Sea (UNCLOS) ‘does not establish rules intended to apply directly and immediately to individuals and to confer upon them rights or freedoms capable of being relied upon against States, irrespective of the attitude of the ship’s flag State’.128 According to the Court, UNCLOS seeks to ‘strike a fair balance between the interests of States’.129 While the Court recognised that UNCLOS might provide rights for ships under certain circumstances, it concluded that this does not entail a conferral of rights on their owners, as ‘a ship’s international legal status depends on the flag State and not on the fact that it belongs to certain natural or legal persons’.130 The ECJ concluded in FIAMM et al. that DSB rulings were not more capable than the pertinent infringed substantive rules contained in the WTO agreements of ‘conferring upon individuals a right to rely thereon before the [EU] courts for the purpose of having the legality of the conduct of the Community institutions reviewed’ (emphasis added).131 The notion of ‘conferral of rights’ has thus been used to define the standing of individuals before the courts and the EU courts’ jurisdiction with regard to any kind of WTO law breach. However, the ECJ has not analysed in that context whether the specific, allegedly infringed WTO law provisions conferred rights or were meant to protect the interests of individuals. In sum, the requirement of showing an international agreement’s capacity to be directly effective – in order to allow for a review of EU conduct in its light – has not been distinguished from the question of whether or not individual provisions of international law confer rights on natural or legal persons. 125

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Case T-18/99, Cordis, paras. 30ff; Case T-30/99, Bocchi, paras. 35ff; Case T-52/99, T. Port, paras. 30ff; Case T-3/99, Bananatrading, paras. 14, 33ff. Case C-149/96, Portugal, para. 49. Case T-18/99, Cordis, paras. 46, 51; Case T-30/99, Bocchi, paras. 51, 56; Case T-52/99, T. Port, paras. 46, 51; Case T-3/99, Bananatrading, para. 43. Case C-308/06, Intertanko, para. 64. 129 Ibid., para. 58. Ibid., para. 61. While in favour of placing the question of whether or not international agreements confer rights and freedoms at the centre of the Court’s analysis, Eeckhout considered the test’s application in Intertanko ‘unpersuasive’ and the Court’s reasoning to be ‘formalistic’: EU External Relations Law, 382. Cases C-120 and 121/06 P, FIAMM et al., paras. 129, 133; see also paras. 97 and 103.

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Yet, as suggested in Chapter 2 (sections 2.3.2.2 and 2.3.4.3), the question whether or not a legal provision confers rights, or aims for the protection of individuals, does not necessarily depend on the provision’s direct effect for the purposes of compensation actions. To draw a clear distinction between the enforceability of international legal provisions as EU obligations on the one hand and the intended implications of such provisions for individuals in substance on the other might enable the courts to deal more adequately both with the growing number of cases at the intersection of different international legal regimes and the growing role of individuals as subject to and subjects of international law. Several provisions of the WTO agreements are at least in the interests of individuals, since they are meant to regulate and protect individuals’ trade activities.132 Recognising such an intention of the WTO agreements seems compatible with the EU courts’ approach of not acknowledging the full direct effect and enforceability of the WTO regime and its individual provisions within the EU legal order. A provision that is not only about inter-WTO members’ relations but is also in the interests of individuals might lack direct effect (because of the nature of the WTO agreements altogether), but might nevertheless justify a right to compensation if infringed by the EU. It is emphasised in this context that the direct effect of WTO law has so far been denied on the basis of: (a) the assumption that the entire agreement in question would prevent direct effect; and (b) political reasons – it has not been denied because of the character and content of the individual provision relied on in each particular case. In order to justify a right to compensation even in the absence of direct effect of the infringed rule, the situation of non-implemented DSB reports has been compared with the ECJ’s case law on non-implemented Directives (‘Francovich idea’) where a ‘conferral of rights’ was acknowledged despite a lack of ‘direct effect’.133 This analogy is, however, not 132

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G. Berrisch and H. G. Kamann, ‘WTO Recht im Gemeinschaftsrecht – (k)eine Kehrtwende des EuGH’, EWS, 3 (2000), 89–97; Petersmann, ‘Darf die EG’; W. Meng, ‘Verfahrensrechtliche Rechtsstellung der Individuen in Bezug auf das WTO-Recht’ in H. W. Arndt, F.-L. Knemeyer, D. Kugelmann, W. Meng and M. Schweitzer (eds.), Vo¨lkerrecht und Deutsches Recht – Festschrift fu¨r Walter Rudolf (Mu¨nchen: C. H. Beck, 2001), pp. 65–94; Reinisch, ‘Entscha¨digung’, 45; Zonnekeyn, ‘EC Liability for Non-implementation’, p. 263. For further discussion of this parallelism, see Schoißwohl, ‘Haftung der Gemeinschaft’, 700ff; for a comment on the Francovich decision and its effect on liability rules, see W. Van Gerven, ‘Non-contractual Liability of Member States, Community Institutions and Individuals for Breaches of Community Law with a View to a Common Law for Europe’, MJ, 1 (1994), 6–40.

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compelling, given that neither the nature of the non-implemented measures nor the underlying legal regimes are comparable. The nonimplemented measure in Francovich was of a legislative nature, and EU Member States were under an EU law obligation to implement it in their national legal systems. Yet, a non-implemented DSB ruling is an international judicial act addressed to a particular subject of international law. An EU Directive is binding on a group of addressees (EU Member States) and is often meant to regulate and protect a circle of natural and legal persons under the common EU legal order. A DSB ruling, however, is the result of an international dispute and is merely addressed to the parties involved who might find a range of different ways to resolve their dispute. In Francovich, the ECJ could identify individuals who were supposed to be protected by the Directive; the EU institutions had envisaged establishing individual rights in the legal systems of all Member States through the Directive’s implementation in national law.134 In the context of the non-implementation of DSB rulings, it is less obvious to what extent individuals would be protected by the EU’s compliance with WTO law and DSB rulings. Economic operators directly concerned by the ongoing incompliance with WTO law (‘direct victims’, such as banana or beef importers) have to be distinguished from the traders damaged by the countermeasures of another WTO member (‘retaliation victims’,135 such as cotton bed-linen producers).136 The former group of traders has been suffering from the breach of a primary WTO law provision as identified by the DSB and would need to show that the pertinent provision is ‘conferring rights on individuals’. Retaliation victims operate in different market sectors and are thus not ‘protected’ by the provisions infringed by the EU in the original international trade dispute. Is it possible for retaliation victims to show that DSB rulings or arbitration reports in themselves intend their ‘protection’? Although retaliation victims are not directly addressed by the DSB rulings and arbitration reports, they would be ‘benefiting’ from the EU’s compliance with those reports inasmuch as this would result in the lifting of retaliatory measures imposed. The interests of retaliation victims are by 134 135 136

Case C-479/93, Francovich, paras. 20ff. Speaking about ‘collateral damage’ in this context: Reinisch, ‘Entscha¨digung’, 42. Although (so far) not of practical importance, the ‘compensation victims’, damaged by compensation agreed upon as a countermeasure, should also be kept in mind as a possible category of victims.

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their nature different from the interests of economic operators directly addressed by the unlawful EU legislation, and can easily be identified by the ECJ since any compliance – even if still damaging the ‘direct victims’ – does end retaliatory measures. However, it is doubtful whether this is sufficient for acknowledging a legal position of retaliation victims that justifies a right to compensation. The DSU provisions, according to which the acceptance of retaliation is merely a temporary option, can hardly be seen as ‘conferring rights’ on retaliation victims, in particular since the current DSU does not restrict retaliation to a certain period of time.137 There is no WTO obligation to ‘maintain undistorted trade’ which could be considered as conferring rights on all possible retaliation victims, and it seems questionable whether WTO law is intended to protect interests of a ‘general nature’.138 To conclude this section, the question of whether the approach taken by the ECJ in Ko¨bler139 with regard to state liability could, first, be applied to EU liability in the context of international trade disputes and, second, make the condition of a ‘conferral of rights’ redundant is examined. As discussed in Chapter 2, the ECJ held in Ko¨bler that state liability could be triggered by the national court’s omission to refer a question on the interpretation of EU law to the ECJ despite ‘doubts’ regarding the correct interpretation of EU law that would be essential for the national court’s decision. The ECJ did not require the infringed procedural provision – namely the obligation of referring a question to the ECJ under (now) Article 267(3) TFEU – to ‘confer rights on individuals’. However, it assessed (implicitly) whether the EU law provisions, which had not been applied properly due to the national court’s omission to ask the ECJ for its correct interpretation, conferred rights. In analogy to this state liability case, one could assume that the ECJ would also acknowledge the possibility of claiming compensation from the EU for breaches of procedural obligations under international law if those breaches led to the ‘non-realisation’ of international legal provisions intended to protect the rights or benefits of applicants. Nonetheless, the situation in Ko¨bler is not comparable with that under WTO law. The underlying objective when acknowledging in principle a right to compensation in Ko¨bler was to uphold the effectiveness of EU law – the EU also being an independent

137 138

139

Compare Cottier, ‘Dispute Settlement in the World Trade Organization’, 374. A. Arnull, ‘Liability for Legislative Acts’, p. 136; Tridimas, ‘Liability for Breach of Community Law’, 328. Case C-224/01, Ko¨bler.

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legal order in the interests of its natural and legal persons.140 There is no such constitutional principle of effectiveness and/or legal order in the interests of international traders under the WTO system as of yet. To argue that Article 267 TFEU confers as little rights on individuals as Article 22 DSU does, and thus to apply Ko¨bler to cases brought by retaliation victims, would be simplistic, since it would not give justice to the different levels of integration of the EU legal order and the WTO system.

3.4 Further conditions 3.4.1 Damage A right to compensation can only arise if applicants can show that ‘actual and certain’ damage occurred.141 In this respect, liability for breaches of WTO law is not different from liability for breaches of ‘pure EU law’ (see Chapter 4) and liability in the absence of unlawfulness (see Chapter 5). Compensation is meant to provide restitution for the victims of EU conduct and must correspond to the actual damage caused.142 The existence of damage must be sufficiently certain and quantifiable.143 Compensation can in principle be required for damage occurring either in the form of a reduction in a person’s assets (damnum emergens) or in the form of a loss of earnings (lucrum cessans).144 There can also be a claim for compensation where damage cannot be precisely assessed but is foreseeable,145 or where non-material damage occurred that is a ‘“reflection” of unreasonable inconvenience caused . . . on account of an unlawful act or failure to act of [an EU] institution’.146 In one of the actions brought by retaliation victims, the applicant FIAMM claimed that the damage suffered consisted of: (a) a 96.5 per cent 140 141

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Case 26/62, Van Gend en Loos. Compare Article 340(2) TFEU (formerly Article 288(2) EC); see also Chapter 2, sections 2.3.2.3 and 2.3.3.3 above. Case C-308/87, Grifoni, para. 40; Joined Cases C-104/89 and C-37/90, Mulder and others v. Council of the EU and Commission of the EC [2000] ECR I-203, paras. 51, 63. A. Toth, ‘The Concepts of Damage and Causality as Elements of Non-Contractual Liability’ in Heukels and McDonnell (eds.), The Action for Damages in Community Law, pp. 180–91; Joined Cases 19, 20, 25 and 30/69, Richez-Parise and others v. Commission [1970] ECR 325, para. 31. Opinion of Advocate General Caporti in Case 238/78, Ireks-Arkady v. Council and Commission [1979] ECR 2955, 2998–99. Cases 56–60/74, Kampffmeyer [1976] ECR 711, 741; Case T-79/96, Camar Srl [2000] ECR II-2193, para. 207. Castillo de la Torre on Article 340 TFEU in Smit et al. (eds.), Smit & Herzog, Vol. 4, § 340.04[4](a).

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increase in the import duty levied by the USA; (b) the costs incurred in respect of the setting up and the relocation of production units for those products which they were compelled to undertake in response to that trade retaliation measure; and (c) losses of turnover resulting from the reconversion of the production units in question.147 In the course of the proceedings before the (now) GC, the applicant stated that by expediting the establishment of a battery production unit in the USA and by converting a site in another non-Member State of the EU into a factory for the manufacture of batteries, it had been able to reduce to a minimum the adverse impact of the increased customs duty and to save its share of the US market; consequently, no sale volumes were lost, but only pecuniary loss was suffered.148 In addition to the damage allegedly suffered by FIAMM, other applicants (Beamglow Ltd.) also claimed to have suffered serious losses because of previous investments in the USA, remuneration of US distributors, legal fees, considerable loss of profit and a fall in sales.149 The GC came to the conclusion – without assessing the individual types of damage allegedly suffered by the applicants – ‘that the condition requiring the applicants to have sustained actual and certain damage [was] satisfied’.150 On appeal, the Council and the Commission claimed that the GC had not properly applied the rules on the burden of proof, nor had it appropriately assessed whether or not ‘actual and certain damage’ had occurred.151 According to Advocate General Maduro, however, the GC had been entitled to find that the existence of damage caused by retaliatory measures was not contested by the parties, even though the defendant had claimed that the applicant had not mitigated the damage sufficiently; moreover, the GC had based its conclusion on statistics produced by the Commission that showed a decrease of imports (of batteries and spectacle cases) to the USA during the relevant period.152 There was no need for the ECJ to address the issue of whether or not ‘actual and certain damage’ had occurred, since it had already denied the legal basis for a right to compensation altogether.153 The question of actual and certain damage needs to be assessed by the courts on a case-by-case basis. It is likely, however, that traders suffer 147 149 151 152

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Case T-69/00, FIAMM, para. 162. 148 Ibid., para. 163. Case T-383/00, Beamglow Ltd., para. 176. 150 Case T-69/00, FIAMM, para. 170. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 71. Ibid., with reference to Case T-69/00, FIAMM, paras. 166–70; and Case T-135/01, Fedon et al., paras. 159–62. Cases C-120 and 121/06 P, FIAMM et al., paras. 162ff, 190.

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damage when suddenly facing 100 per cent ad valorem duties on their products imported to WTO members imposing retaliatory measures. It will then become relevant for the courts to assess whether or not retaliation victims are in a position to find alternative markets for their products in order to mitigate or even avoid damage.154 The retaliation victims who have so far brought actions for compensation are mediumsized companies exporting products, such as paper, cheese or batteries; it is questionable how adaptable their production and distribution mechanisms are, and how easily alternative markets can be found and accessed. It is likely that at least some damage is caused by the interruption of product presence and the loss of their market share, or the ending of selling activity in the market of the WTO member imposing retaliatory measures. It also seems challenging to regain previously held market positions after an interruption of product presence. Mitigating the immediate effect by selling products somewhere else does not improve the situation with regard to the market affected and/or lost because of the import interruption in the longer term. It might be only bigger companies that are in a position to uphold their export business by sending their products first to a non-EU country, slightly modifying/‘improving’ the product and then importing it into the WTO member without being affected by retaliation.

3.4.2 Causal link Applicants in compensation actions need to show that there is a causal link between the act or omission of the EU institution and the damage. There is certainly no causality triggering liability if the same result had occurred in the same way even in the absence of the EU act or omission (conditio sine qua non).155 However, the criterion of causality has to be narrowed down to limit liability to an appropriate level.156 According to its case law, the ECJ requires the suffered damage to be a ‘sufficiently direct consequence’ of the EU conduct.157

154 155

156 157

See Joined Cases C-104/89 and C-37/90, Mulder, para. 221. Case C-358/90, Compagnia Italiana Alcool v. Commission [1992] ECR I-2457, 2505. See also the Opinion of Advocate General Roemer in Case 29/63, Laminoirs de la Providence v. High Authority [1965] ECR 954; and the Opinion of Advocate General Gand in Joined Cases 5, 7 and 13–24/66, Kampffmeyer. Toth, ‘The Concepts of Damage and Causality’, 192. See Joined Cases 64 and 113/76, 167 and 239/78, 27, 28 and 45/79, Dumortier Fre`res, para. 21.

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In the context of the international trade disputes triggered by the EU, it is clear that there would have been no retaliatory measures in the same form against the same products without the existence of the EU banana and hormones legislation. At the same time, it was the ‘intervention’ of other WTO members, such as the USA’s decision to impose retaliatory measures, that had immediate consequences for the traders concerned. It could thus be argued that the establishment of a product list affected by retaliation and the actual imposition of duties on those selected products could break the chain of causation between the acts of EU institutions and the damage.158 However, it seems important to take into account in this analysis that retaliation needs to be, and has been authorised by the WTO dispute settlement system, which was set up by all contracting parties. As a consequence, the other WTO member’s conduct that is directly responsible for the loss is ‘lawful’ under the WTO regime. Why should this conduct alleviate the responsibility of the EU? It could be argued that there has been no causal link in the present context, as the EU institutions could hardly have foreseen which products would be put on the retaliation list by the USA and other WTO members in the event of a WTO ruling against the EU. According to established EU liability law, it would be crucial to show that retaliatory measures are not a ‘remote’159 but an ‘objectively foreseeable consequence in the normal course of events’160 of the (upholding of the) EU legislation in breach of WTO law. In Dorsch, the EU courts denied causality since it was not foreseeable for the legislative institutions of the EU that the imposition of its trade embargo would lead to a retaliatory measure by Iraq, preventing the claimant from receiving further payments from the Iraqi authorities.161 However, the situations in Dorsch and in the cases brought by traders damaged by retaliation under the WTO system are different. The trade embargo was imposed with the purpose of sanctioning Iraq (following the Resolution No. 661 (1990) of the UN Security Council), and Iraq’s reaction had economic implications for traders. However, these implications are not as foreseeable as the application of the WTO retaliation system established by the DSU. WTO members’ institutions infringing WTO law have to take into consideration that

158 159

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Toth, ‘The Concepts of Damage and Causality’, 193. See Joined Cases 64 and 113/76, 167 and 239/78, 27, 28 and 45/79, Dumortier Fre`res, para. 21. Case T-184/95, Dorsch Consult v. Council, para. 72. 161 Ibid., para. 72.

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WTO law breaches possibly lead to a WTO dispute that is followed by retaliation if DSB rulings are not followed. Even though it could not be foreseen by the EU where or with whom the loss would occur, it was – under accurate and adequate consideration of WTO law – likely that some European operators would suffer damage, in particular after the breach had been identified by the DSB and not rectified by the EU. The mere fact that the EU could not predict which exporters would be damaged cannot exclude its responsibility for the loss. Furthermore, in contrast to Iraq’s Law No. 57,162 the USA in its retaliation measures did refer to the EU and its legislation. A clear link between the original EU conduct and the US reaction, as well as the damage suffered by individuals, therefore exists. The EU courts have held that no right to compensation existed where applicants could or ought to have foreseen the events that led to the loss.163 This is not the case in the context of international trade disputes and retaliation. It is not convincing to construe an obligation for even a ‘prudent and experienced’164 exporter to follow all EU legislation and WTO proceedings, and to prepare for changes triggered by the EU losing a case brought before the DSB, merely because there exists the possibility of being added to a retaliation list by another WTO member. The chain of causation is not broken because retaliation victims could have limited the loss, since the mitigation of damage (through alternative markets, etc.) merely has an impact on the actual amount of money claimed which has to be determined on a case-by-case basis. The (now) GC came to the same conclusion and held in FIAMM that: The unilateral decision by the United States of America to impose increased customs duty on imports of batteries originating in the Community is not therefore such as to break the causal link that exists between the damage which the imposition of that increased duty caused to the applicants and the defendants’ retention of the banana import regime at issue. The conduct of the defendant institutions necessarily led to adoption of the retaliatory measure by the United States authorities in compliance with the procedures established by the DSU and accepted by the Community, so that their conduct must be regarded as the immediate cause of the damage

162 163

164

Ibid., para. 71. See Case 59/83, Biovilac [1984] ECR 4057, 4080–1; Case T-514/93, Cobrecaf v. Commission [1995] ECR II-621, 643; Case T-572/93, Odigitria v. Council and Commission [1995] ECR II-2025, 2051–2. Toth, ‘The Concepts of Damage and Causality’, 195.

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suffered by the applicants following imposition of the United States increased customs duty.165

Again, after having already denied the basis for any right to compensation in the present context, there was no need for the ECJ to address the question of causal link in its appeal decision.166

3.5 Conclusions The aim of this chapter has been to assess the claims for compensation on the basis of WTO law breaches against the background of general EU liability law, which was introduced in Chapter 2. For this purpose, the implications of an EU breach of WTO law were evaluated in the light of WTO law and rulings at the different stages of an international trade dispute. The analysis of the possible entitlement of retaliation victims followed the structure given by the EU courts in compensation actions when assessing the merits of the case, i.e., assessing whether and how the situation of applicants might justify a right to compensation on the basis of established criteria. The EU courts have been reluctant to enable EU Member States or natural and legal persons to invoke WTO law before the EU and national courts in annulment actions or preliminary rulings, even after the EU had itself become a WTO member. It has been shown in this chapter that this reluctance extends to cases in which the competent international judicial bodies – the Panel and the Appellate Body – have already identified an infringement of WTO law and their reports have been adopted by the DSB. The EU courts have continued to exercise judicial self-restraint where the ‘grace period’ granted by the DSB for the implementation of the reports has already expired. The EU courts have not yet recognised any entitlement to compensation of traders suffering damage because of retaliatory measures lawfully imposed by other WTO members under the WTO system because of a lack of direct effect of WTO law. It has been illustrated in this chapter that even if the condition of direct effect was met (or waived), the applicants would have other hurdles to take, in particular to show that the institutions ‘gravely and manifestly disregarded their discretion’ – which might be increased by the EU’s membership in the WTO – and that the infringed 165

166

Case T-69/00, FIAMM, paras. 184 and 185. This has been confirmed in the appeal by Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 72. Cases C-120 and 121/06 P, FIAMM et al., para. 190.

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rule ‘conferred rights’ on the applicants. It does not seem likely that the ECJ would recognise those conditions to be met in cases brought by retaliation victims. In the interests of a complete system of rights and judicial protection in the context of international trade disputes, the following chapter will therefore turn to the scope of liability for breaches of general principles of EU law – e.g., due to an omission to provide internal balancing mechanisms while accepting retaliatory measures damaging some – (see Chapter 4) or a liability regime aiming to balance particularly severe consequences of EU conduct in the absence of unlawfulness (see Chapter 5).

4

The impact of EU general principles on the EU’s liability regime I: liability due to infringement of EU general principles

It has become clear from the analysis presented in the previous chapters that the EU courts have not yet recognised any right to compensation of retaliation victims on the basis of the EU’s infringement of its international legal obligations under the WTO agreements. This present chapter now turns to the EU constitutional law dimension of liability for unlawful conduct in the context of international trade disputes. It assesses whether and to what extent a right to compensation can arise due to a breach of domestic EU law and, more specifically, due to a breach of fundamental rights and other general principles of EU law for the protection of natural and legal persons who are affected by retaliatory measures triggered by the EU’s incompliance with WTO law. In order to provide the EU constitutional law context of the issues addressed here, the chapter begins with a brief overview in section 4.1 of the EU courts’ general approach regarding the compliance with EU general principles as a precondition for lawfulness of EU conduct, in particular in the context of compensation actions. Subsequently, the chapter assesses in section 4.2 whether or not an external dimension of EU conduct1 has implications for the applicability of general principles .

1

EU conduct is considered here to have an ‘external dimension’, where it is not only of relevance to the internal EU legal order but also affects the international or external (trade) relations of the EU with third states or international organisations, and thus also falls within the scope of the application of international law. The analysis in this chapter is limited to EU conduct with immediate implications for individuals in policy areas falling within the competence of the EU, including EU measures implementing Common Foreign and Security Policy positions or decisions. For a discussion of judicial protection and the application of general principles to the former Third Pillar, (now) Police and Judicial Co-operation in Criminal Matters (PJC), see S. Peers, ‘Salvation Outside the Church: Judicial Protection in the Third Pillar after the Pupino and Segi Judgments’, CML Rev, 44(4) (2007), 883–929.

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as a benchmark for the EU courts’ legality review of such conduct. The following section (4.3) evaluates to what extent – once the applicability of general principles has been recognised – the external dimension of EU conduct might shape the actual scope of protection of general principles. In its next section (4.4), the chapter analyses the role of general principles of EU law in the specific context of international trade disputes with regard to the protection of retaliation victims. It thereby focuses on the right to property and the principle of pursuit of an economic activity, the principle of legitimate expectations and the right to nondiscrimination, which retaliation victims have invoked before the EU courts. Without fully applying each principle to the distinct situation of each retaliation victim, several issues are highlighted that the EU courts should consider before ruling on the right to compensation in this context, arguably going beyond what has been done by the ECJ in what could be called an obiter dictum in FIAMM et al. and Fedon.2

4.1 Liability for breaches of general principles of EU law According to established case law, respect for human rights is a condition of the lawfulness of EU acts,3 and measures ‘which are incompatible with observance of the human rights . . . are not acceptable’ in the EU.4 In the development of fundamental rights, the ECJ has ‘draw[n] inspiration from the constitutional traditions common to the Member States and from the guidelines supplied by international instruments for the protection of human rights on which the Member States have collaborated or to which they are signatories’, recognising the special significance of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR).5 As discussed in more detail in Chapter 2, the EU can, according to established case law, be held liable if there is a sufficiently serious breach of a rule conferring rights on individuals, and a causal link between the EU measure and the damage.6 In principle, the general principles of EU law belong to the body of law that the courts take into account when reviewing EU

2 3 4 5

6

Cases C-120 and 121/06 P, FIAMM et al., paras. 180ff. Opinion 2/94 [1996] ECR I-1759, para. 34. Case C-112/00, Schmidberger, para. 73, with reference to further case law. See, e.g., Case C-305/05, Ordre des barreaux francophones et germanophone and others [2007] ECR I-5305, para. 29, with reference to further case law. See, e.g., Case C-352/98 P, Bergaderm, paras. 41–3. See also Chapter 2.

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conduct in the context of compensation actions.7 The rule of law requires compliance with the entire body of EU law, which includes unwritten general principles identified by the EU courts.8 Even where the courts have missed the sufficient seriousness of the breach, they have acknowledged that breaches of general principles can constitute the basis for compensation.9 In Verenigung van Exporteurs, the (now) GC explicitly recognised the principles of proportionality, misuse of powers, equal treatment, the protection of legitimate expectation, and the right to be heard as being ‘for the protection of individuals’.10

4.2 Effect of the external dimension of EU conduct on the applicability of general principles of EU law The GC was reluctant to undertake a legality review of EU conduct against the benchmark of EU general principles in FIAMM, as it seems to have considered the direct effect of WTO law to be a precondition for the courts’ overall review of EU conduct in the context of the international trade dispute on bananas.11 The aims of this section are to demonstrate that this approach differs from previous and subsequent case law of the ECJ, which has continuously highlighted the necessity of ensuring the observance of the general principles of EU law with regard to EU conduct with an external dimension,12 and to thereby further clarify the legal situation of retaliation victims. For this purpose, the following paragraphs place the GC’s judgment rendered in FIAMM within the particular context of a series of cases in which the EU courts dealt with the applicability of general principles in the legality review 7

8

9

10

11 12

Compare the discussion in Tridimas, The General Principles, pp. 477ff; A. Ward, Judicial Review and the Rights of Private Parties in EU Law, 2nd edn (Oxford University Press, 2007), pp. 391ff; Lenaerts, Van Nuffel and Bray, Constitutional Law of the European Union, pp. 711ff. See also Cases C-120 and 121/06 P, FIAMM et al., para. 182. See the recent decision of the ECJ in Joined Cases C-402/05 P and C-415/05 P, Kadi et al., paras. 281ff, 316. Compare also Reinisch, ‘Entscha¨digung’, 44. For the principle of non-discrimination, see, e.g., Joined Cases 83 and 94/76, 4, 15 and 40/77, HNL, paras. 5, 6; for the right to property, the principles of non-discrimination, of equality and of proportionality, see Case 281/84, Zuckerfabrik Bedburg; for the principles of legal certainty and legitimate expectations, see Case 74/74, CNTA v. Commission; and for the misuse of powers, see Case C-119/88, AERPO v. Commission [1990] ECR I-2189. Cases T-481/93 and 484/93, Verenigung van Exporteurs, paras. 102ff, with reference to further case law on those principles. Case T-69/00, FIAMM, para. 146. Confirmed in Joined Cases C-402/05 P and C-415/05 P, Kadi et al., para. 283.

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of EU conduct with an external dimension. After introducing the GC’s reasoning in FIAMM, the Intertanko and Kadi cases are analysed with regard to the courts’ legality review in the light of EU general principles for the protection of individuals. The section concludes with some general observations regarding the role of EU general principles for the protection of individuals in the specific context of international trade disputes.

4.2.1 The approach of the EU courts in FIAMM et al. As indicated above, the GC in FIAMM13 seems to have declined to review EU conduct with an external dimension in the light of general principles, where the EU legislation in question had implications for the EU’s international trade relations. The GC held that: [The applicants’ complaints are] based on breach of the principles of the protection of legitimate expectations and of legal certainty, on infringement of the right to property and to pursuit of an economic activity and, finally, on failure to observe the principle of proper administration all rest on the premiss that the conduct of which the defendant institutions are accused is contrary to WTO rules. (Emphasis added)14

Hence, the GC ended its legality review of the challenged EU conduct because of the lack of direct effect of the WTO law provisions, the breach of which had also been invoked by the applicants. As a consequence of linking the scope of its overall judicial review with the particular impact of the EU’s WTO law obligations, the GC assessed neither the specific scope of protection of individual general principles invoked by the applicants nor their alleged breach. It is questioned here whether the GC’s approach is justifiable under EU law, as it leads to a complete denial of judicial protection where the EU conduct is challenged not only in the light of EU domestic law but also because of alleged WTO law infringements. Given that the applicants in FIAMM had not challenged the GC’s conclusion in this respect, the ECJ was not requested to address the question of applicability and scope of general principles for the 13 14

Case T-69/00, FIAMM, para. 146. With regard to the principles of the protection of legitimate expectations and legal certainty, the right to property and to pursuit of an economic activity, and the principle of proper administration, see Case T-69/00, FIAMM, para. 146; with regard to the principle of proportionality, see Case T-383/00, Beamglow Ltd., para. 162; with regard to the principle of non-discrimination, see Case T-151/00, Le Laboratoire du Bain, para. 137; Case T-301/00, Fremaux, para. 137; and Case T-320/00, Cartondruck, para. 142.

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protection of retaliation victims in its appeal decision. However, the Court concluded its findings on the non-existence of a principle of liability in the absence of unlawfulness15 by holding that: as Community [now EU] law currently stands, no liability regime exists under which the Community can incur liability for conduct falling within the sphere of its legislative competence in a situation where any failure of such conduct to comply with the WTO agreements cannot be relied upon before the Community courts.16

This account could be read as ruling out any possibility whatsoever for applicants to rely on general principles when challenging EU conduct in the context of international trade disputes, unless the relevant WTO law provisions were to be directly effective. Yet, the ECJ’s subsequent remarks on the effect and scope of general principles in what could be called an obiter dictum seem to aim at safeguarding the EU courts’ competence to review the legality of EU conduct in the light of general principles of EU law.17 Although the ECJ considered potential restrictions on fundamental rights in the light of both their social function and competing general interests as lawful – as long as there is no ‘disproportionate and intolerable interference which infringes upon the very substance of the rights guaranteed’18 – it reiterated that ‘fundamental rights form an integral part of the general principles of law the observance of which the Court ensures’.19 According to the Court, institutions might be under an obligation to provide certain forms of compensation when adopting legislative measures in order to respect the ‘very substance’ of the right to property and the freedom to pursue a trade or profession. Non-contractual liability on the part of the EU could arise where the application of a legislative measure leads to: restrictions of the right to property and the freedom to pursue trade or profession that impair the very substance of those rights in a disproportionate and intolerable manner, perhaps precisely because no provision has been made for compensation calculated to avoid or remedy that impairment.20

In other words, the Court recognised that an infringement of general principles potentially justifies a right to compensation where institutions omitted to compensate for severe restrictions, which the envisaged scope of protection of those principles prohibits. 15 16 18

For further details, see Chapter 5. Cases C-120 and 121/06 P, FIAMM et al., para. 176. 17 Ibid., paras. 180ff. Ibid., para. 183. 19 Ibid., para. 182. 20 Ibid., para. 184.

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4.2.2 The approach of the EU courts in Intertanko In Intertanko, the ECJ dealt with the effect and alleged breach of provisions of international agreements separately from the question of whether or not there was an infringement of general principles.21 In this case, the Court had been asked in a preliminary ruling procedure to assess the validity of provisions of a directive on ship-source pollution.22 The validity of the provisions had been challenged in the light of the International Convention for the Prevention of Pollution from Ships (Marpol 73/78) – of which the Directive incorporated certain rules23 – and UNCLOS, which forms an integral part of the EU legal order, given that the EU is one of its contracting parties.24 Moreover, the referring national court had asked the Court to decide whether or not the wording of one of the provisions of the contested Directive constituted an infringement of the general principle of legal certainty.25 The ECJ was therefore required to determine the scope of its jurisdiction and judicial review in the light of international and EU law in a way that was comparable to the situation in FIAMM. While the contested EU legislation had been adopted on the basis of an EU competence (transport) and was ‘designed to harmonise and ensure effective Member State implementation of the [Marpol] standards by establishing rules regarding infringements, penalties and enforcement’,26 its regulatory reach overlapped with or fell within the scope of application of the above-mentioned international conventions. The ECJ first addressed the implications of the international legal obligations invoked. It held that it could not review the contested Directive in the light of Marpol 73/78, as neither the powers exercised by the EU Member States when joining this convention had been 21 22

23 24

25

Case C-308/06, Intertanko. Directive 2005/35/EC of the European Parliament and of the Council of 7 September 2005 on ship-source pollution and on the introduction of penalties for infringements, OJ 2005 L 255/11. Case C-308/06, Intertanko, para. 50. Ibid., para. 53. See Chapter 2, section 2.3.3.1, and for a detailed discussion of the Court’s approach on the effect of those international agreements in the EU legal order in Intertanko, see Eeckhout, EU External Relations Law, pp. 226ff; P. Eeckhout, ‘Comment on C-308/06, The Queen on the application of Intertanko and others v. Secretary of State for Transport’, CML Rev, 46(6) (2009), 2041–57; M. Cremona, ‘Member States as Trustees of the Union Interest: Participating in International Agreements on Behalf of the European Union’ in A. Arnull, C. Barnard, M. Dougan and E. Spaventa (eds.), A Constitutional Order of States? Essays in EU Law in Honour of Alan Dashwood (Oxford: Hart Publishing, 2011), pp. 435–57, 447ff. Case C-308/06, Intertanko, para. 67. 26 Cremona, ‘Member States as Trustees’, 452.

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transferred fully to the EU, nor were the invoked provisions the expression of customary rules of general international law.27 With regard to the enforceability of obligations under UNCLOS, the Court followed its approach taken in the context of WTO law obligations discussed in Chapter 3 (see section 3.1.1). The Court recognised that UNCLOS is binding on the EU as a contracting party to the Convention, which forms an integral part of the EU legal order.28 However, having assessed the reach of UNCLOS with regard to the position of individuals, it concluded that ‘the nature and the broad logic of UNCLOS prevent[ed] the Court from being able to assess the validity of a Community measure in the light of that Convention’.29 Subsequently, the Court turned to its findings on the contested Directive’s validity in the light of the ‘general principle of legal certainty’, which the Court categorised as a ‘fundamental principle of [EU] law’ that ‘requires, in particular, that rules should be clear and precise, so that individuals may ascertain unequivocally what their rights and obligations are and may take steps accordingly’.30 In the Court’s analysis of the scope of the EU principle – and its specific expression, namely that there must be a legal basis for criminal offences and penalties (nullum crimen, nulla poena sine lege) – it neither established nor required any link between the principle’s applicability and the fact that the EU Directive had an external dimension. It was on the basis of an application of ‘pure’ EU law that the Court concluded that the general principle of legal certainty did not affect the validity of the challenged EU Directive.31

4.2.3 The approach of the EU courts in Kadi et al. Shortly before rendering its decision in FIAMM, the (now) GC had also declined to review EU legislation with an external dimension in the light of general principles in annulment actions brought in the Yusuf and Kadi cases.32 The claimants had challenged EU legislation that implemented UN Security Council resolutions and Sanctions Committee lists of persons suspected of supporting terrorism.33 The GC held that it could not exercise any judicial review in the light of EU fundamental rights, as the EU had not exercised discretion of its own 27 30 33

Case C-308/06, Intertanko, paras. 49–51. 28 Ibid., para. 53. 29 Ibid., para. 65. Ibid., para. 69. 31 Ibid., paras. 69–80. 32 Case T-306/01, Yusuf; Case T-315/01, Kadi. For a comprehensive discussion of individual sanctions implemented by the EU and related legal issues, see C. Eckes, EU Counter-Terrorist Policies and Fundamental Rights – The Case of Individual Sanctions (Oxford University Press, 2009).

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when adopting the contested implementing EU legislation.34 The GC considered its jurisdiction to be limited; accordingly, it had not the ‘authority to call in question, even indirectly, [the Security Council resolutions’] lawfulness in the light of Community [now EU] law’.35 Since there was an obligation for the EU Member States both to comply with the Security Council resolution in question and to implement the list of terror suspects drawn up by the Sanctions Committee, i.e. to freeze the assets of the persons concerned, the Court held that the implementing EU legislation could not be reviewed in the light of general principles of EU law without implicitly reviewing the Security Council resolution, for which the EU courts lacked jurisdiction.36 In the appeal proceedings brought by Kadi and Al Barakaat,37 Advocate General Maduro in his Opinion denied that measures implementing Security Council resolutions had ‘supra-constitutional status and are hence accorded immunity from judicial review’.38 In its judgment of 3 September 2008, the ECJ followed Advocate General Maduro’s suggestion, consequently set aside the GC’s judgment and annulled the regulation in question insofar as it concerned the applicants due to breaches of their rights to defence, in particular the right to be heard, the right to an effective legal remedy and the right to property.39 According to the ECJ, the review of the validity of EU measures in the light of fundamental rights ‘must be considered to be the expression, in a community based on the rule of law, of a constitutional guarantee stemming from the EC Treaty [now replaced by the TEU and the TFEU] as an autonomous legal system which is not to be prejudiced by an international agreement’.40 The Court held that the EU judicature must ‘ensure the review, in principle the full review, of the lawfulness of all Community [now EU] acts in the light of fundamental rights forming an integral part of the general principles of Community [now EU] law, including review of Community measures which, like the contested regulation, are designed to give effect to the resolutions adopted by the Security Council under Chapter VII of the Charter of the United Nations’.41 34 35 36 37 38

39 41

Case T-306/01, Yusuf, para. 265; Case T-315/01, Kadi, para. 214. Case T-306/01, Yusuf, para. 276; Case T-315/01, Kadi, para. 225. Case T-306/01, Yusuf, paras. 265ff; Case T-315/01, Kadi, paras. 214ff. Joined Cases C-402/05 P and C-415/05 P, Kadi et al. Case C-402/05, Kadi, Opinion of Advocate General Maduro of 16 January 2008, paras. 28, 40. Joined Cases C-402/05 P and C-415/05 P, Kadi et al., paras. 348ff. 40 Ibid., para. 316. Ibid., paras. 281ff, 326.

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4.2.4 The role of EU general principles in international trade disputes As discussed above, EU conduct in the context of international trade disputes has implications for the EU and its Member States’ international trade relations, and affects the EU internal market and individual traders. As a consequence, EU legislation triggering a WTO dispute and continuous non-compliance with DSB rulings are aspects of EU conduct that fall within the scope of application of WTO law while also being shaped and constrained by EU domestic law. In response to the GC’s restrictive approach taken in Kadi and FIAMM discussed above, the following paragraphs revisit the role of the EU general principles for the protection of individuals in the specific context of international trade disputes. For this purpose, it is shown that: (1) the EU conduct entails acts and omissions concerning primarily the vertical relationship between the EU and its citizens/traders, which make judicial review in the light of EU general principles indispensable from an EU constitutional law perspective; and (2) there are no international legal obligations that prevent the EU courts from exercising their legality review in the light of the EU general principles.

4.2.4.1 Vertical relationship between the EU and traders It has become clear from the previous analysis that EU conduct in the context of international trade disputes consists of several acts and omissions, of which some have both an external and an internal dimension, while others have only an internal dimension. Therefore, it seems unsatisfactory that the GC in FIAMM has linked the applicability of all general principles invoked to the lack of direct effect of WTO law, without drawing a distinction between the different aspects of EU conduct, their legal base, aims and implications for individuals. In principle – as confirmed by the ECJ’s obiter dictum in FIAMM et al.42 and its decision in Kadi,43 and as discussed above – the applicability of rights and remedies in the EU legal order should not be dependent on the effect of (also relevant) international law. A clear distinction between the different aspects of EU conduct might help to determine or identify the courts’ exact benchmark for lawfulness under EU law. It has been suggested in Chapter 1 that EU conduct, which potentially justifies a right to compensation in the context of international trade 42 43

Cases C-120 and 121/06, FIAMM et al., paras. 180ff. Joined Cases C-402/05 P and C-415/05 P, Kadi et al., paras. 281ff, 316.

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disputes under EU law, can be divided into the following acts and omissions: (a) the original legislation adopted under EU law but also falling within the scope of WTO law; (b) the omission to implement fully the DSB ruling, in particular the continuous upholding of the noncompliant measure after the expiry of the ‘grace period’ granted by the DSB and the acceptance of retaliatory measures; and (c) the EU’s omission to create an internal mechanism (e.g., fund) to balance economic loss suffered by some traders as a consequence of the EU’s acceptance of retaliatory measures. To begin the assessment of the applicability of EU general principles as a benchmark for the lawfulness of these different aspects of potentially contested EU conduct, it is emphasised that the original EU legislation – despite being challenged by other WTO members for being in breach of WTO law – is in itself not relevant for retaliation victims, as it concerns trade (e.g., bananas and hormone-treated beef) not related to the retaliation victims’ activities (e.g., batteries and paper). It is therefore not possible to identify any possibly affected general principle that could be invoked by retaliation victims to challenge such EU legislation. The EU’s non-compliance with DSB rulings, however, starts to have an impact on the interests and legal situation of retaliation victims as soon as retaliatory measures are imposed. If there were an EU obligation to create an internal mechanism in order to ensure the protection of general principles protecting the interests of affected individuals – which has been referred to by the ECJ as a potential obligation imposed on the EU institutions to remedy the impairment of the very substance of rights44 – a right to compensation might arise because of ‘pure’ EU constitutional law requirements. The EU courts face the challenge of taking account of the EU institutions’ political interest in retaining their discretion at the international level (see Chapter 1, section 1.2), while ensuring individual rights standards and protection under EU law. However, it is claimed here that the courts cannot refrain from applying EU general principles as a benchmark for the lawfulness of EU conduct in principle. It seems indispensable under EU law for the courts to enter, in each case brought before them, into an evaluation of an alleged interference with the EU general principles invoked by the applicants. Only in a second step of the courts’ analysis should it be assessed whether – and, if so, how – the actual scope of protection of each general principle might be affected by the 44

Cases C-120 and 121/06 P, FIAMM et al., para. 184. See also discussion note 20 above.

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implications of WTO law for the EU legal order in the particular situation assessed (for further discussion on this, see section 4.3 below).

4.2.4.2 Is there any prevailing international legal obligation? In Kadi, the (now) GC based its decision to deny any impact of the general principles on the lawfulness of EU legislation implementing UN sanction lists on the need to ensure the effectiveness of the EU Member States’ international legal obligations. More precisely, it referred to the necessity to enable the EU and its Member States to comply with their obligations under UN law and Security Council resolutions, considered Security Council resolutions to prevail over EU fundamental rights and intended to refrain from an implicit review of Security Council resolutions in the light of EU law.45 Following this decision, the Court was criticised for not providing full judicial protection to individuals by refusing to review implementing EU legislation in the light of the EU general principles.46 As stated above, neither Advocate General Maduro nor the ECJ on appeal followed the approach taken by the GC. The ECJ held not only that the EU legislation in question had to be reviewed in the light of the fundamental rights of EU law despite its external dimension but also exercised such review itself, identifying an infringement of fundamental rights.47 Turning to the situation in FIAMM, it is highlighted here that the EU conduct leading to international trade disputes and retaliatory measures is – in contrast to the EU’s implementing legislation in the context of counter-terrorism activities – not triggered by the EU’s and/or the Member States’ obligations under UN law or any other forceful source of international law. There is no prevailing international obligation requiring the EU conduct in question. Although the (temporary) acceptance of retaliatory measures is foreseen under the DSU, such acceptance does not constitute compliance with WTO obligations,48 but is meant to balance temporarily the

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Case T-306/01, Yusuf, paras. 243ff, 266ff, 276; Case T-315/01, Kadi, paras. 193ff, 216ff, 226. C. Eckes, ‘Judicial Review of European Anti-Terrorism Measures – The Yusuf and Kadi Judgments of the Court of First Instance’, ELJ, 14(1) (2008), 74–92; P. Eeckhout, ‘Community Terrorism Listings, Fundamental Rights, and UN Security Council Resolutions, In Search of the Right Fit’, ECL Rev, 3(2) (2007), 183–206. Joined Cases C-402/05 P and C-415/05 P, Kadi et al., para. 316. Though this seems to have been the position of the Commission in Case T-69/00, FIAMM, para. 103.

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economic disadvantage suffered by other WTO members and to induce compliance.49 Conduct triggering international trade disputes is motivated by the EU’s own political interests, such as the protection of health in the context of the prohibition of selling of or the import ban on hormone-treated beef. Trade-restrictive measures of the EU have – to use Advocate General Maduro’s term created in Kadi – no ‘supra-constitutional status’50 whatsoever, but belong to the category of regular EU conduct, namely the EU’s legislative activities. Moreover, the EU’s omission, or potential decision to provide compensation or to create internal balancing mechanisms (e.g., fund), while accepting retaliatory measures, is not even of any relevance under the WTO regime. The EU’s provision of compensation alongside the acceptance of retaliation would enable retaliation victims to continue their business and uphold their market shares. From a WTO law perspective, retaliation would nonetheless ‘hit’ the EU through the expenses for internal compensation, causing an economic disadvantage for the EU. Such a construct is not prohibited under the WTO rules on illegal subsidies, as financial compensation would be granted to private actors only ‘for and (thus) only up to the level of the damages actually incurred by those private parties’, which means that no benefit is transferred to the private party.51 Hence, the question of a possible EU obligation to create balancing mechanisms is to be determined merely on the basis of the scope of protection of the general principles and the related obligations imposed on the EU institutions according to those principles. The omission to provide such mechanisms in the cases brought by FIAMM and others might manifest the EU’s acceptance of leaving the costs of international trade disputes with only a few traders, but it is not related to the EU’s international obligations.

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Eeckhout, ‘The Domestic Legal Status of the WTO Agreement’, 55; and Advocate General Alber in his Opinion in Case C-93/02, Biret at para. 88; Thies, ‘Biret and Beyond’, 1673; Eeckhout, ‘Remedies and Compliance’. Case C-402/05, Kadi, Opinion of Advocate General Maduro of 16 January 2008, para. 28. M. Bronckers and N. Van den Broek, ‘Financial Compensation in the WTO: Improving the Remedies of WTO Dispute Settlement’, JIEL, 8(1) (2005), 101–26, 119ff; see also W. Berg and T. Mu¨ller, ‘Die WTO-Widrigkeit des Byrd-Amendments und Schadensersatz fu¨r Amtshaftung’, RIW, 49(6) (2003), 419–21, 420ff.

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4.3 Effect of the external dimension of EU conduct on the scope of general principles of EU law It has been shown in the previous section of this chapter that the EU general principles for the protection of individuals remain applicable and can thus be invoked before the EU courts even where the challenged EU conduct has an external dimension. This raises questions on the compatibility of the courts’ strand of case law on the lack of effect of WTO law on the EU legal order in the EU general interest (see the discussion in Chapter 3) with the courts’ case law on the necessity to provide a complete system of legal remedies and to respect the rule of law.52 In the interests of finding an adequate balance between protecting the EU’s political scope for manoeuvre on the international plane and the protection of individuals in the EU legal order, it is suggested that the following considerations be taken into account when assessing the effect of the international context of EU conduct on the actual scope of protection under the general principles of EU law invoked by retaliation victims. First, invoking EU general principles could arguably result in giving legal relevance to EU conduct on the international plane, which neither the EU courts nor the WTO legal order had intended to recognise. Were the EU courts to protect, for example, the principle of legitimate expectations because of the EU’s assurances to comply with WTO law given to its trading partners in the context of an international trade dispute at the international level, they would de facto make those political declarations enforceable within the EU legal order in the absence of a parallel WTO law requirement concerning such implications, and even though the EU courts had denied the direct enforceability of underlying WTO primary law. Second, were the EU courts to recognise the right of individuals to invoke the principle of proper administration because of the EU’s status as a contracting party to the WTO agreements, they would de facto make the related international legal obligations enforceable within the EU legal order, even though they had denied the direct enforceability of these obligations where applicants had invoked them directly. In other words, it would conflict with the EU courts’ case law on the denial of the enforceability of unlawful conduct in the light of WTO law if they were to recognise unlawful conduct of the EU by allowing individuals to rely on the EU institutions’ word or obligations as a global actor’ on the basis of the EU general principles in the same 52

See note 5 above.

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context. In particular, if such breaches of general principles would be enforced in the context of actions concerning the validity of EU measures (i.e., annulment actions and some preliminary rulings), such enforcement would conflict with established case law on this matter, which has sought to protect the international ‘scope for manoeuvre’ of the EU institutions.53 It has been shown above that there is no justification under EU law to exclude in principle the applicability of general principles in the context of international trade disputes. In essence, it is claimed here that the courts will need to identify the effect of the EU conduct’s external dimension and context for each case individually. Without denying the applicability of general principles, the scope of protection of those principles might be shaped and restricted by the EU’s political interests in maintaining its scope for manoeuvre at the international level. In order to assess the extent to which EU conduct can be considered unlawful for the purposes of an annulment or compensation action, it seems again important to keep in mind the distinction between different EU measures and omissions in the course of an international trade dispute. The protection that can be claimed on the basis of general principles where measures and omissions are of a purely internal character, determining the relations between EU public authority and citizens or traders, might differ from the protection available where the enforcement of protection also requires action with regard to the conduct’s external dimension, i.e., a modification of the EU’s legislation regulated by WTO law. It is suggested that if the courts conclude that the protection under general principles is limited because of the factual and legal context of the conduct in question, they should provide more extensive reasoning for this, as it results in a decrease in the number of remedies available to traders based in the EU. It could be determined in legislation or decided by the courts on a case-by-case basis: (a) to what extent the scope of protection of general principles is shaped by the actual circumstances of an international trade dispute, e.g., the commitments 53

First held in Case C-149/96, Portugal, paras. 46ff; recently confirmed in Cases C-120 and 121/06 P, FIAMM et al., paras. 119ff. For cases addressing the impact of an existing DSB ruling see, e.g., Case C-377/02, Van Parys [2005] ECR I-1465, paras. 51, 53; Case T-19/01, Chiquita [2005] ECR II-315, paras. 161ff; Advocate General Le´ger in Case C-351/04, Ikea Wholesale Ltd. [2007] ECR I-7723, para. 96; Cases C-120 and 121/06 P, FIAMM et al., para. 130; see also T. Cottier, ‘Dispute Settlement in the World Trade Organization’, 374; Cottier, ‘A Theory of Direct Effect in Global Law’, pp. 111ff.

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made by the EU towards its traders with regard to timely compliance with WTO rulings; and (b) what obligations arise for the EU, e.g., regarding the prevention of the imposition of retaliatory measures or the creation of balancing mechanisms.

4.4 Scope of the general principles of EU law invoked by retaliation victims Among the principles that might be considered to confer rights on retaliation victims are the principles of the protection of legitimate expectations and legal certainty, the right to property54 and to pursuit of an economic activity,55 the right to non-discrimination, the principles of proper administration or misuse of power, and proportionality.56 All these principles belong to what Tridimas has called ‘principles which derive from the rule of law’, since the court derived these principles from the ‘fundamental premise that the EU legal order is based on the rule of law’.57 This category of principles refers primarily to the relationship between public authorities and individuals, whereas ‘systemic principles which underlie the constitutional structure of the Community [now the EU] and define the Community [now EU] legal edifice’ (e.g., primacy, attribution of competences, subsidiarity and the duty of cooperation) refer to the relationship between the EU and its Member States.58 It would go beyond the scope of this chapter to assess each principle’s capability to justify a right to compensation of retaliation victims. Once the general applicability of the principles is recognised, it will depend on the factual and legal situation of each case whether and, if so, to what extent retaliation victims are protected under the EU principles invoked – which is for the EU courts to decide. Some of the factors that could be made part of the EU courts’ assessment shall be introduced here, taking into account the different aspects of EU conduct in the

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See, e.g., Case 44/79, Hauer v. Land Rheinland-Pfalz [1979] ECR 3727. See, e.g., Case 4/73, Nold [1974] ECR 491; Case 44/79, Hauer; Case 240/83, Procureur de la Re´publique v. ADBHU [1985] ECR 531. See note 9 above for cases in which applicants have invoked these in compensation actions. Since the pleas brought by FIAMM and Fedon on appeal were limited to an alleged error in law regarding the impact of DSB rulings on the unlawfulness of EU conduct, the ECJ commented only on some general principles in a sort of obiter dictum at paras. 180ff. Tridimas, The General Principles, p. 4. 58 Ibid., 4.

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context of international trade disputes. The following discussion is therefore meant to complement the ECJ’s remarks made in FIAMM et al. and Fedon, which were limited to the fundamental right to property and the freedom to pursue a trade or profession.59

4.4.1 The right to property and the principle of pursuit of an economic activity According to Tridimas, the courts have in no case so far found a violation of the right to property or freedom to trade, but preferred to address the claim on different grounds, such as the protection of legitimate expectations and the principle of equality.60 Unless there is an expropriation or extensive prohibition and general interest behind the EU’s restrictive measures, a violation of the former principles will generally also constitute a violation of the latter principles.61 However, in the light of the particular challenge to disentangle parts of EU conduct constituting an interference with any of those principles at the intersection of EU law and WTO law, the following paragraphs focus on the right to property and the right to pursuit of an economic activity before turning to an assessment of the implications of other general principles on the EU’s liability towards retaliation victims. Retaliation victims invoked the right to property62 and the right ‘to pursuit of an economic activity’ (the freedom to trade, and the right to choose and practise freely a trade or profession),63 which belong to the category of economic and property rights.64 As reiterated by the ECJ in FIAMM et al. and Fedon, fundamental rights under EU law are not absolute, but must be viewed in relation to their social function.65 Hence, restrictions have to be tolerated, ‘provided that such restrictions in fact correspond to objectives of general interest pursued by the

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Cases C-120 and 121/06 P, FIAMM et al., paras. 183ff. Tridimas, The General Principles, p. 315; referring to Case C-309/89, Codorniu [1994] ECR I-1853 (principle of equality) and Case 120/86, Mulder I [1988] ECR 2321 (legitimate expectations). Tridimas, The General Principles, pp. 315ff; referring to Cases C-153 and C-205/94, Faroe Seafood and others [1996] ECR I-2465, 2549, for a combined examination of a breach of the right to property and the principle of proportionality. See, e.g., Case 44/79, Hauer. See, e.g., Case 4/73, Nold; Case 44/79, Hauer; Case 240/83, Procureur de la Re´publique. According to Tridimas, explicitly recognised fundamental rights under EU law can be classified in economic and property rights, civil and political liberties, and rights of defence; see The General Principles, p. 307. Cases C-120 and 121/06 P, FIAMM et al., para. 183.

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European [Union] and do not constitute in relation to the aim pursued a disproportionate and intolerable interference, impairing the very substance of the rights guaranteed’.66 Accordingly, retaliation victims would need to tolerate the effects of retaliatory measures imposed by non-EU states if the EU’s upholding of a WTO law breach and the related acceptance of temporary retaliation was in the general interest, and the consequences caused by this acceptance constituted a proportionate and tolerable interference.67 The applicants in FIAMM et al. claimed that the defendant institutions infringed the applicants’ right to property and pursuit of an economic activity as they ‘were compelled to pay prohibitive customs duty on their imports of batteries into the United States and to relocate their production facilities’.68 The defendants’ adoption of the challenged provisions of the banana market regulation interfered with the export operation in a manner that impaired the very substance (‘Wesensgehalt’) of the applicant’s rights, because the duties hit ‘the core’ (‘Kernbereich’) of the applicant’s trade activities.69 Further, the EU could have funded a policy of keeping in place conditions favourable to trade in bananas with regard to its ACP partners either by financing it from the general budget by way of negotiated compensation under Article 22(2) DSU or by provoking retaliatory measures; the shifting of the cost of protecting ACP banana producers onto other sectors, however, was neither necessary nor appropriate; the EU should have taken precautions to avoid the applicant being asked to pay the price of its decision to ignore its international obligations.70 The EU’s policy choice thus infringed the principle of proportionality, the applicant’s fundamental right to pursue an economic activity and its right to property.71

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Cases C-37 and C-38/02, Di Lenardo Adriano and Dilexport v. Ministero del Commercio con l’Estero [2004] ECR I-6911, para. 82; Case C-280/93, Germany v. Council, para. 78; Cases C-120 and 121/06 P, FIAMM et al., para. 183, referring to further case law. For arguments brought forward by the applicants, see, e.g., Case T-69/00, FIAMM, para. 94; and Case T-320/00, Cartondruck, para. 89 (impairment of the substance of rights through retaliation); Case T-383/00, Beamglow Ltd., paras. 103ff (EU’s possibilities to avoid damage/paying costs for its ignoring of international obligations). For arguments brought forward by the defendant institutions, see, e.g., Case T-320/00, Cartondruck, para. 93, and Case T-383/00, Beamglow Ltd., para. 112 (no EU interference, merely US suspension of concessions); and Case T-320/00, Cartondruck, para. 94; and Case T-69/00, FIAMM, para. 98 (not close to expropriation/impairing the substance of the right if interference/necessity to modify business planning is justified by market interests). Case T-69/00, FIAMM, para. 94. 69 Case T-320/00, Cartondruck, para. 89. Case T-383/00, Beamglow Ltd., paras. 103ff. 71 Ibid., para. 105.

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According to the defendants, neither the applicant’s right to pursue an economic activity nor its right to property could have been infringed by the EU institutions since there was no direct interference (‘Eingriff’) by EU conduct; whether the damage, which occurred due to US duties, was attributable to the EU was a question of causal link and not of a breach of a fundamental right.72 The defendants stated that it was not the adoption of the banana market regulation but the suspension of concessions by the US that had impeded the applicant’s freedom to pursue its economic activity.73 The conduct of the EU was neither close to an expropriation nor restricting the free use of property and would thus not touch upon the very substance (‘Wesensgehalt’) of those rights; even if the changed export conditions forced the applicant to change its business planning, this interference with the applicant’s free trade activities would be justified since the banana market regime was aiming at the realisation of the common market and was not disproportionate.74 Although the ECJ recognised in FIAMM et al. and Fedon the potential right to compensation where no provision has been made for compensation to avoid or remedy the impairment of the very substance of those rights in a disproportionate and intolerable manner, it concluded that ‘an economic operator cannot claim a right to property in a market share which he held at a given time’ and that neither the right to property nor the principle safeguarding the freedom to pursue a trade or profession could be ‘extended to protect mere commercial interests or opportunities, the uncertainties of which are part of the very essence of economic activity’.75

4.4.2 The principle of legitimate expectations The principle of the protection of legitimate expectations is one of the fundamental principles of the EU legal order76 and has been recognised by the EU courts as a principle on which an individual can rely in order to claim compensation under (now) Article 340(2) TFEU.77 Sharpston defines legitimate expectation as a ‘particular form of

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Case T-320/00, Cartondruck, para. 93. 73 Case T-383/00, Beamglow Ltd., para. 112. Case T-320/00, Cartondruck, para. 94; Case T-69/00, FIAMM, para. 98. Cases C-120 and 121/06 P, FIAMM et al., paras. 183, 184, referring to further case law. See, e.g., Case T-521/93, Atlanta and others, para. 55. See, e.g., Case 74/74, CNTA [1975] 533, 547; Joined Cases C-104/89 and C-37/90, J. M. Mulder and others and Otto Heinemann v. Council and Commission [1992] ECR I-3061, I-3132; see also J. Schwarze, Europa¨isches Verwaltungsrecht, 2nd edn (Baden-Baden: Nomos, 2005), pp. 1077ff; K.-D. Borchardt, Der Grundsatz des Vertrauensschutzes (Kehl, Straßburg, Arlington: N.P. Engel Verlag, 1988), pp. 76ff.

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economic prediction for which an economic agent can claim legal validity in Community [now EU] law, as being a belief that it was legitimate for him to entertain as to the way in which he would be treated by an administration in the application of Community [now EU] regulations’.78 The EU courts have held that individuals are protected by the principle of legitimate expectations if the EU institutions caused them to entertain justified hopes79 by giving precise assurances.80 According to the courts, traders cannot invoke the principle if the measure is adopted ‘where a prudent and discriminating trader could have foreseen the adoption of a measure at European Union level likely to affect his interests’.81 According to the applicant Cartondruck, in the compensation action brought before the GC in the context of the bananas dispute, the Council and the Commission have disappointed legitimate expectations of the applicant, namely that it could rely on being able to export its products to the US paying the normal duties. It could have been expected that the EU complied with WTO law or would at least not create a situation in which the US could impose import duties; the defendants had never raised any doubt that they were willing to bring the banana market regulation into compliance with WTO law.82 FIAMM also claimed that there had been the expectation that the EU would comply with its WTO law obligations and would not create a retaliation situation.83 According to one of the other applicants, Beamglow Ltd., there had been legitimate expectations in respect of the applicant’s sales and investments in the US.84 According to the defendant institutions, the applicants did not show that there had been any EU measure that created legitimate expectations. The adoption or non-adoption of the banana market regulation would not in itself create the founded expectations of compliance with the WTO 78

79

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E. Sharpston, ‘Legitimate Expectations and Economic Reality’, EL Rev 15(2) (1990) 103–160, 105. Case T-489/93, Unifruit Hellas v. Commission [1994] ECR II-1201, para. 51; Case T-70/ 99, Alpharma v. Council [2002] ECR II-3495, para. 374; Case T-264/07, CSL Behring GmbH v. Commission and European Medicines Agency (EMA) [2010] ECR II-4469, para. 117. Case T-290/97, Mehibas Dordtselaan v. Commission [2000] ECR II-15, para. 59. Case T-264/07, CSL Behring GmbH v. Commission and European Medicines Agency (EMA) [2010] ECR II-4469, para. 117, with reference to Joined Cases T-481/93 and T-484/93, Verenigung van Exporteurs v. Commission [1995] ECR II-2941, para. 148, and Case T-70/99, Alpharma v. Council, para. 374. Case T-320/00, Cartondruck, para. 88. 83 Case T-69/00, FIAMM, para. 93. Case T-383/00, Beamglow Ltd., para. 102.

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Agreements. Moreover, the applicant had not shown that it had received assurances from the EU institutions, which would not be liable for acts of US authorities, and WTO members had different options for dealing with breaches of the WTO Agreements, which even precluded that the EU could create expectations with regard to the US conduct.85 Although no individual should need to take ongoing breaches of international law by the EU into account, according to the case law of the EU courts, the scope of the principle of the protection of legitimate expectations is only invoked if there has been a particular link between the public authorities and the applicants that created expectations.86 The ECJ has acknowledged the creation of expectations due to ‘previous legislation’87 and ‘conduct by the Community [now EU] institutions’.88 The EU courts have denied a breach of the principle of legitimate expectation where ‘specific assurances’ given by the institutions were absent.89 It can hardly be expected that the EU courts will recognise that the EU’s general commitment to the WTO Agreements or its specific assurances given in the context of international trade disputes to its international partners represent obligations that the EU explicitly acknowledged towards its own individuals or traders. It thus seems unlikely that the courts will acknowledge a right to compensation for 85

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See, e.g., Case T-320/00, Cartondruck, para. 92; Case T-383/00, Beamglow Ltd., paras. 109ff; Case T-69/00, FIAMM, para. 97. Case C-177/90, Ku¨hn v. Landwirtschaftskammer Weser-Ems [1992] ECR I-35, para. 14; Case 112/77, To¨pfer v. Commission [1978] ECR 1019, paras. 18–20; see also Lenaerts, Van Nuffel and Bray, Constitutional Law, pp. 714ff. See, e.g., Case 74/74, Comptoir national technique agricole (CNTA) SA v. Commission [1975] ECR 533; Case C-152/88, Sofrimport v. Commission [1990] ECR I-2477; Case C-120/86, Mulder v. Minister van Landbouw en Visserij (Mulder I) [1988] ECR 2321. See, e.g., Case C-127/80, Grogan v. Commission [1982] ECR 869; Case C-289/81, Mavridis v. Parliament [1983] ECR 1731, para. 21. See judgment of the GC in Case T-174/00, Biret International SA v. Council [2002] ECR II-17, para. 55; Case T-105/96, Pharos v. Commission [1998] ECR II-285, para. 64; Case T-521/ 93, Atlanta and others, para. 57; Case T-571/93, Lefebvre and others v. Commission [1995] ECR II-2379, para. 72. In the context of the Bananas case, the ECJ held in Case C-104/97 P, Atlanta v. European Community, para. 55: ‘Finally, inasmuch as the appellant has not advanced any evidence on the basis of which it could be concluded that the conduct of the legislature could have given rise in its mind to reasonable expectations that a particular situation would be maintained or that particular transitional arrangements would be adopted, it is not material to examine Atlanta’s contention that the Court of First Instance erred in law in finding that, in order for the principle of protection of legitimate expectations to be applicable, the legislature must have given specific assurances, instead of confining itself to examining whether the conduct of the legislature had given rise to legitimate expectations in the minds of the parties concerned.’

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retaliation victims merely based on expectations created by the EU’s membership of the WTO. As stated above, this is also because the enforcement of the principle of legitimate expectations might result in the enforcement of WTO law obligations, which has been ruled out by the EU courts since Portugal (for further details, see Chapter 3 and section 4.3 above).

4.4.3 The right to non-discrimination The right to non-discrimination might play a more important role because of the EU’s acceptance to let some of its traders bear the costs of an international dispute without providing compensation through an internal balancing mechanism once retaliatory measures had been imposed. Some of the applicants bringing compensation actions claimed that the adoption of the revised banana market regime had put them at a disadvantage relative to those producers not exporting to the US or those on whose products retaliatory measures had not been imposed; in addition, the damage that occurred with the applicants was reflected only in the benefits for banana traders under the banana market regime.90 According to the defendant in the compensation actions brought before the GC, the custom duty was based on a unilateral act of the US, which had neither been influenced nor could have been influenced by the EU; the situation of the applicant could neither be compared with that of those who exported the same products to other states, nor with those traders exporting different products to the US, i.e., products that were not affected by the import duty.91 It is argued here that different groups of traders operating internationally might indeed be ‘comparable’ with regard to costs resulting from international trade disputes. If this is so, the EU could be under an obligation to set up internal balancing mechanisms (e.g., a fund for retaliation victims) to distribute the costs of international disputes in a way that is fairer than simply tolerating the drawing up of product lists by other WTO members. It is emphasised that this would not require enforcing compliance with WTO law and thus would not interfere with the institutions’ scope for manoeuvre. Instead, such a balancing mechanism would be of an internal nature and would be designed to 90

91

Case T-320/00, Cartondruck, para. 90; Case T-151/00, Le Laboratoire du Bain, paras. 85ff; Case T-301/00, Fremaux, paras. 85ff. Case T-320/00, Cartondruck, para. 95.

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establish a ‘fair’ distribution of costs within the EU legal order. It would be the task of the court or the legislator to address such distribution in detail, in particular if international trade disputes were to occur increasingly in the future. This exercise might include the definition of ‘comparable groups’ of traders when assessing equality or inequality in treatment, a decision on how to cease inequality and the determination of how, or by which means, a potential fund for retaliation victims could be created and financed. From a procedural point of view, it is added that a compensation action brought because of a breach of the right to non-discrimination in this context might be rejected as inadmissible where retaliation victims would have been in a position to bring an action under (now) Article 265 TFEU for a failure to act as soon as the EU clearly accepted retaliatory measures to be imposed by other WTO members, allowing for loss with retaliation victims to be caused without providing compensation internally.

4.5 Conclusions The purpose of this chapter has been to assess the liability criterion of unlawfulness in the light of ‘pure’ EU law and to thereby evaluate the reach of individuals’ protection under EU general principles vis-a`-vis the EU as a global actor. The ECJ has been increasingly explicit in protecting the EU’s autonomous legal order and the related fundamental rights protection where the EU takes external action in order to implement international obligations. This chapter has emphasised that equivalent protection needs to be provided where the EU takes external action, or internal action with external implications for that matter, in pursuance of its internal interests. Without questioning the overall applicability of general principles with regard to any kind of EU conduct, it has been recognised that the actual scope of individual rights under EU law might be shaped and diminished by the international context of the EU’s conduct in both scenarios. With regard to the particular context of retaliation victims, it has been shown that liability for unlawful conduct on the basis of general principles under EU law could in principle be enforced successfully in future actions before the EU courts.

5

The impact of EU general principles on the EU’s liability regime II: liability in the absence of (invokable) unlawfulness in international trade disputes or ‘no-fault liability’

The previous chapters have illustrated that it is necessary for applicants claiming compensation for unlawful EU conduct in the context of international trade disputes to show that the challenged EU conduct has either been in breach of WTO law, which required direct effect of WTO law obligations within the EU legal order (Chapter 3), or in breach of ‘pure’ EU domestic law (Chapter 4). The present chapter focuses on a potential right to compensation in the absence of unlawful EU conduct. The retaliation victims in FIAMM et al. invoked such a liability principle, but the ECJ denied its current existence under EU law.1 In critique of the ECJ’s reasoning and conclusion, and in light of the important issues raised by the (now) GC and Advocate General Maduro in FIAMM, this chapter revisits the potential existence and applicability of such a liability principle in the context of international trade disputes. Before turning to a more detailed analysis, it is highlighted that liability in the absence of unlawfulness differs from liability for unlawful conduct in that it does not take into account the original conduct of EU institutions but is entirely based on the conduct’s consequences for some individuals, i.e., the gravity of damage caused by EU conduct.2 As a consequence, such a liability principle is capable of playing a significant role in the context of international trade disputes at the intersection of international trade law and EU constitutional law, in particular as its application would enable the EU courts to provide judicial protection for retaliation victims without interfering with the action taken by the EU institutions vis-a`-vis its trading partners at the international level. 1 2

Cases C-120 and 121/06 P, FIAMM et al. Compare Haack, ‘Die außervertragliche Haftung der EG’, 401.

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The first section of this chapter (5.1) analyses the conclusions reached by the GC, Advocate General Maduro and the ECJ on the existence of the principle of liability in the absence of unlawfulness – recently called ‘no-fault liability’ by Advocate General Maduro and the ECJ in FIAMM et al. and Fedon3 – in the EU legal order. This is followed by a critical evaluation of these conclusions, which also sheds some light on the potential legal basis for and conditions of such a liability principle. Each of its potential conditions is examined in the second section of this chapter (5.2) in order to demonstrate the potential impact of such a principle on the situation of retaliation victims if it were to be recognised by the ECJ in the future. The discussion engages with the GC’s reasoning leading to the denial of a right to compensation. It also analyses the Opinion of Advocate General Maduro in FIAMM, in which he arguably added a further condition to be met by applicants relying on the principle of liability in the absence of unlawfulness,4 which complements the conditions originally developed by the EU courts.

5.1 Existence of the liability principle in the absence of unlawfulness under EU law In FIAMM et al.,5 the courts assessed for the first time EU ‘liability in the absence of unlawful conduct’ with regard to a situation in which EU measures had led to retaliation under the WTO system, which then damaged European exporters.6 Prior to the GC’s decision in FIAMM, the principle of ‘liability for lawful acts’7 had neither been denied nor explicitly embraced by the EU courts. However, the courts have, in several cases, detailed the criteria that would be necessary to meet in

3 4

5

6

7

Cases C-120 and 121/06 P, FIAMM et al. According to Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., Opinion of 20 February 2008, para. 76, the suffered damage can only be considered ‘unusual’ in nature if it is of certain gravity; see further discussion below. Case T-69/00, FIAMM; Case T-151/00, Le Laboratoire du Bain; Case T-301/00, Fremaux; Case T-320/00, Cartondruck; Case T-383/00, Beamglow Ltd.; Case T-135/01, Fedon et al.; Cases C-120 and 121/06 P, FIAMM et al. In Biret, the issue was not dealt with because the arguments were brought forward too late in the proceedings: see Case C-93/02 P, Biret, paras. 67ff. Here, due to the international unlawfulness not being considered to be invokable before the EU courts (see Chapter 3 above), called ‘liability in the absence of unlawfulness’ or ‘no-fault liability’.

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case the principle was to be recognised.8 Thus, the courts have arguably already acknowledged implicitly the existence of the principle in EU law.9 Accordingly, a claimant would need to show unusual and special damage exceeding the limits of the economic risks inherent in the activities of the industry concerned in order to claim compensation from the EU.10 As noted above, under this liability system, it is not the conduct of the EU institutions (leading to the damage) that is to be assessed, but rather the consequences for some being considered as unbearable which build the legal ground for compensation.11 The GC, Advocate General Maduro and the ECJ have come to a variety of conclusions on the existence and scope of such a liability principle under EU law in the course of the FIAMM et al. cases, which are addressed separately in the following paragraphs before turning to a critical evaluation of the ECJ’s reasoning and conclusion in particular.

5.1.1 FIAMM et al.: the (now) GC The GC held that the absence of unlawfulness does not necessarily bar undertakings from obtaining compensation provided that they are

8

9

10 11

See, e.g., Case 267/82, De´veloppement SA and Clemessy v. Commission [1986] ECR 1907, 1922, para. 33; Case 59/83, Biovilac, 4081, para. 28; Case 81/86, De Boer Buizen, 3694, para. 17; Case T-184/95, Dorsch Consult v. Council, para. 80; and Case C-237/98 P, Dorsch Consult v. Council and Commission, paras. 18ff; see also the Opinion of Advocate General La Pergola in Case C-237/98 P, Dorsch Consult v. Council and Commission, para. 6; Case T-196/99, Area Cova, SA and others, para. 178: ‘It follows that the damage claimed by the applicants did not exceed the limits of the economic risks inherent in the activities of the industry concerned. It was therefore not “unusual” in relation to the conditions under which the Community might be made non-contractually liable for a lawful act’ (emphasis added). Compare especially the conclusion drawn by the ECJ in Case C-237/98 P, Dorsch Consult v. Council and Commission, para. 19. In Case T-174/00, Biret, the GC refused in paras. 70 and 71 to examine the principle of ‘no-fault liability’ (here used as a synonym for ‘liability for lawful acts’/‘liability in the absence of unlawfulness’). The applicant – a beef importer who was directly affected by the hormones legislation – had relied on the principle only in the reply, so the submission was regarded as a new plea in law (Article 48 Rules of Procedure of the GC). The courts also avoided dealing with the principle in an action brought by banana importers by ruling that it was not possible to bring a ‘new plea in law in the course of the proceedings’: see Case T-521/93, Atlanta and others, para. 40; and Case C-104/97 P, Atlanta v. European Community, para. 27. Case C-237/98 P, Dorsch Consult v. Council and Commission, paras. 11, 18. Compare Haack, ‘Die außervertragliche Haftung der EG’, 401. According to Advocate General Maduro, liability in the absence of unlawfulness is ‘objective’ and can also be invoked where an unlawfulness had been shown but had not been considered ‘sufficiently serious’, and/or where the institutions have refrained from adopting normative measures; there can be liability for legislative as well as administrative measures and omissions, see Cases C-120 and 121/06 P, FIAMM et al., paras. 65, 66 and 67.

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required to bear a disproportionate part of the burden caused by EU conduct.12 The court thus explicitly recognised the existence of the principle of liability in the absence of unlawfulness under EU law and acknowledged that it is not the EU conduct (leading to the damage) but the fact that its consequences for some can be considered unbearable which provides the legal basis for a right to compensation under the liability principle in question.13 What had frequently been referred to as ‘liability for lawful acts’14 was termed ‘liability in the absence of unlawfulness’ by the GC. This renaming of the principle enabled the Court to adjust the principle to the specific situation of a ‘noninvokable unlawfulness’ under international law: since the Court had concluded that the invoked breach of WTO law was not ‘directly effective’ (see Chapter 3), the ‘unlawfulness’ previously identified by the DSB15 was not taken into account. Instead, the Court considered the EU conduct in the context of the Hormones and Bananas disputes to be ‘absent of unlawfulness’ for the purpose of the EU proceedings. The GC observed that (now) Article 340(2) TFEU referred to the ‘general principles common to the law of the Member States’ as a basis for the right to compensation, and concluded that the reference under this provision to national law was not limited to rules governing liability for unlawful conduct.16 The Court continued by stating that:

12

13 14

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Case T-69/00, FIAMM, paras. 157ff; Case T-151/00, Le Laboratoire du Bain; Case T-301/00, Fremaux; Case T-320/00, Cartondruck; Case T-383/00, Beamglow Ltd.; Case T-135/01, Fedon et al. Compare Haack, ‘Die außervertragliche Haftung der EG’, 401. Castillo de la Torre, ‘Article 340 TFEU’, § 340.04.[3][a][ii]; Craig, EU Administrative Law, p. 696; Haack, ‘Die außervertragliche Haftung der EG’; H. J. Bronckhorst, ‘The Valid Legislative Act as a Cause of Liability of the Communities’ in T. Heukels and A. McDonnell (eds.), The Action for Damages in Community Law (The Hague: Kluwer Law International, 1997), pp. 153–65; F. Schockweiler, G. Wivenes and J.-M. Godard, ‘Le regime de la responsabilite´ extra-contractuelle du fait d’actes juridiques dans la Communaute´ europe´enne’, RTDE, 26 (1990), 27–74. See WTO Panel Reports, WT/DS26/R and WT/DS48/R, European Communities – Measures Concerning Meat and Meat Products (Hormones), 18 August 1997; WTO Appellate Body Report, WT/DS26,48/AB/R, European Communities – Measures Affecting Meat and Meat Products (Hormones), 16 January 1997; Panel Reports, WT/DS27/R/ECU, GTM, HND, MEX, USA, European Communities – Regime for the Importation, Sale and Distribution of Bananas (Bananas), 22 May 1997; Appellate Body Report, WT/DS27/AB/R, European Communities – Regime for the Importation, Sale and Distribution of Bananas (Bananas), 9 September 1997. For an overview of the disputes, see Chapter 1, www.wto.org/english/tratop_e/dispu_e/cases_e/ds26_e.htm, www.wto.org/english/tratop_e/dispu_e/cases_e/ds48_e.htm and www.wto.org/english/ tratop_e/dispu_e/cases_e/ds27_e.htm. Case T-69/00, FIAMM, para. 158.

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National laws on non-contractual liability allow individuals, albeit to varying degrees, in specific fields and in accordance with differing rules, to obtain compensation in legal proceedings for certain kinds of damage, even in the absence of unlawful action by the perpetrator of the damage.17

As a consequence, according to the Court: When damage is caused by conduct of the Community [now EU] institution not shown to be unlawful, the Community can incur non-contractual liability if the conditions as to sustaining actual damage, to the causal link between that damage and the conduct of the Community institution and to the unusual and special nature of the damage in question are all met (Dorsch,18 para. 19).19

The Court’s position regarding the implications of the national legal orders for the existence of the liability principle in question under EU law is comparable to the approach taken by the EU courts when developing the liability regime for unlawful conduct20 or recognising and developing fundamental rights under EU law.21 The GC did not assess in which and how many of the Member States’ legal systems such a principle existed and, if so, in what exact form; instead, the Court considered it to be sufficient that there were some Member States in which the principle at stake existed. While it therefore did not hesitate to recognise the principle of liability in the absence of unlawfulness under EU law, it denied any entitlement to compensation in FIAMM due to a lack of ‘unusual damage’ suffered by the applicants; it considered the possibility of being damaged by retaliatory measures under the WTO system to be a ‘risk inherent’ in the business of international traders, which does not require compensation from the EU.22

5.1.2 FIAMM et al. on appeal: Advocate General Maduro Advocate General Maduro considered the method by which the GC had identified the existence of a liability principle in the absence of unlawfulness (‘no-fault liability’) to meet the standards of EU law development and confirmed the existence of a principle of EU liability in the absence of unlawfulness.23 According to him, it is neither necessary to find 17

18 19 21 22 23

Ibid., para. 159. For an overview of some Member States’ systems, see Bronckhorst, ‘The Valid Legislative Act’. Case C-237/98 P, Dorsch Consult v. Council and Commission [2000] ECR I-4549. Case T-69/00, FIAMM, para. 160. 20 See Chapter 2, section 2.3.1. Craig and De Bu´rca, EU Law, 5th edn, pp. 364–71, in particular pp. 369ff. Case T-69/00, FIAMM, paras. 202ff. Cases C-120 and 121/06 P, FIAMM et al., Opinion of 20 February 2008.

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the lowest common denominator between all Member States’ legal systems, nor is there a need to find a legal principle in all Member States’ legal systems before recognising a legal principle under EU law. What is crucial is the court’s determination and task to identify a solution that meets the specific requirements of the EU legal order.24 EU law principles can evolve even if only existent in the minority of Member States, as long as such principles are most suitable for the requirements of the EU legal order.25 As a consequence, it is sufficient that the principle of liability of public authority for lawful legislative measures was part of the Spanish and French legal systems when being identified as a principle of EU law by the GC.26 Moreover, as the Advocate General added, while the specific principle might only be found in some of the national legal systems, it needs to be recognised that other national legal orders also take account of the ‘concern it expresses and the protection it provides for legal interests’.27 Advocate General Maduro concluded that the right to property justifies a liability principle, according to which the EU would not – by exercising its legislative powers – be able to interfere in individuals’ property to an extent that comes close to an expropriation without compensation.28

5.1.3 FIAMM et al. on appeal: the ECJ On appeal – more specifically on the cross-appeal brought by the Council and the Commission – the ECJ concluded that the GC had erred in law by ‘affirming . . . the existence of a regime providing for non-contractual liability of the Community on account of the lawful pursuit by it of its activities falling within the legislative sphere’.29 The Court held that the establishment of such a liability principle could not be deduced from prior case law.30 Moreover, (now) Article 340(2) TFEU

24 25

26 27

28

29

Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 55. Ibid., referring to the ‘Vertrauensschutzprinzip’, which had only been known in the German legal system before being recognised under EU law. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 55. Ibid., para. 57; according to S. Haack, Die außervertragliche Haftung der Europa¨ischen Gemeinschaften fu¨r rechtma¨ßiges Verhalten ihrer Organe (Frankfurt, Berlin: Peter Lang, 1995), pp. 46ff, liability in the absence of unlawfulness can be found in the legal systems of Belgium, France, Germany, Luxembourg, the Netherlands, Portugal and Spain. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 63, with reference to Advocate General Sir Gordon Slynn in Case 59/83, Biovilac, 4091; and Maria Lu´cia Amaral, Responsabilidade do Estado e dever de indemnizar do legislador (Coimbra: Coimbra Editora, 1998), pp. 474ff. Cases C-120 and 121/06 P, FIAMM et al., para. 179. 30 Ibid., paras. 168, 169.

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was not the correct basis for such a liability principle as it is ‘simply an expression of the general principle familiar to the legal systems of the Member States that an unlawful act or omission gives rise to an obligation to make good the damage caused’ (emphasis added).31 There were reasons for taking a strict approach towards EU liability for the exercise of legislative activities. Most importantly, such exercise should ‘not be hindered by the prospect of actions for damages whenever the general interest of the EU requires legislative measures to be adopted which may adversely affect individual interests’; because of the ‘wide discretion’ available to institutions in the legislative context, liability should only arise where the institution concerned has ‘manifestly and gravely disregarded the limits on the exercise of its powers’.32 Having denied the existence of liability in the absence of unlawfulness and rejected all other pleas, the ECJ dismissed the appeal and cross-appeal in FIAMM et al. without acknowledging any right to compensation for retaliation victims.

5.1.4 Critical evaluation The hope raised by the GC’s decision in FIAMM regarding a liability principle in the absence of unlawfulness under EU law, which might entitle retaliation victims to obtain compensation, was reinforced by Advocate General Maduro in his Opinion. The Advocate General even went further than the GC with regard to the applicability and scope of the principle for the benefit of the applicants by not excluding the possibility of claiming compensation on the basis of an interference with the applicants’ property. As a consequence, he suggested to the ECJ to send the case back before the GC, asking it to deal again with the nature of the damage allegedly suffered and, possibly, to grant compensation. However, while the ECJ seems to have left open the possibility for retaliation victims to claim compensation on the basis of general principles of EU law – possibly obliging the EU institutions to provide compensation when accepting international retaliation (see Chapter 4) – it explicitly rejected both the current existence of a no-fault liability principle under EU law and its applicability to the situation of retaliation victims. It is claimed here that the ECJ has rejected the overall existence of the no-fault liability principle in FIAMM et al. for political reasons relevant in the particular circumstances of the case, i.e., not to admit any consequences of international trade law and disputes within the EU legal 31

Ibid., para. 170; see also para. 164.

32

Ibid., paras. 171ff, 174.

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order. Instead of taking into consideration that it would not be the EU conduct but its particularly serious consequences for only a few traders that justify a right to compensation under such principle,33 the ECJ focused on Member States’ divergent approaches towards liability for legislative activity.34 As a consequence, the ECJ’s reasoning does not entail any evaluation of legal principles existing in EU Member States that recognise a right to compensation due to the severe consequences of conduct of other states for particular individuals, even though such evaluation might possibly justify or even necessitate the recognition of such a liability principle under EU law. Contrary to the Court’s underlying assumption that the recognition of a principle of EU liability in the absence of unlawful conduct would have implications for the international scope for manoeuvre of EU institutions, it is suggested here that the right to compensation because of such a principle would not require the institutions to comply with DSB rulings. Instead, it would necessitate domestic financial compensation, offsetting the loss occurring as a consequence of continuous WTO law infringements and the acceptance of retaliatory measures by the EU in the general interest. Such an EU internal compensation mechanism would not necessarily require any legislative activity of the EU. At the same time, it might have been worth revisiting the need for EU law principles to be developed on the basis of the common traditions of the Member States in the present context. The GC had held that the liability principle discussed in this chapter existed in the EU legal system, even if only some Member States have recognised it as part of their national legal systems.35 Advocate General Maduro confirmed in the course of the appeal that it was decisive whether or not the principle would be suitable for the specific requirements of the EU legal order.36 According to some authors, it suffices for recognising the principle under EU law that it was ‘generally accepted by the legal systems of most Member States, or . . . in conformity with a trend in the Member 33

34 35

36

Compare M. Bronckers, ‘From “Direct Effect” to “Muted Dialogue”’, JIEL, 11(4) (2008), 885–98, 891ff; Haack, ‘Die außervertragliche Haftung der EG’, 401. Cases C-120 and 121/06 P, FIAMM et al., para. 175. Case T-69/00, FIAMM, where the GC held in para. 159 that: ‘National laws on noncontractual liability allow individuals, albeit to varying degrees, in specific fields and in accordance with differing rules, to obtain compensation in legal proceedings for certain kinds of damage, even in the absence of unlawful action by the perpetrator of the damage.’ Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., paras. 55ff; see also Haack, Die außervertragliche Haftung der Europa¨ischen Gemeinschaften, pp. 25ff.

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States’.37 It is argued here that the ECJ could have probed the method applied by both the GC and Advocate General Maduro when identifying the existence of the principle. In particular, the ECJ could have questioned whether the evidence taken from the Member States’ legal orders in the process of recognising the principle’s existence sufficed for further developing EU law. Would it have been necessary to include statistics of the number of Member States’ legal systems recognising the principle as well as an assessment of the particular circumstances under which a right to compensation might be acknowledged in national courts?38 In any case, the ECJ did not address these issues. In fact, it rejected the principle without fully ‘rebutting’ or challenging the approach and conclusions of the GC and Advocate General Maduro. As stated above, it focused on the level of discretion available to legislative institutions rather than addressing the question whether or not the general principles of the Member States and/or existing EU constitutional law necessitate a liability principle based on the severe consequences of EU conduct. Interestingly, the ECJ made reference to its former statement delivered in a case developing state liability under EU law, not EU liability, when concluding that (now) Article 340(2) TFEU would not be the correct basis for liability in the absence of unlawfulness, as it was ‘simply an expression of the general principle familiar to the legal systems of the Member States that an unlawful act or omission gives rise to an obligation to make good the damage caused’.39 The case law referred to by the ECJ, namely Brasserie du Peˆcheur and Factortame,40 constituted the very beginning of state liability for breaches of provisions of the EC Treaty. It is therefore not surprising that the focus of the ECJ at the time was on developing state liability for breaches of EU law by demonstrating that such liability also existed in the national legal system with regard to state conduct infringing national law. As liability for unlawful conduct is the more common ground for a right to 37

38

39 40

See Hartley, The Foundations of European Union Law, p. 142; W. van Gerven, ‘Taking Article 215(2) EC Treaty Seriously’ in J. Beatson and T. Tridimas (eds.), New Directions in European Public Law (Oxford: Hart Publishing, 1998) pp. 35–47, 44ff. For the legal situation in some Member States, see Bronckhorst, ‘The Valid Legislative Act’, 155–60. According to Schoißwohl, liability for lawful legislative measures and acts of government only exists in France, but French law has always played an important role in the development of the EU law on liability; see Schoißwohl, ‘Haftung der Gemeinschaft’, 723, with reference to further literature on French law in this area. Cases C-120 and 121/06 P, FIAMM et al., para. 170, see also para. 164. Joined Cases C-46/93 and C-48/93, Brasserie du Peˆcheur, paras. 28, 29.

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compensation and was applicable in those cases, there was no need for the ECJ in Brasserie and Factortame to address liability in the absence of unlawfulness. It seems unsatisfactory that the ECJ in FIAMM et al. relied only on the statements made in these cases without recognising the particular context in which they were delivered. Unfortunately, the ECJ did not provide any additional explanation as to why the reference to general principles of the Member States’ legal systems in Article 340(2) TFEU should be limited to principles concerning EU liability for unlawful conduct. Although not adopted within the framework of the EU, not legally binding and addressed to Member States’ governments rather than EU institutions, it also seems worth mentioning in the present evaluation the Member States’ political commitment to acknowledge extensive public liability. In 1984, the Committee of Ministers has expressed such a commitment in a recommendation to Member States under Article 15.b of the Statute of the Council of Europe.41 The Committee recommended the governments ‘to be guided in their law and practice’ by two principles. Whereas Principle I addresses liability after a ‘transgression of an established legal rule’ (unlawful act), Principle II is formulated as follows: II 1.

2.

Even if the conditions stated in Principle I are not met, reparation should be ensured if it would be manifestly unjust to allow the injured person alone to bear the damage, having regard to the following circumstances: the act is in the general interest, only one person or a limited number of persons have suffered the damage and the act was exceptional or the damage was an exceptional result of the act. The application of this principle may be limited to certain categories of acts only.42

In the Member States’ legal systems, the principle of liability in the absence of unlawfulness has been recognised on the basis of two different concepts. In some Member States, such as France, liability has been founded on the principle that some citizens should not be required to bear the costs, which result from measures in the general interest, to a

41

42

Recommendation No. R (84) 15, adopted by the Committee of Ministers on 18 September 1984 at the 375th meeting of the Ministers’ Deputies; see https://wcd.coe. int/ViewDoc.jsp?id=693711. For the Statute of the Council of Europe, see http:// conventions.coe.int/Treaty/EN/Treaties/Html/001.htm. Recommendation No. R (84) 15, Appendix.

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greater extent than others.43 The liability principle is thus a corollary of the principle of equal treatment that is applicable in the particular context of loss being caused by the lawful conduct of public authority. In theory, all measures of public authority are for the benefit of the entire state, population or society, and citizens have to bear or contribute to the costs resulting from these measures. However, if public conduct in the general interest causes particularly substantial damage to some individuals only, and those individuals are not supposed to face this damage, there might be a right to compensation by the state in order to re-establish equality.44 In other EU Member States, such a liability principle has been based on the protection of the fundamental right to property;45 this approach can, for example, be found in German and Spanish law (although German law does not recognise liability for legislative measures).46 The principle under German law of ‘special sacrifice’ (‘Sonderopfertheorie’) requires the state to grant compensation in the absence of unlawful state conduct if the damage comes close to an expropriation.47 According to Spanish law, individuals can claim compensation from the state where damage resulted ‘from the normal or abnormal functioning of the public authorities or from the adoption of lawful measures of a discretionary character’.48 43

44 45 46

47

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According to the French administrative law principle, public charges should be allocated equally (‘l’e´galite´ devant des charges publiques’). See for further discussion Schoißwohl, ‘Haftung der Gemeinschaft’, 723ff, with reference to French case law and literature in this area (‘responsabilite´ sans-faute’), such as R. Denoix de Saint Marc, ‘Conseil d’E´tat, arreˆt du 24 mars 1984’, RTDE (1984), 341–9; M. Dony, ‘Le droit franc¸ais’ in G. Vandersanden and M. Dony (eds.), La responsabilite´ des E´tat membres en cas de violation du droit communautaire (Brussels: Bruylant, 1997), pp. 257ff; R. Chapus, Droit administrative ge´ne´rale, 8th edn (Paris: Montchrestien, 1994), paras. 1298ff; M. Deguergue, Jurisprudence et doctrine dans l’e´laboration du droit de la responsabilite´ administrative (Paris: Librairie Ge´ne´rale de Droit et de Jurisprudence, 1994), pp. 395ff; N. Dantonel-Cor, ‘La mise en jeu de la responsabilite´ de l’E´tat franc¸ais pour violation du droit communautaire’, RTDE 3 (1995), 471–507, 492. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 62. Ibid., paras. 63 and 74. According to Article 839 Bu¨rgerliches Gesetzbuch (German civil code) and Article 34 Grundgesetz (German constitution), the state can be held liable for the conduct of its civil servants in the exercise of their public function (or persons exercising public functions on behalf of the civil service). However, since the legislator/Parliament does not belong to but is independent of the German civil service, there is no liability for legislative measures; see, e.g., H.-J. Papier, ‘§ 839’ in Mu¨nchner Kommentar zum BGB, Vol. 5, 5th edn (Munich: C. H. Beck, 2009), paras. 99ff, 100b. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., paras. 63. See also ibid., paras. 36, 37. Bronckhorst, ‘The Valid Legislative Act’, 158, with reference to Spanish law.

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Returning to the present critique of the ECJ’s denial of the principle’s existence in FIAMM et al., it is emphasised here that the general principles employed by the EU Member States when recognising their liability principles in the absence of unlawfulness, namely the principle of equality and the right to property, have also been recognised by the ECJ for decades as general principles of EU law.49 Despite the existence of those EU law principles for the protection of individuals in the EU legal order, however, the ECJ in FIAMM et al. did not assess their implications for the further development of EU liability law. It is suggested that the EU courts are not only in a position to acknowledge and apply general principles as a benchmark for a right to compensation because of unlawful EU conduct (see Chapter 4), but that they might also need to re-assess the reach of these principles in more detail, as these possibly shape the EU liability regime as a whole. It is added that whatever the legal basis for such liability that might be employed at the EU level – i.e., whether it would be rooted in the principle of equal treatment or the right to property – it would be necessary for the applicant to show that the suffered damage is of a particular gravity and nature. The GC reaffirmed this requirement in FIAMM, reiterated the conditions laid down in prior case law50 and held that a right to compensation existed if there is an ‘unusual’ and ‘special’ damage and a causal link between EU conduct and the damage (see detailed discussion on this in the following section).51 Moreover, the ECJ has recently also referred again to those criteria, even though it, once more, left open whether or not the liability principle ‘for lawful acts’ was actually to be recognised under EU law, given that the existence of an ‘unusual or special’ damage in that case was denied.52

5.2 Application of the liability regime to the situation of retaliation victims As stated in the previous section, liability in the absence of unlawful conduct has not yet been recognised by the ECJ. In order to illustrate the impact that such a principle could – if it were to be recognised in the 49

50 51 52

Tridimas, The General Principles, pp. 59ff (principle of equality), 313ff (right to property). Case C-237/98 P, Dorsch Consult v. Council and Commission, para. 19. Case T-69/00, FIAMM, paras. 157, 160. Case C-414/08 P, Sviluppo Italia Basilicata SpA v. European Commission [2010] ECR I-2559, para. 141. See M. Gellermann, ‘Art. 340 AEUV’, para. 25, in R. Streinz (ed.), EUV/AEUV, 2nd edn (Munich: C. H. Beck, 2012), pp. 2661–79, 2670.

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future – have on the situation of retaliation victims, and possibly others affected by EU conduct triggering negative effects regulated by the international legal order, the following paragraphs shed some light on the particular conditions of the principle’s application. This analysis also provides an opportunity to evaluate in further detail the reasoning provided by the GC and Advocate General Maduro when applying the principle to the situation of retaliation victims in FIAMM. In the light of the ECJ’s missed opportunity to fully engage with this reasoning in this case, such evaluation seems valuable for future discussion and development of the principle in question. Before turning to the analysis of individual criteria, though, it is suggested that claims for compensation based on the principle of liability in the absence of unlawfulness should not be successful if the damage caused is simply an ‘ordinary inconvenience’ resulting from living in a society that is organised by public intervention – as indicated in the discussion of relevant French law above; this is also correct if only some citizens are affected, since there simply exists no ‘perfect equality’.53 In order to be entitled to claim compensation, applicants need to show54 not only ‘actual and certain’55 loss but also the ‘unusual’ and ‘special’ nature of the damage, which needs to have been caused by EU conduct.56 According to the Commission and the Council in the appeal proceedings brought by FIAMM and others, the right to compensation in the absence of unlawfulness is also conditional on the lack of a ‘general interest’ pursued by the EU measures causing the damage.57 The following paragraphs assess each of those criteria individually.

53 54

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Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 75. See, e.g., Case C-237/98 P, Dorsch Consult v. Council and Commission, para. 23: ‘it is incumbent upon the appellant to produce to the Community judicature the evidence to establish the fact of the loss which it claims to have suffered’. See also Case T-184/95, Dorsch Consult v. Council, para. 60; Case C-362/95 P, Blackspur DIY and others v. Council and Commission [1997] ECR I-4775, para. 31; Case T-575/93, Koelman, para. 97; Case 26/74, Roquette Fre`res, para. 24. Case T-184/95, Dorsch Consult v. Council, para. 59; Case T-267/94, Oleifici Italiana, para. 74; Case T-99/95, Stott v. Commission [1996] ECR II- 2227, para. 72; Case T-108/94, Candiotte, para. 54; Case 51/81, De Franceschi v. Council and Commission [1982] ECR 117, para. 9; Joined Cases 256/80, 257/80, 265/80, 267/80 and 5/81, Birra Wu¨hrer and others, para. 9. Case T-184/95, Dorsch Consult v. Council, para. 59; Case 81/86, De Boer Buizen, paras. 16 and 17; Case 267/82, De´veloppement SA, para. 33; Joined Cases 9/71 and 11/71, Compagnie d’Approvisionnement, paras. 45, 46. Advocate General Maduro in Case C-120 and 121/06 P, FIAMM et al., para. 73.

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5.2.1 Actual and certain damage There can only be a right to compensation if applicants can show that actual and certain damage has occurred.58 In this respect, liability in the absence of unlawfulness is not different from liability for unlawful conduct.59

5.2.2 Unusual damage The EU courts have considered damage of the applicants to be unusual in nature if it ‘exceeds the limits of the economic risks inherent in operating in the sector concerned’.60 The courts also referred to the foreseeability of the realised risk, which possibly ‘excludes the possibility of any recompense for the loss . . . suffered’.61 In FIAMM, the GC found that the damage suffered by the applicants because of retaliatory measures imposed by other WTO members was not ‘unusual’ but ‘normal’ in nature, since retaliation was possible under the WTO system and was thus ‘among the vicissitudes inherent in the current system of international trade’.62 According to the GC, all traders operating internationally have to take into account, when assessing their business risks, that retaliatory measures might be imposed at some point which adversely affect their business activities. Kuijper expressed the same view in this context and argued that due to the reciprocity of concessions, ‘the single trader must be prepared for . . . mercantilist intervention, which can unexpectedly turn out to his advantage (tariff concessions in his sector given to a different country, but MFN applied to him) or to his disadvantage (withdrawal of concessions, applying of exemption clauses such as art. XX GATT etc.)’.63 In the appeal proceedings of FIAMM et al., Advocate General Maduro came to the conclusion that the GC’s decision should be annulled

58

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60

61 62 63

See Chapter 2, section 2.3.2.3; compare Article 340(2) TFEU. For a detailed discussion of what constitutes damage, see Castillo de la Torre, ‘Article 340 TFEU’, § 340.04[4], section on ‘Loss or Damage’ (i.e., loss of profit, future loss or damage, non-material damage, quantification of damage, interest, burden of proof and procedural aspects). See Chapter 3, section 3.4.1 above for further discussion in the context of damage suffered as a consequence of retaliatory measures. Case 59/83, Biovilac, para. 28; Case T-69/00, FIAMM, para. 202; Case T-184/95, Dorsch Consult v. Council, para. 80; Joined Cases T-64 and 65/01, Afrikanische Frucht-Compagnie et al. v. Commission [2004] ECR II-521, para. 151. See, e.g., Case 59/83, Biovilac, para. 29; Case T-184/95, Dorsch Consult v. Council, para. 83. Case T-69/00, FIAMM, paras. 205ff. Kuijper and Bronckers, ‘WTO Law in the European Court of Justice’, 1339.

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because of an error of law, since the GC had not properly assessed whether the damage suffered by the applicants was ‘unusual’ in nature; he suggested that the ECJ should return the cases to the GC for a decision on whether the damage claimed by the applicants was also of a ‘special’ nature, taking into account the right to property of the applicants.64 According to Maduro, the GC should have assessed the unusual nature of the damage by looking at the economic risks inherent in the sector in which the applicants were operating; he reasoned that a damage could only be considered as normal if the realised risk had been inherent in the same market sector in which the applicants operated and for which an insurance could have been obtained; if there was no link between the EU conduct causing the damage and the economic sector in which the applicants were active, the damage could not be considered part of the ‘normal risk’ of the applicants.65

5.2.2.1 Sectoral versus market risk In order to allow for further clarification of the legal situation of retaliation victims at the intersection of EU law and international law, it seems worthwhile to put the reasoning provided by Advocate General Maduro into the context of previous EU case law, in which the foreseeability of risk was at stake. It is claimed here that the original intention of the EU courts to exclude EU liability due to the realisation of certain risks is based on the concept that traders should in principle be fully responsible for their own businesses, damage occurring because of risks rooted in their business sector should be taken into account in their business plans and cost calculations, and traders should bear the consequences of taking the risk of engaging in particular sectoral activities.66 It is thus surprising that the GC in FIAMM seems to have based its decision, without further explanation, on a different type of risk: instead of assessing the realisation of traders’ ‘sectoral risk’ 64 65

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Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 83. Ibid., para. 82. Maduro gave two examples in which realised damage would be ‘normal’: (a) compensation sought by a maritime transport company for damage allegedly suffered following the expiry of the transitional tax exemption arrangements provided by a Council Directive for products bought by travellers during sea-crossings between two Member States (Case T-170/00, Fo¨rde-Reederei [2002] ECR II-515, paras. 58–60); (b) compensation sought by a producer of feedingstuffs for use in feed for piglets and poultry for damage that occurred as a consequence of EU legislation on the sale of skimmed-milk powder for use in feed for pigs and poultry (Case 59/83, Biovilac, paras. 27–30). See, e.g., case law referred to above in notes 60ff.

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(as still referred to at the beginning of the Court’s findings67 and outlined above), the Court shifted suddenly to what could be called a higher-level category of risk, namely ‘market risk’. According to the GC’s approach, any risk that is somehow related to the ‘international market’ is ‘inherent’ in all international traders’ activities. As a consequence, any right to compensation of traders participating in international trade would be excluded, even in cases where the damage was caused by EU public conduct, was not foreseeable and ‘exceeds the limits of the economic risks inherent in operating in the sector concerned’ (emphasis added).

5.2.2.2 Inherent versus exogenous risk In order to identify ‘inherent risk’ of international trading, it might well be necessary to take account of the particularities of the legal situation of traders operating in a legal framework that is not only defined by EU domestic legislation but also shaped by WTO law, including the lawful consequences of WTO law infringements such as retaliation. However, such an assessment should be more detailed than what has been provided by the GC in FIAMM. When assessing the foreseeability of risk, it should be recognised that, while there is a causal link between the regulatory activities of the EU and the damage suffered, the related risk is realised only through consequent retaliatory measures imposed by other WTO members. The severe consequences of EU conduct – which are a necessary condition of liability in the absence of unlawfulness – are directly triggered by the imposition of retaliatory measures by other WTO members in the particular sector in which retaliation victims are operating. If the courts were to return in future decisions to evaluating the sectoral risk of applicants in this context, some particularities of the DSU should be taken into account, which will be introduced in the following paragraphs. The DSU provides the political and arguably also legal option for WTO members to temporarily agree on the suspension of concessions or other obligations while retaining measures that are non-compliant with their WTO law obligations.68 However, the sector affected by this 67 68

Case T-69/00, FIAMM, para. 202. Article 22 DSU states: ‘1. Compensation and the suspension of concessions or other obligations are temporary measures available in the event that the recommendations and rulings are not implemented within a reasonable period of time. However, neither compensation nor the suspension of concessions or other obligations is preferred to full implementation of a recommendation to bring a measure into conformity with the covered agreements. Compensation is voluntary and, if granted, shall be consistent with the covered agreements. 2. If the Member concerned fails to bring the measure

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suspension, as well as the addressees of such suspension (i.e., retaliation victims), are determined by the complaining WTO member. Even though, according to Article 22(3) DSU, the complaining party should first seek to retaliate with respect to the same sector(s) as the one(s) in which the Panel or Appellate Body has found a violation or other nullification or impairment (see Article 22(3)(a) DSU), the complaining party may, if this is not practicable or effective, seek to retaliate in other sectors under the same agreement (see Article 22(3)(b) DSU), or even under another covered agreement (see Article 22(3)(c) DSU).69 Hence,

69

found to be inconsistent with a covered agreement into compliance therewith or otherwise comply with the recommendations and rulings within the reasonable period of time determined pursuant to paragraph 3 of Article 21, such Member shall, if so requested, and no later than the expiry of the reasonable period of time, enter into negotiations with any party having invoked the dispute settlement procedures, with a view to developing mutually acceptable compensation. If no satisfactory compensation has been agreed within 20 days after the date of expiry of the reasonable period of time, any party having invoked the dispute settlement procedures may request authorization from the DSB to suspend the application to the Member concerned of concessions or other obligations under the covered agreements.’ Article 22(3) DSU states: ‘In considering what concessions or other obligations to suspend, the complaining party shall apply the following principles and procedures: (a) the general principle is that the complaining party should first seek to suspend concessions or other obligations with respect to the same sector(s) as that in which the panel or Appellate Body has found a violation or other nullification or impairment; (b) if that party considers that it is not practicable or effective to suspend concessions or other obligations with respect to the same sector(s), it may seek to suspend concessions or other obligations in other sectors under the same agreement; (c) if that party considers that it is not practicable or effective to suspend concessions or other obligations with respect to other sectors under the same agreement, and that the circumstances are serious enough, it may seek to suspend concessions or other obligations under another covered agreement; (d) in applying the above principles, that party shall take into account: (i) the trade in the sector or under the agreement under which the panel or Appellate Body has found a violation or other nullification or impairment, and the importance of such trade to that party; (ii) the broader economic elements related to the nullification or impairment and the broader economic consequences of the suspension of concessions or other obligations; (e) if that party decides to request authorization to suspend concessions or other obligations pursuant to subparagraphs (b) or (c), it shall state the reasons therefor in its request. At the same time as the request is forwarded to the DSB, it also shall be forwarded to the relevant Councils and also, in the case of a request pursuant to subparagraph (b), the relevant sectoral bodies; (f) for purposes of this paragraph, “sector” means: (i) with respect to goods, all goods; (ii) with respect to services, a principal sector as identified in the current “Services Sectoral Classification List” which identifies such sectors; (iii) with respect to trade-related intellectual property rights, each of the categories of intellectual property rights covered in Section 1, or Section 2, or Section 3, or Section 4, or Section 5, or Section 6, or Section 7 of Part II, or the obligations under Part III, or Part IV of the Agreement on TRIPS; (g) for purposes of this paragraph, “agreement” means: (i) with respect to goods, the agreements listed in Annex 1A of the WTO Agreement,

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the traders affected by retaliatory measures cannot foresee the suspension. Therefore, it seems problematic to exclude in principle any right to compensation on the basis of ‘foreseeability’ if the EU conduct that triggers the imposition of retaliation is entirely unrelated to the sector in which retaliation victims operate. The GC in FIAMM, however, neither took account of the fact that retaliation victims operate in different sectors from that in which EU measures that breach WTO rules had been adopted, nor did it assess the implications of the fact that only the EU’s continuous breach of international law triggered retaliation. It is highlighted here that even though the Bananas and Hormones trade disputes have been triggered by a trade policy choice made by the EU, the damage occurring with retaliation victims is not linked to the policy choice in question. A battery or paper boxes producer is usually not even aware of any banana or beef market legislation at all. Retaliation as such is not foreseeable for affected traders. Traders exporting batteries would not prepare for the changes in the banana market or import bans for hormone-treated beef, which led to the suspension of concessions as chosen by another WTO member. In more general terms, given the extensive development of the international insurance market over the last decades, one could possibly identify ‘inherent risks’ by assessing the possibility of insuring that risk.70 It could be argued that all ‘identifiable’ or ‘inherent’ risks can be covered by a voluntarily purchased private insurance policy. According to information received (informally) from leading insurance companies, it seems that political risk cover can generally only be purchased in connection with substantial trade deals and comprehensive cover for any political risk would be prohibitive. There seems to be no insurance available that would allow them to avoid their business collapsing because of an international trade dispute concerning different products or other aspects of international trade law. Retaliation risk might come close to other exogenous risks such as socio-political and country risk, against which home states create incentives or provide insurance because of the public interest in serving the markets in which the risks are immanent.71 It does, however, not seem to be very realistic

70 71

taken as a whole as well as the Plurilateral Trade Agreements in so far as the relevant parties to the dispute are parties to these agreements; (ii) with respect to services, the GATS; (iii) with respect to intellectual property rights, the Agreement on TRIPS.’ Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 82. Governmental export insurance is meant to protect exporters taking a special risk by exporting to unstable economies, such as in the interest of development programmes. For example, the UK’s official Export Credit Agency, the Export Credits Guarantee

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that European exporters could obtain governmental insurance cover for their business with US traders for damage resulting from lawfully imposed retaliatory measures. The WTO system provides for an elaborate system of countermeasures to be used in order to make WTO members end their infringement of WTO law and to balance the damage suffered by the complaining WTO members as a consequence of the infringement. Yet, the fact that countermeasures are applied does not end the breach of WTO law.72 Instead, it is only a temporary alternative to full compliance with the international legal obligation under the WTO agreements.73 It seems alarming to argue, as was implicitly done by the GC, that economic operators need to take into account breaches of international law by the EU under the WTO system, which was established in order to facilitate and stabilise international trade. It seems difficult to justify a breach of international law being ‘inherent’ in all sectors of international businesses.74 Moreover, even if trade disputes were to be taken into account by each international trader’s business analysis in principle, it seems questionable to consider ‘inherent in the business’ a risk emerging from a persistent breach of international law by the EU.

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Department (ECGD), aims at providing ‘insurance to UK exporters against non-payment by their overseas buyers’, ‘guarantees for bank loans to facilitate the provision of finance to buyers of goods and services from UK companies’ and ‘political risk insurance to UK investors in overseas markets’; see www.ecgd.gov.uk. See Eeckhout, ‘The Domestic Legal Status of the WTO Agreement’, 55; Advocate General Alber in his Opinion in Case C-93/02 P, Biret, para. 88; Thies, ‘Biret and Beyond’, 1672; Kuijper and Bronckers, ‘WTO Law in the European Court of Justice’, 1342ff. Article 22(8) DSU states: ‘The suspension of concessions or other obligations shall be temporary and shall only be applied until such time as the measure found to be inconsistent with a covered agreement has been removed, or the Member that must implement recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached. In accordance with paragraph 6 of Article 21, the DSB shall continue to keep under surveillance the implementation of adopted recommendations or rulings, including those cases where compensation has been provided or concessions or other obligations have been suspended but the recommendations to bring a measure into conformity with the covered agreements have not been implemented.’ For a discussion of the EU’s obligation to comply with WTO law in this context and other international law, see Petersmann, ‘Darf die EG das Vo¨lkerrecht ignorieren?’; E.-U. Petersmann, ‘Can the EU’s Disregard for “Strict Observance of International Law” (Article 3 TEU) Be Constitutionally Justified?’ in Govaere et al. (eds.), Trade and Competition Law in the EU and Beyond, pp. 214–25.

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5.2.2.3 Gravity of damage According to Advocate General Maduro, it is moreover necessary to show that the damage is severe (‘grave’) in order to be considered ‘unusual’; otherwise, the damage would not come close to an expropriation necessitating compensation on the basis of the right to property.75 Although it is not necessary that the damage is equivalent to a total and definitive privation of property, it must have a sufficiently serious impact on the rights related to the property (usus, fructus and abusus); it is irrelevant whether the measure affecting the property right is lawful or unlawful since liability in the absence of unlawfulness is not based on fault.76 If the principle of liability in the absence of unlawfulness or ‘no-fault liability’, including the condition of ‘gravity’, were to be acknowledged under EU law in the future, the EU courts would need to determine on a case-by-case basis the nature of the damage suffered by each claimant individually.77 It is suggested here that the courts could take into account parameters such as the proportion of a trader’s business affected by retaliation.

5.2.3 Special damage As indicated above, damage also needs to be ‘special’ in nature in order to possibly justify a right to compensation in a system of liability that is based, inter alia, on equal treatment with regard to the discharge of public costs or expenses.78 According to the EU courts, damage is to be considered special ‘when it affects a particular circle of economic operators in a disproportionate manner by comparison with other operators’.79 In FIAMM, the GC did not consider the damage suffered to be ‘unusual’ and thus did not need to address the question of the damage being ‘special’ in nature or not. In light of possible future cases brought before the EU courts on the legal situation of retaliation victims, it is suggested here that in the context of damage through retaliatory measures, the circle of economic operators can be easily defined by looking at the lists of products drawn by WTO members imposing retaliatory

75 76 78 79

Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 76. Ibid. 77 Compare Toth, ‘The Concepts of Damage and Causality’, pp. 184ff. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 77. Case T-69/00, FIAMM, para. 202, Case T-151/00, Le Laboratoire du Bain; Case T-301/00, Fremaux; Case T-320/00, Cartondruck; Case T-383/00, Beamglow Ltd.; and Case T-135/01, Fedon et al.

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measures.80 The lists are precise; the traders affected can be identified and are clearly distinct from all other economic operators in the EU. WTO members, which are authorised under the DSU to impose retaliatory measures by suspending concessions or other obligations, can even do so with regard to specific countries. As a consequence, a French bed-linen exporter might be more adversely affected than other bed-linen producers based in other EU Member States with whom he or she competes. Such a constellation can justify a classification of the French producer’s damage as ‘special’, even when comparing his or her situation with that of other traders operating in the same sector. The ‘special’ nature of damage suffered by retaliation victims would, however, need to be revisited if complaining WTO members were to introduce a system of periodic rotation with regard to EU products concerned by retaliation (‘carousel’).81 Even if the intention of those WTO members was to more effectively induce compliance82 by addressing a broader group of traders through sanctions, such a ‘carousel system’ might have a negative impact on the right to compensation of retaliation victims. In the case of an imposition of ‘rotating duties’, the concept of ‘special sacrifice’ might not be applicable anymore, as the damage would be ‘shared’ by different exporters over time. Not only would there be a shared loss but also the compared burden vis-a`-vis other traders in the light of the principle of equal treatment would 80

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For the Bananas dispute, see, e.g., www.ustr.org, Press Release 98–113; 63 FR 71665; www.ustr.org, Press Release 99–01; 64 Fed. Reg. 19209 (EC Annex X). See also Panel Report WT/DS165/R at II.D.2.36 and Appendix 2.6 to that report for US Responses to Additional Questions of the Panel, dated 8 February 2000 at para. 20, US Ex. 7. See also Notice of the USTR of 19 April 1999 published in the Federal Register 64 Fed. Reg. 19, 209 (1999), announcing in the Annex the final product list in the bananas dispute (products included: bath preparations, handbags, wallets and similar articles, felt paper and paperboard boxes, lithographs, bed-linen, batteries and coffee or tea makers); Notice of the USTR of 27 July 1999 published in the Federal Register 64 Fed. Reg. 40, 638 (1999), announcing in the Annex the final product list in the Hormones dispute (products included: pork, Roquefort cheese, onions, truffles, dried carrots, goose liver, fruit juice, chicory and mustard). See Trade and Development Act of 2000, Pub.L. No.106–200, §407, 114 Stat.251, 293. USTR, Press Release 00–41, 26 May 2000, ‘USTR Announces Procedures for Modifying Measures in EC Beef and Bananas Cases’. With regard to the ‘threat of carousel rotation’ leading to the ‘Banana Agreement’ between the USA and the (then) EC, see with further references S. Charnovitz, ‘Rethinking WTO Trade Sanctions’, AJIL, 95(4) (2001), 792–832, 797. See USTR, Press Release 00–41, 26 May 2000, ‘USTR Announces Procedures for Modifying Measures in EC Beef and Bananas Cases’, para. 2.

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be less significant. At the same time, however, to reach such a conclusion arguably does not fully take into account the severe impact on traders’ business for the following reason: it is suggested here that once traders are hit by retaliation, even if only for a relatively short time, their market position will be severely affected in the longer term. Once the products are not available on the relevant market for a while, it will be hard to regain the selling position previously held by the affected traders.

5.2.4 Condition of ‘damage not being justified by a general economic interest’? In the appeal proceedings in FIAMM and Fedon, the Council and the Commission challenged the reasoning of the GC by claiming that liability in the absence of unlawfulness could only arise where the institutions had not pursued a general interest when taking action that caused the damage; consequently, the two institutions asked the ECJ to ‘supplement the grounds’ of the GC’s judgment (denying liability in these cases) by adding this further requirement for a successful compensation claim.83 Already in 1998, the GC had held in Dorsch that compensation for lawful acts could only be granted if the legislation that gave rise to the alleged damage is ‘not being justified by a general economic interest’.84 However, to establish such a condition caused immediate criticism. The requirement to show a lack of general economic interest was considered ‘redundant’ to mention as a separate condition or even systemwidrig.85 According to Haack, the liability principle in the absence of unlawfulness does not require any assessment of a ‘justification’ for the EU measure causing the damage. If there were to be a lack of general interest justifying the EU measure, there would be a violation of the general principle of equality, which is recognised as a fundamental principle of EU law.86 It would then be possible to rely on liability for

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Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 73. See Case T-184/95, Dorsch Consult v. Council, para. 80. Haack, ‘Die außervertragliche Haftung der EG’, 401. See in particular Joined Cases C-364/95 and C-365/95, T. Port GmbH, para. 81; Joined Cases 117/76 and 16/77, Ruckdeschel v. Hauptzollamt Hamburg-St Annen [1977] ECR 1753, para. 7; Joined Cases 124/76 and 20/77, Moulins et Huileries de Pont-a`-Mousson and another v. Office Interprofessionnel des Ce´re´ales [1977] ECR 1795, para. 16; Case 125/77, Koninklijke ScholtenHonig v. Hoofdproduktschap voor Akkerbouwprodukten [1978] ECR 1991, para. 26; and Joined Cases 103/77 and 145/77, Royal Scholten-Honig v. Intervention Board for Agricultural Products [1978] ECR 2037, para. 26.

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unlawful acts rather than claiming compensation on the basis of the principle of liability in the absence of unlawfulness.87 In 1999, Advocate General Mischo also differentiated between liability for unlawful conduct and liability for lawful conduct (or indeed the absence of unlawfulness), and stated in his Opinion in the Atlanta case: Liability for an unlawful act stems from three factors: unlawfulness, damage and the causal link between them. Provided that it is the result of the unlawful act, the damage does not need to amount to an exceptional burden. Liability for a lawful act, on the other hand, arises solely from the fact that the act has given rise to specific damage, and it is the nature of this damage which forms the basis of the liability, no unlawful act being required.88

According to Mischo, these two forms of EU liability were therefore mutually exclusive and not complementary.89 In FIAMM, the Council and the Commission had referred to prior case law in order to support their demand for making the lack of a ‘general economic interest’ an additional condition of no-fault liability.90 The Council and the Commission concluded from the mentioning of that criterion in these cases that compensation would be excluded if the EU act or conduct that caused the damage was not adopted in order to favour particular interests but in the interests of society as a whole.91 According to Advocate General Maduro, however, the cases referred to constituted only a ‘minority strand of case law’, which would not justify the recognition of such an additional condition.92 He did not consider the recognition appropriate, ‘because equality in bearing public burdens and the protection to be accorded to the right to property demand that economic operators who have suffered unusual and special damage be compensated, even if the measure that caused the damage was justified by a general economic interest’.93 Furthermore, the conditions that the damage needs to be of an unusual and special nature are ‘sufficiently restrictive for the political authorities’ freedom of action

87 88

89 90

91 92

Haack, ‘Die außervertragliche Haftung der EG’, 401. Case C-104/97 P, Atlanta v. European Community [1999] ECR I-6987, Opinion of 6 May 1999, paras. 46 and 47. Ibid., para. 48. Joined Cases 9/71 and 11/71, Compagnie d’Approvisionnement, paras. 45, 46; Case T-170/00, Fo¨rde-Reederei, para. 56; Joined Cases T-64 and 65/01, Afrikanische Frucht-Compagnie, para. 151. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 79. Ibid. 93 Ibid.

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in the pursuit of a general economic interest not to be affected by fear of possible liability’.94 The ECJ referred to the notion of ‘general interest’ when emphasising the necessity of having a strict approach towards EU liability for legislative activities. According to the Court, the ‘exercise of legislative function must not be hindered by the prospect of actions for damages whenever the general interest of the EU requires legislative measures to be adopted, which may adversely affect individual interests’.95 This statement was immediately followed by the Court’s conclusion that liability could only arise if the institution concerned had ‘manifestly and gravely disregarded the limits on the exercise of its powers’.96 Again, it appears that the Court failed to distinguish between a liability principle based on unlawful conduct and a principle based on the particularly severe consequences of such conduct, despite the existence of both principles in the EU Member States’ legal systems. It is suggested here that the following distinction should be drawn in order to do justice to the need for public accountability. On the one hand, a significant ‘general interest’ might exclude the unlawfulness of EU conduct. In particular, where the scope of an individual right has to be assessed in the light of its social context and is restricted by objectives pursued in the general interest, a right to compensation might be non-existent.97 On the other hand, however, in the context of liability for lawful acts, the question to be asked should merely be whether there is any ‘general interest’ that prevents the EU from granting compensation for individuals suffering loss as the consequence of EU conduct.98 Accordingly, it would be necessary for the EU to show as defendant of the compensation action that there exists a general interest in leaving the loss with only a few citizens. In the context of the legal situation of retaliation victims, it seems difficult to identify such a general interest on the basis of a public preference for damage occurring only with some traders instead of burdening the EU budget with a ‘shared loss’ that results from its legislative activities. 94 97 98

Ibid. 95 Cases C-120 and 121/06 P, FIAMM et al., para. 174. 96 Ibid., para. 174. See Chapter 4, section 4.4. Compare Craig, EU Administrative Law, p. 696: ‘Liability for losses flowing from lawful legislation requires . . . the drawing of a difficult line between cases where the deleterious effect on a firm was the aim of the legislation or a necessary effect thereof, and where legislation was passed that incidentally affects a particular form in a serious manner, but where there is no legislative objection to compensating the firm for the loss suffered.’

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5.3 Conclusions The purpose of this chapter was to complete the kaleidoscope of potential legal grounds of compensation rights of retaliation victims under EU law by addressing the principle of liability in the absence of unlawfulness. While liability for infringements of WTO law has been denied because of the lack of its direct effect (Chapter 3), and liability for infringements of EU general principles still needs to be argued explicitly before the ECJ (Chapter 4), the overall existence of an EU principle of liability in the absence of unlawfulness has so far been denied by the ECJ in the context of international trade disputes. In critique of the ECJ’s current reasoning for the denial of the principle’s existence, this chapter has made suggestions for possible modifications of the ECJ’s position in the interest of the EU’s commitment to the rule of law, including the recognition of general principles common to the traditions of the Member States and established under EU law. The following chapter will highlight, inter alia, the overall suitability of the principle of liability in the absence of unlawfulness for cases at the intersection between international law and EU law.99

99

See Chapter 6, section 6.2.2.

6

The current situation of retaliation victims and how to fill the gap in judicial protection while further respecting the EU institutions’ international scope for manoeuvre

This chapter brings together the analysis and critique developed in previous chapters and makes the overall argument of this book. In order to remind readers of the international context of the legal questions addressed in this book, it begins with (section 6.1) an overview on the implications of WTO cases and law for the EU domestic legal order as well as a comparison with other WTO members in that respect. Subsequently, the chapter focuses on (section 6.2) the EU constitutional law dimension of the legal situation of retaliation victims. In this context, it outlines recommendations on how to fill the gaps in the system of judicial protection identified in the previous chapters. Returning to the distinction between the role of EU general principles for (section 6.2.1) liability for unlawful conduct (see also Chapter 4) and (section 6.2.2) liability in the absence of unlawfulness (see also Chapter 5), it shows possible avenues for the ECJ to modify its current approach. It concludes (section 6.3) with placing the subject addressed in this book in the broader context of standards of individual rights protection in situations in which the EU takes action with an external dimension, either in compliance with or in breach of its international law obligations.

6.1 WTO law and the position of individuals The following paragraphs entail brief summaries of the cases brought against the EU before the WTO DSB, which triggered retaliatory measures allegedly causing damage for some traders,1 and the judicial reasoning of the EU courts and the legal consequences of the ECJ’s approach for the legal situation of retaliation victims, which currently leaves them 1

For a more detailed discussion, see Chapter 1, section 1.1.

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without any judicial remedy or legal basis for a right to compensation.2 The first section concludes with a short analysis of the law of three non-EU WTO members (i.e., the USA, Canada and Japan) on the position of individuals before national courts with regard to the enforceability of WTO law obligations. This is meant to place the EU courts’ position on that matter into its international context.

6.1.1 What happened in the WTO? The Hormones case – concerning the legislation banning the use of hormones in the raising of cattle and prohibiting the importation of hormone-treated meat3 – and the Bananas case – concerning the legislation on the common organisation of the market in bananas4 – were brought against the EU before the DSB by other WTO members. The DSB adopted in both cases the Panel and Appellate Body Reports, which held that the EU legislation was in breach with WTO law.5 After the EU’s failure to bring its legislation into compliance with WTO law, the DSB authorised other WTO members to use retaliatory measures to induce compliance and to ‘balance’ the economic disadvantage caused by the EU’s failure to comply with WTO law.6 In the form of ‘suspension of concessions and other obligations’,7 these sanctions extended in the Bananas case to an amount of US$191.4 million8 and in the Hormones 2 3

4

5

6

7

See Chapters 2–5. Council Directive 96/22/EC of 29 April 1996, OJ 1996 L 125/3; Council Directive 88/146/EEC of 7 March 1988, OJ 1988 L 70/16; Council Directive 81/602/EEC of 31 July 1981, OJ 1981 L 222/32. Regulation (EEC) No 404/93 on the common organisation of the market in bananas, adopted by the Council on 13 February 1993, OJ 1993 L 47/1 (‘the COM for bananas’). EC-Hormones, WT/DS26 and 48/R and WT/DS26 and 48/AB/R; EC-Bananas, WT/DS27/R/ECU, GTM, HND, MEX and USA and WT/DS27/AB/R. See Article 22(6) DSU; EC-Bananas, Minutes of DSB meeting, WT/DSB/M/59, Doc. No. 99–2233, 3 June 1999; EC-Hormones, Minutes of DSB meeting, WT/DSB/M63, Doc. 99–2799, 6 July 1999; EC-Bananas, WT/DS27/ARB, Decision by the Arbitrators (retaliation authorised by the DSB on 19 April 1999); EC-Hormones, WT/DS26/ARB, Decision by the Arbitrators (retaliation authorised by DSB on 26 July 1999). For a discussion of retaliation’s purpose to ‘induce compliance’ and to ‘re-balance reciprocal obligations’, see Eeckhout, ‘Remedies and Compliance’, p. 443, Eeckhout being of the view that retaliation’s fundamental purpose is to induce compliance; for a challenge of the purpose of inducing compliance, see D. Palmeter and S. Alexandrov, ‘Inducing Compliance in WTO Dispute Settlement’ in D. L. M. Kennedy and J. D. Southwick (eds.), The Political Economy of International Trade Law (Cambridge University Press, 2002), pp. 646–66. See Article 22(4) DSU. 8 See WT/DS27/ARB, p. 43, para. 8.1.

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case to an amount of US$116.8 million9 and CDN $11.3 million.10 These retaliatory measures have not affected the EU budget directly, but have affected several EU traders by imposing customs duties on their exports, such as batteries, bed-linen, paperboard boxes, bath products, Roquefort cheese or mustard.11 Some of these EU traders have brought compensation actions before the EU courts,12 which raised the legal questions addressed in this book, namely the effect of WTO law as well as of EU general principles on the EU courts’ legality review in the context of EU compensation actions at the intersection of EU law and WTO law.

6.1.2 EU law and the WTO: two separate legal orders and no right to compensation? The EU and its Member States are members of the WTO, and the WTO agreements are binding for the EU institutions and EU Member States13 as an ‘integral part of [EU] law’.14 However, the EU courts have refrained in principle15 from recognising the direct effect of the EU’s WTO law 9 10 11

12

13

14 15

See WT/DS26/ARB, p. 17, paras. 79, 83, 84, Annex 1. WT/DS48/ARB, paras. 68, 72, 73, Annex 1. See USTR Office, Press Release 99–35, 9 April 1999, USTR Announces Final Product List in Bananas Dispute (products included: bath preparations, handbags, wallets and similar articles, felt paper and paperboard boxes, lithographs, bed-linen, batteries and coffee or tea makers) – Federal Register/Vol. 64, No. 74/Monday, 19 April 1999/Notices, 19209ff (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi? dbname=1999_register&docid=99-9703-filed.pdf); USTR Office, Press Release 99–60, 19 July 1999, USTR Announces Final Product List in Beef Hormones Dispute (products included: pork, Roquefort cheese, onions, truffles, dried carrots, goose liver, fruit juice, chicory and mustard) – Federal Register/Vol. 64, No. 143/Tuesday, 27 July 1999/Notices, 40638ff (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi? dbname=1999_register&docid=99-19174-filed.pdf). For notification of actions, see: Case T-69/00, FIAMM SpA and FIAMM Technologies Inc. v. Commission and Council, OJ 2000 C 135/30; Case T-151/00, Le Laboratoire du Bain v. Council and Commission, OJ 2000 C 247/54; Case T-301/00, Groupe Fremaux and Palais Royal Inc. v. Council and Commission, OJ 2000 C 355/32; Case T-320/00, CD Cartondruck GmbH & Co. KG v. Council and Commission, OJ 2000 C 355/39; Case T-383/00, Beamglow Ltd. v. Council et al., OJ 2001 C 61/21; Giorgio Fedon & Figli S.p.A., Fedon S.r.l. and Fedon America USA Inc. v. Commission and Council, OJ 2001 C 275/10. Case T-297/00, Claude-Anne de Sole`ne v. Council, OJ 2000 C 355/30, was removed from the register on 2 April 2003, and Case T-109/03, Arran Aromatics Ltd. and others v. Commission, OJ 2003 C 135/33, was removed from the register on 13 July 2006. Article XI(1) WTO Agreement; Council Decision 94/800/EC of 22 December 1994, OJ 1994 L 336/1; see also Article 216(2) TFEU. See already Case 181/73, Haegeman, para. 5. For exceptions to this, see Case 70/87, Fediol, paras. 19–22; and Case C-69/89, Nakajima, para. 31; the ECJ confirmed the existence of these exceptions with regard to the WTO Agreements in Case C-149/96, Portugal, para. 47.

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obligations and thus have prevented states and individuals from enforcing the EU’s WTO law obligations to challenge EU conduct before the EU courts. In FIAMM et al., the ECJ held that the direct effect of invoked WTO law provisions was also a precondition of the Court’s judicial review in the context of compensation actions.16 In critique of this latter position, the following paragraphs return to the proposal of waiving the requirement of ‘direct effect’ in compensation actions with regard to the specific context of EU infringements of WTO law.17 Yet, before doing so, it is acknowledged here that there might be more suitable ways for the ECJ to accommodate the diverging individual and public interests and normative considerations on the basis of ‘mere’ EU constitutional law,18 rather than necessitating different kinds of legality reviews in annulment and compensation actions. Nevertheless, a closer look at the ECJ’s ‘own logic’ – manifested in decisions such as Portugal, Francovich and Ko¨bler – seems worthwhile when revisiting the benchmark for lawfulness in compensation actions at the intersection of EU law and WTO law.19 As discussed in Chapters 1 and 3, the EU courts began denying the invokability of WTO law breaches in proceedings before them in which either a claimant sought the annulment of an EU measure20 or the validity of an EU measure was at stake in a preliminary ruling of the courts.21 In that context, the recognition of direct effect would have required the 16

17

18

19 21

Cases C-120 and 121/06 P, FIAMM et al., para. 120. The ECJ also made explicit that its approach would remain the same in those compensation actions where a breach of WTO law had already been identified by the competent international authority, the DSB, and the implementation period expired (para. 130), following prior case law, in which the courts rejected explicitly any impact of both already-delivered DSB rulings in themselves and the DSB rulings after the expiry of the implementation period granted to comply with them (Case T-19/01, Chiquita, paras. 161ff; this has been confirmed by the ECJ in the context of a preliminary ruling in Case C-377/02, Van Parys). See already Chapter 2, section 2.3.4 with regard to invoked international law breaches in general. Those have been addressed in Chapters 4 and 5 and are addressed again below in section 6.2. See also the discussion in Chapter 2, section 2.3.4. 20 Article 263 TFEU. If a national court requests the ECJ to give a preliminary ruling on the validity of EU measures (see Article 267(1)(b) TFEU), the outcome is similar to that of an annulment action. Though the Court addresses the ruling merely to the national judge, who had referred a question to it, the declaration of the Court that an EU measure is void has an erga omnes effect; see Craig, EU Administrative Law, p. 679; Craig and De Bu´rca, EU Law, 5th edn, pp. 443, 453, 475. In Case 66/80, International Chemical Corporation v. Amministrazione delle Finanze dello Stato [1981] ECR 1191, the Court held at para. 13: ‘Although a judgment of the Court given under Article 177 [now 267 TFEU] of the Treaty declaring an act of an institution, in particular of the Council or Commission regulation, to be void is directly addressed only to the national court which brought the matter before the Court, it is

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courts to ‘declare the act concerned to be void’ or ‘if it considers this necessary, state which of the effects of the act which it has declared void shall be considered definitive’.22 In the specific context of international trade relations, the ‘vanishing’ of an EU measure – the effect of which is not limited to the EU’s territory but is also shaping its international trade relations – would have a direct impact on the EU’s position at the international level; EU institutions would be obliged to follow the judgment of the EU courts without being able to take account of the consequences regarding their internationally relevant action or standing. The courts’ reasoning to deny the overall invokability of WTO law and its breaches has thus been based primarily on the EU’s political interest to prevent consequences, which could place the EU institutions in a disadvantageous situation compared with those of the EU’s major trading partners – in particular with respect to their discretion not to comply with WTO law.23 The denial of direct effect was a consequence of the courts’ exercise of judicial self-restraint by refraining from enforcing the EU’s WTO law obligations in the EU legal order in order to respect the scope for manoeuvre of the political and legislative institutions at the international level.24 In FIAMM et al., the ECJ held that it was also not in a position to grant compensation on the basis of a WTO law infringement, as legislative institutions should neither be hindered by the prospect of actions for damages nor put under an obligation to comply with WTO law obligations as a consequence of successful compensation actions.25 Yet, in critique of the ECJ’s conclusion in FIAMM et al.,26 it is argued here that

22

23

24

25 26

sufficient for any other national court to regard that act as void for the purposes of a judgment which it has to give.’ Article 264 TFEU; for further discussion of the EU courts’ possibility to limit the retroactive effect of the annulment, see Hartley, The Foundations of European Union Law, pp. 437ff. The courts also applied (now) Article 264 TFEU in the context of preliminary rulings under (now) Article 267 TFEU; for further references, see Hartley, The Foundations of European Union Law, pp. 441ff; see also Thies, commentary on (now) Articles 263–6 TFEU in Smit et al. (eds.), Smit & Herzog, Vol. 4. Case C-149/96, Portugal, para. 46. See also below, section 6.1.3 for an overview on the legal situation in the USA, Canada and Japan. For further analysis of policy considerations on the attribution of direct effect to international agreements of the EU, see Peters, ‘The Position of International Law’, 58ff; see also Cottier and Oesch, International Trade Regulation, pp. 197–232; Kuijper and Bronckers, ‘WTO Law in the European Court of Justice’. Cases C-120 and 121/06 P, FIAMM et al., paras. 121, 122. Ibid., paras. 122ff. See also Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 49; according to Maduro, the political institutions would disregard the rule of law in the EU legal order if they upheld the EU measure despite the Court’s decision of it being ‘unlawful’. Without further explanation, Maduro concluded that there is an obligation for the EU institutions concerned to end the ‘unlawfulness’.

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even if a compensation action based on a breach of WTO law were considered to be well founded, the courts would not be required to declare the act concerned to be fully or partially void, as Article 264 TFEU27 is not applicable in the context of compensation actions. Furthermore, the obligation under Article 266 TFEU, according to which ‘[t]he institution, body, office or agency whose act has been declared void or whose failure to act has been declared contrary to the Treaties shall be required to take the necessary measures to comply with the judgment of the Court of Justice’, is not applicable in the context of a compensation action either. In fact, if those provisions were applicable in the context of compensation actions, applicants could in principle challenge the existence of an EU measure by bringing compensation actions even after the expiry of the time limit under Article 263(6) TFEU for annulment actions.28 Such consequences would conflict with the principle of legal certainty under EU law.29 A successful compensation action in the context of international trade disputes would thus have no direct impact on the EU’s measure itself – it being of international relevance or not. Admittedly, the financial threat of successful compensation actions might influence the competent EU institutions to refrain from adopting a measure or to adapt the pertinent piece of legislation.30 Nonetheless, it is suggested that liability should not be denied in principle only because of the risk that the financial burden could be so large as to restrict the political institutions in their political discretion provided under the WTO system.31 The necessity of balancing public and individual interests might require granting of compensation under specific circumstances instead of leaving all loss with the individuals concerned. It is reiterated in this context that the ‘direct effect’ of EU law has not been considered as a necessary requirement where state liability was enforced.32 It would therefore be in 27 28

29 30 31

32

See note 22 above. Compensation actions by retaliation victims could hardly be considered inadmissible based on the argument that they ‘aimed at securing withdrawal of an individual decision which has become definite and thus constitutes an abuse of process’ (see Case T-485/93, Socie´te´ Louis Dreyfus & Cie v. Commission [1996] ECR II-1101, summary of the judgment and paras. 126ff), as they lack standing to challenge the pertinent EU legislation in an annulment action due to a lack of direct and individual concern. For a discussion of this principle, see Tridimas, The General Principles, pp. 242ff. Compare ibid., p. 480. See also Cases C-120 and 121/06 P, FIAMM et al., para. 121. However, see in this sense Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 49. Joined Cases C-6/90 and C-9/90, Francovich and others; Case C-224/01, Ko¨bler.

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line with the courts’ case law on state liability if the criterion of direct effect of international law was waived in the context of EU liability.33 As discussed in Chapters 2 and 3, however, even if the courts were to recognise that the direct effect of the EU’s WTO law obligations is not required in the context of compensation actions, there would be additional hurdles for the applicants to take. In addition to a breach of WTO law, there are two conditions that would be particularly challenging for individuals to meet. First, the breach by the EU would need to be ‘sufficiently serious’.34 Where applicants base their liability action on a breach of international law, the EU courts would need to take account of the reach or scope of the pertinent international provisions or legal order to assess the level of seriousness of the breach. It would be difficult to argue that liability because of a breach of international law could go beyond the actual scope of the international legal obligation in question. In the context of international trade disputes and the continuous breach of WTO law, the EU courts would need to take account of the discretion granted under the DSU. As long as ‘other options’ – i.e., here an alternative to the immediate compliance with WTO law obligations – are lawfully available for the EU under the DSU, compensation cannot be claimed on the basis of a breach of WTO law. Given that the DSU gives WTO members the possibility to refrain temporarily from implementing the DSB report while accepting retaliation in the form of suspension of concessions, it might be difficult to establish the existence of a serious breach. On the other hand, it could be claimed that the political option provided under the DSU, namely to accept retaliation at least temporarily, could hardly prevent the courts from attaching legal consequences of this breach within the EU legal order, once the unlawfulness of EU conduct has been clearly established by the DSB.35 The second condition that applicants would need to meet is that the infringed provision ‘confers rights or benefits’ on individuals, which is particularly challenging to show for retaliation victims. As illustrated in Chapter 3, there seems to be no provision of WTO law infringed in the context of an international trade dispute that confers rights specifically on retaliation victims. Furthermore, the nature of the WTO system does

33

34 35

For further discussion of this parallelism, see B. Schoißwohl, ‘Haftung der Gemeinschaft’, 700ff; for a comment on the Francovich decision and its effect on liability rules, see W. Van Gerven, ‘Non-contractual Liability’. See Chapter 3, section 3.2 for further discussion. See Chapter 3, section 3.2 for further discussion.

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not (yet) justify a right to compensation in the absence of an infringed rule conferring rights or benefits, as the infringements of WTO law in the context of international trade disputes cannot be seen as the ‘nonrealisation of international provisions conferring rights or benefits’.36

6.1.3 An international comparison: the USA, Japan and Canada Before turning in the following section of this chapter to the constitutional dimension of EU liability in the context of international trade disputes, this part of the chapter places the current approach of the EU courts regarding the implications of WTO law obligations into its international context. As discussed above, neither the WTO agreements nor the WTO judiciary have so far required the direct effect of WTO law within the WTO members’ legal systems; instead, the issue of direct effect has been left to the national legal orders to decide.37 However, there seem to be no cases so far that were brought before other WTO members’ domestic courts and are comparable to the FIAMM et al. cases, i.e., concerning the right of retaliation victims to compensation. In order to assess preliminarily the comparability of the approach taken by the ECJ with those of other WTO members, the following paragraphs provide an overview of the general existence of state liability principles in and the general attitude of other WTO members regarding the effect of WTO law in their domestic legal systems. The overview focuses on the USA, Canada and Japan, these states being important trading partners of the EU – a characteristic to which the ECJ referred when denying the direct effect of WTO law for reasons of reciprocity.38 Moreover, the choice of these jurisdictions allows for an assessment of positions developed both in common law systems (the USA and Canada) and civil law systems (Japan), which are both inherent in the EU legal order.

6.1.3.1 The USA According to paragraph 2674 of the Federal Tort Claims Act of 1946 (FTCA): 36 37

38

For more detailed discussion, see Chapter 3, section 3.3. See Chapter 3, section 3.1.1.2.1 above. See also X. Zhang, ‘Direct Effect of the WTO Agreements: National Survey’, Int. T.L.R., 9(2) (2003), 35–46, 35. Case C-149/96, Portugal, para. 46; Cases C-120 and 121/06 P, FIAMM et al., para. 130; see discussion in Chapter 3, section 3.1.1.1 above. For a survey of the effect of WTO agreements in further WTO members, such as China and India, see also Zhang, ‘Direct Effect’.

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The United States shall be liable . . . in the same manner and to the same extent as a private individual under like circumstances, but shall not be liable for interest prior to judgment or for punitive damages.39

Even where the government is engaging in clearly governmental action, liability can arise if its conduct is considered to be negligent or wrongful.40 There are exceptions to the FTCA in order to ensure that important governmental activities are not disrupted by the threat of compensation actions, ‘to avoid exposure of the [USA] to excessive or fraudulent claims and not to extend coverage of the FTCA for matters for which adequate remedies already existed’.41 In the present context, the exception concerning the discretionary function seems of relevance: according to § 2680(a), all claims ‘based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused’ do not fall within the scope of application of Chapter 171 of the FTCA.42 According to the US Supreme Court, the discretionary function exception comprises ‘governmental acts or omissions that (1) involve an element of judgment or choice, (2) which is susceptible to policy analysis’.43 Moreover, since Seminole Tribe v. Florida,44 the Supreme Court held that Congress was prevented from authorising individuals ‘to sue states in federal court for damages to enforce laws regulating state commercial activity’.45 When concluding the WTO agreements, the USA explicitly retained its legislative powers in the area; the WTO agreements are not selfexecuting.46 The Act implementing the WTO agreements has the

39 40

41

42 43 44 45

46

28 U.S.C. (2000), § 1346(b) and Chapter 171, §§ 2671–80. R. A. Cass, ‘Official Liability in America: Actors and Incentives’ in J. Bell and A. W. Bradley (eds.), Governmental Liability: A Comparative Study, Vol. 13 (London: The UK National Committee of Comparative Law, 1991), pp. 110–144, 121. H. Goldberg, ‘Tort Liability for Federal Government Actions in the United States: An Overview’ in D. Fairgrieve, M. Adenas and J. Bell (eds.), Tort Liability of Public Authorities in Comparative Perspective (London: BIICL, 2002) pp. 521–539, 523, referring to 28 U.S.C. § 2680, and Kosak v. US, 465 US 848, 858 (1984). 28 U.S.C. § 2680(a). Goldberg, ‘Tort Liability’, 523, referring to Gaubert v. US, 499 US 315, 325 (1991). Seminole Tribe v. Florida, 517 US 44, 53 (1996). J. E. Pfander, ‘Member State Liability’, American Journal of Comparative Law, 51 (2003), 237–274, 237ff, with reference to further case law and literature. See, e.g., J. H. Jackson, ‘The Great 1994 Sovereignty Debate: United States Acceptance and Implementation of the Uruguay Round Results’, Columbia Journal of Transnational Law, 36 (1997), 157–88; J. H. Jackson, ‘Direct Effect of Treaties in the U.S. and the EU, the

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same rank within domestic law as other federal statutes.47 The US law implementing the WTO agreements specified that WTO law would only be applicable as long as it is consistent with US law, which also prevails in a case of conflict by stating that: No provision of any of the Uruguay Round Agreements, nor the application of any such provision to any person or circumstance, that is inconsistent with any law of the United States shall have effect.48

Moreover, any direct effect of provisions of the WTO agreements that could be invoked by natural or legal persons before domestic courts has been excluded as follows: No person other than the United States– (A) (B)

shall have any cause of action or defense under any of the Uruguay Round Agreements . . . or may challenge, in any action brought under any provision of law, any action or inaction by any department, agency, or other instrumentality of the United States, any State, or any political subdivision of a State on the ground that such action or inaction is inconsistent with such agreement.49

Whereas the first provision precludes any effect of WTO law within the domestic legal order, the second provision addresses the particular situation in which natural or legal persons challenge state conduct in the light of WTO law. It had been suggested that US courts might apply WTO law or rulings ‘to resolve ambiguities in the language of a statute’, as long as the interpretative result would not be contrary to any clearly expressed intent of Congress.50 However, US courts seem to have dealt with this issue differently.51 The Federal Circuit in Suramerica de Aleaciones Laminadas, C.A. v. United States – when an administrative interpretation of a statute was in conflict with the WTO agreements – held that ‘[t]he GATT does not trump domestic legislation; if the statutory provisions . . .

47

48 49 50 51

Case of the WTO: Some Perceptions and Proposals’ in Arnull, Eeckhout and Tridimas (eds.), Continuity and Change, pp. 361–382, 372ff. Zhang, ‘Direct Effect’, 40, referring to US Const. Art. VI, cl. 2, and Whitney v. Robertson, 124 US 190, 194 (1888). Uruguay Round Agreement Act, § 102(a), 19 U.S.C. (2000), § 3512(a)(1). 19 U.S.C. (2000), §3512(c), (1). Leebron, ‘Implementation of the Uruguay Round Results’, 212. P. C. Reed, ‘Relationship of WTO obligations to US International Trade Law: Internationalist Vision Meets Domestic Reality’, Geo. J. Int’l L., 38 (2006), 209–49; see also Zhang, ‘Direct Effect’, 40.

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are inconsistent with the GATT, it is a matter for Congress and not this court to decide and remedy’.52 In the context of the WTO agreements, the courts have deviated from the general approach, the Charming Betsy doctrine, to interpret a statute if possible in the light of the USA’s international obligations,53 or, as set out in the Restatement (Third) of U.S. Foreign Relations Law, ‘[w]here fairly possible, a United States statute is to be construed so as not to conflict with international law or an international agreement of the United States’.54 In sum, Congress and the US courts have been reluctant to give much effect to WTO obligations within the national legal order. This has had an impact on proceedings brought by natural or legal persons both where WTO law had been invoked and where the courts were asked to interpret domestic law in the light of those obligations. An action for damages brought by ‘retaliation victims’ on that basis would presumably not be successful.

6.1.3.2 Canada In Canada, the Crown Liability and Proceedings Act (CLPA) regulates governmental liability.55 Tort law in Canada is derived from the common law, with the exception of Quebec, which is regulated by a civil code in areas other than public law that is based on the common law.56 According to Article 3 of the CLPA: The Crown is liable for the damages for which, if it were a person, it would be liable (a)

(b)

52

53

54 55 56

in the Province of Quebec, in respect of (i) the damage caused by the fault of a servant of the Crown, or (ii) the damage resulting from the act of a thing in the custody of or owned by the Crown or by the fault of the Crown as custodian or owner; and in any other province, in respect of (i) a tort committed by a servant of the Crown, or (ii) a breach of duty attaching to the ownership, occupation, possession or control of property.

966 F.2d 660, 668 (Fed. Cir. 1992); see Reed, ‘Relationship of WTO Obligations to US International Trade Law’, 210, for references to further case law and further discussion. Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804) (per Marshall C.J.); Zhang, ‘Direct Effect’, 40. Restatement (Third) of U.S. Foreign Relations Law, § 114 (1987). R.S. 1985, c.C-50; see http://laws.justice.gc.ca/en/C-50/index.html. S. Sugarman, ‘A New Approach to Tort Doctrine: Taking the Best from the Civil Law and Common Law of Canada’, Supreme Court Law Review, 17 (2002), 375–90.

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The direct enforceability of WTO law provisions has been denied in Canada in a similar way as in the USA.57 The WTO agreements are implemented into Canadian law by domestic law. According to Article 6 of the World Trade Organization Implementation Act, private cause of action under the Agreement is prohibited: No person has any cause of action and no proceedings of any kind shall be taken, without the consent of the Attorney General of Canada, to enforce or determine any right or obligation that is claimed or arises solely under or by virtue of the Agreement.58

Again, an action for compensation on the basis of WTO law infringements would presumably not be successful.

6.1.3.3 Japan According to Article 17 of the Constitution of Japan, which was put into effect by the Law on Compensation for State Action,59 each person who suffered damage caused by the illegal conduct of public authority is entitled to claim compensation as provided by law. In principle, the right to compensation is conditional upon the tortfeasor being at fault,60 the challenged measure being unlawful, and a causal link between the measure and the loss.61 It seems that the Supreme Court has dealt with liability for legislative measures only once. In this instance, the Supreme Court decided that, in principle, legislative acts are not subject to an assessment of legality for the purpose of applying Article 1 of the law on state liability;62 only where the enactment of laws ‘clearly contravene[s] the fundamentals of the Constitution’ will the courts undertake a legality assessment for the purposes of state

57

58 59 60

61

62

For a more detailed discussion, see D. Steger, ‘Canadian Implementation of the Agreement Establishing the World Trade Organization’ in Jackson and Sykes (eds.), Implementing the Uruguay Round, pp. 243–83. World Trade Organization Implementation Act of 15 December 1994, Chapter 47. Kokka baishoˆ-hoˆ, Law No. 125 of 27 October 1947. According to Oda, where there are no intentional acts, negligence is predominantly considered as a ‘breach of duty to foresee or to avoid the outcome of one’s act’ and thus potentially similar to the concept of unlawfulness; see H. Oda, Japanese Law, 3rd edn (Oxford University Press, 2009), p. 182. Ibid., p. 197. See also M. Matsushita, International Trade and Competition Law in Japan (Oxford University Press, 1993), p. 59. Kokka baishoˆ-hoˆ, Law No. 125 of 27 October 1947.

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liability.63 The Court also clarified that for liability to arise, the infringed rule should constitute a ‘legal obligation toward a particular citizen’.64 In the context of the old GATT, the Japanese courts denied the enforceability of GATT obligations by natural persons, in particular since the invoked provisions were governing the relations between GATT members and could not be interpreted to have more effects.65 Given that the Japanese legislation implementing the WTO agreements did not address whether or not they should be directly applicable in Japan, it has been left to the domestic courts to decide.66 The WTO agreements, like other international treaties, are given the same status as domestic law, prevail over statutes in case of conflict and are directly applicable.67 According to academic writing and case law, however, it is not clear whether provisions of the WTO agreements are also directly effective and enforceable by natural and legal persons before domestic courts.68 Some authors have stated that there is a general negative attitude with regard to direct effect.69 It can be concluded that under Japanese law, liability for legislative measures only arises in exceptional circumstances, such as where a legislative measure contradicts fundamental constitutional principles. It is doubted that the Japanese courts would recognise the WTO 63

64 65

66 67

68 69

Decision of the Supreme Court of 21 November 1985, Case Number 1978 (O) No. 1240, Minshu Vol. 39, No. 7, at 1512, paras. 3 and 4 of the English outline; see www. courts.go.jp/english. Decision of the Supreme Court of 21 November 1985, para. 3 of the English outline. Kyoto Necktie Case: Kyoto District Court, Judgment of 29 June 1984, Shomu Geppo 31, 207, 234; confirmed by the Supreme Court on 6 February 1990, Sup. Ct, Shomu Geppo 36, 2242, 2245; for further discussion, see Y. Iwasawa, International Law, Human Rights, and Japanese Law: The Impact of International Law on Japanese Law (Oxford: Clarendon Press, 1998), pp. 66–77, in particular pp. 68ff. Iwasawa, International Law, Human Rights, and Japanese Law, p. 76. Y. Iwasawa, ‘Constitutional Problems Involved in Implementing the Uruguay Round in Japan’ in Jackson and Sykes (eds.), Implementing the Uruguay Round, pp. 137–74, 146, 150–7; although Iwasawa used the term ‘direct applicability’ in discussing the effect of WTO agreements in Japan, he addressed the issue of direct enforceability, i.e., whether the Japanese court will directly apply the provisions of GATT/WTO agreements; see also Zhang, ‘Direct Effect’, 41. Zhang, ‘Direct Effect’, 41. J. Bourgeois, ‘The European Court of Justice and the WTO: Problems and Challenges’ in J. H. Weiler (ed.), The EU, The WTO and The NAFTA: Towards a Common Law of International Trade? (Oxford University Press, 2000), pp. 71–123, 115, referring to Y. Iwasawa, ‘Implementation of International Trade Agreements in Japan’ in M. Hilf and E.-U. Petersmann (eds.), National Constitutions and International Economic Law (Deventer, Boston: Kluwer Law and Taxation Publishers, 1993), pp. 299–344; Iwasawa, International Law, Human Rights, and Japanese Law, pp. 76, 77.

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obligations belonging to those legal obligations towards ‘particular citizens’, such as in the present context toward retaliation victims.

6.1.3.4 Outlook There have not been sufficiently comparable cases decided by the courts of other WTO members to allow for a detailed comparison with the legal situation under EU law regarding the compensation rights of retaliation victims. The above assessment has thus been limited to the basic principles of state liability and the enforceability of WTO law by natural and legal persons in the USA, Canada and Japan, challenging measures of public authority. Whereas, like under Article 216(2) TFEU, the direct applicability of WTO obligations is more readily accepted by some (e.g., Japan), the legal systems are more reluctant to recognise the direct effect and enforceability of the WTO law provisions invoked to challenge domestic measures. It seems unlikely that individuals would be entitled to enforce the obligations of the WTO members under the WTO agreements before domestic courts in the USA, Canada and Japan, and to successfully claim compensation for damage suffered as a consequence of WTO law infringements. As such, the EU courts’ denial of the direct effect of WTO law in principle, which focuses on the political and legislative flexibility retained by WTO members despite their international commitment to comply with WTO law in principle, seems to be in line with the approach taken in the legal systems of other WTO members. Interestingly, the solutions found in the legal systems of the USA, Canada, and Japan have in common with the EU legal order that their denial of direct effect of WTO law deviates from their general acknowledgment of direct effect of international agreements.70 This indicates that the WTO agreements are considered to be an international legal framework, in which states, and other WTO members such as the EU, deal with their international trade relations. This happens through negotiation and in a flexible manner, both with regard to legislative and executive activities, according to their political interests. The WTO regime is not (yet) perceived as a legal order that can be enforced by its individual participants, i.e., international traders, before domestic courts.

70

Zhang, ‘Direct Effect’, 44.

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6.2 EU constitutional law and retaliation victims It has been shown in Chapter 3, and was again referred to above, that the EU institutions possibly enjoy some discretion at the international level to derogate temporarily from the EU’s WTO law obligations in the general EU interest. However, this should not prevent the EU courts from reviewing the different EU measures or omissions, which can be identified in the context of international trade disputes, in the light of EU law in principle. Such judicial review is necessary in order to meet the requirements of the rule of law and standards of rights protection where the conduct of the EU has an impact on the vertical relationship between the EU and its citizens and traders.71 The legal consequences of EU conduct under the international law regime should thus be distinguished clearly from those at the domestic level. The inherent external dimension of some aspects of the EU conduct in question should not affect the applicability of general principles in the courts’ legality review to an extent that excludes any judicial review from the start. In the following paragraphs, the arguments made in previous chapters will be summarised with regard to (section 6.2.1) the implications of EU general principles as benchmark for liability for unlawful conduct and (section 6.2.2) the potential role of an EU liability principle in the absence of unlawfulness in the particular context of cases being shaped by the EU and the international legal order.

6.2.1 EU general principles and liability for their breaches: hope for compensation? The (now) GC’s refusal in FIAMM to review EU conduct in the light of general principles simply because of the lack of direct effect of WTO law is unsatisfactory.72 As has been shown in Chapter 4, the courts’ review of EU measures in the light of general principles following international trade disputes caused by the EU’s non-compliance with its WTO law obligations should not depend on the direct effect of international obligations but on internal EU standards of good governance, judicial protection and fundamental rights. The rule of law requires the courts to assess the scope of the invoked general principles and their potential breach. Where the scope of protection under general principles is shaped and restricted because of the international dimension and 71

See Chapters 1, 4 and 5.

72

Case T-69/00, FIAMM, para. 146.

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context of the conduct, the courts should be expected to provide more detailed reasoning for such restriction, taking into consideration the resulting decrease of remedies available to traders based in the EU. Undertaking such a judicial review should entail an assessment of the impact of the actual circumstances of an international trade dispute (e.g., the commitments made by the EU towards its traders with regard to timely compliance with WTO rulings) as well as the identification of obligations arising for the EU because of these circumstances (e.g., regarding the prevention of the imposition of retaliatory measures or the creation of balancing mechanisms).73 The GC’s reluctance in FIAMM to review the pertinent EU legislation in the light of general principles has probably been motivated by the courts’ general objective not to interfere with the scope for manoeuvre of other institutions at the international level in the context of international trade disputes. However, it is highlighted here again that the realisation of EU compliance with some general principles in the interest of individuals, such as the potential EU obligation under the principle of equality to provide compensation to some while accepting retaliatory measures,74 would not necessarily result in the enforcement of the EU’s international obligations and would thus not interfere at all with the scope for manoeuvre of institutions at the international level.75 Since the GC’s conclusion in FIAMM on the inapplicability of individual general principles on EU liability for conduct in the context of international trade disputes had not been challenged by the applicants, the ECJ was not required to address this issue in the appeal. However, the ECJ’s decisions in Intertanko and Kadi, as well as its obiter dictum in FIAMM et al., indicate its willingness to review EU conduct in the light of general principles in spite of the conduct’s international dimension.76 Unfortunately, the ECJ had no opportunity to deal with the actual scope of protection of the general principles invoked by the applicants because of the missing challenge of the GC’s judgment in this respect. It has been argued in Chapter 4 that the principle of equality in particular could possibly be considered as the basis for a legal obligation of the EU institutions to provide compensation when accepting retaliatory 73 74 75

76

See Chapter 4, sections 4.3 and 4.4. See Chapter 4, section 4.2.1, at note 20, and 4.4.3. If such obligations were to be acknowledged, it is perceivable, however, that a compensation action would be inadmissible where retaliation victims could bring an action under Article 265 TFEU (formerly Article 232 EC) for a failure to act. Chapter 4, sections 4.2.1–4.2.3.

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measures.77 If such an institutional obligation were to be recognised in principle, applicants could challenge an omission of the EU to provide such compensation and claim damages where institutions did not comply with this obligation. The ECJ seems to have left this option open in FIAMM et al. and Fedon.78 In addition to the role of the equality principle as a legal ground that applicants can rely on to demonstrate the unlawfulness of EU conduct before the EU courts, the principle could also (co-)justify an independent liability principle in the absence of unlawfulness, according to which a right to compensation arises if EU conduct caused unusual and special damage for some.79 While the ECJ denied the current existence of such a liability principle in the context of EU legislation leading to retaliation by other WTO members in FIAMM et al.,80 the following section will revisit the potential role of such a liability principle in the context of international trade disputes through the lenses of the EU’s commitment to a complete system of rights and remedies within its legal order.

6.2.2 EU general principles and liability in the absence of unlawfulness: a missed opportunity? The companies that suffered from retaliatory measures had based their compensation actions not only on alleged breaches of WTO and EU law; instead, they also claimed compensation due to the fact that they suffered damage as a consequence of the EU’s political – and arguably temporarily lawful – decision to uphold the breach of WTO law. The applicants thereby invoked a liability principle in the absence of unlawfulness, also called ‘no-fault liability’, referring to existing case law of the ECJ. In FIAMM, the GC and the Advocate General recognised the existence of this EU liability principle also on the basis of the national legal orders of several EU Member States that acknowledge such a legal basis for a right to compensation.81 While the ECJ had in prior case law referred to individual criteria that would need to be met in order to

77 78 79 80 81

See Chapter 4, section 4.2.1, at note 20, and 4.4.3. Ibid. and Cases C-120 and 121/06 P, FIAMM et al., paras. 181, 184. See Chapter 2, section 2.4, and Chapter 5. See Chapter 5, sections 5.1.3 and 5.1.4 for further discussion. Case T-69/00, FIAMM, paras. 157ff; Case T-151/00, Le Laboratoire du Bain; Case T-301/00, Fremaux; Case T-320/00, Cartondruck; Case T-383/00, Beamglow Ltd.; Case T-135/01, Fedon et al.; Cases C-120 and 121/06 P, FIAMM et al., Opinion of 20 February 2008.

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claim compensation on that basis,82 it overruled the outcome reached by the GC in this respect by holding that no such liability principle currently existed under EU law.83 As discussed in Chapter 5, the ECJ’s overall denial of the principle’s existence can be questioned on the basis of the following reasons. First, the Court limited its assessment of the principle’s existence in the light of a set of factors that are relevant for the assessment of EU liability for unlawful conduct, such as the scope of discretion enjoyed by legislative institutions.84 However, the Court has not engaged with the reasoning of the GC and Advocate General Maduro, which focused on the unusual and special nature of damage caused by public conduct, irrespective of the lawfulness of such conduct. Second, the Court’s reasoning does not take into account that the general principles of non-discrimination and the protection of the right to property exist not only in the Member States’ legal systems, but have also already been recognised as general principles of EU law. As a consequence, the Court missed the opportunity to assess the reach of these existing EU law principles, which might indeed justify its recognition of a liability principle in the absence of unlawfulness. It is worth mentioning here that the recent reference by the ECJ in Sviluppo Italia Basilicata to the liability principle’s conditions, again in the abstract, seems to indicate its willingness to reconsider the liability principle’s existence under EU law in the future.85 Yet, it is likely that it would in any case exclude the principle’s application in the context of damage resulting from EU legislative activities, which it had placed at the core of its analysis in FIAMM.86 It would be difficult for retaliation victims to argue that it was a ‘non-legislative measure’ of the EU that had severe consequences for them, as it is the EU legislation, and the lack of its modification in compliance with WTO law, which infringed WTO law, triggered retaliation and thus caused the alleged damage. If retaliation victims were to rely on the EU’s omission to set up an internal balancing mechanism, the liability principle in the absence of unlawfulness would not be applicable, independently of whether or not 82

83 84 85 86

See, e.g., Case 267/82, De´veloppement SA, 1922, para. 33; see also Case 59/83, Biovilac, 4081, para. 28; Case 81/86, De Boer Buizen, 3694, para. 17; Case C-237/98 P, Dorsch Consult v. Council and Commission, paras. 18ff. Cases C-120 and 121/06 P, FIAMM et al., paras. 164, 168, 169, 179. For further discussion, see Chapter 5, section 5.1.4. Case C-414/08 P, Sviluppo Italia Basilicata SpA [2010] ECR I-2559, para. 141. Cases C-120 and 121/06 P, FIAMM et al., para. 174. See also discussion in Chapter 5, section 5.1.4.

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the omitted act would have been of a legislative nature. The reason for this conclusion is that, in situations in which the EU institutions are obliged to set up a compensation mechanism, such an omission would constitute an unlawful conduct of the EU, which possibly justifies a right to compensation because of EU liability for unlawful conduct.87 Having discussed in Chapter 5 the individual conditions of the principle of EU liability in the absence of unlawfulness – in case it were to be recognised in the future – and the current approach by the EU courts, the following paragraphs entail some additional observations on the potential role of the principle in the context of EU conduct with an external dimension. Taking into account Advocate General Maduro’s reasoning in FIAMM et al., the analysis thereby continues to focus on the context of international trade disputes, especially the existence and scope of judicial protection of retaliation victims. However, given the overall implications of the addressed issue for the EU’s accountability regime, the discussion should also be relevant for assessing the legal position of individuals suffering loss as a consequence of other EU conduct that triggers measures of non-EU subjects of the international legal order.

6.2.2.1 The EU system of legal protection and judicial remedies The recognition and application of the principle of liability in the absence of unlawfulness in the present context could be particularly crucial in terms of public accountability and the rule of law in the EU legal order, given that retaliation victims have no other access to judicial protection. Unless an obligation under the EU general principles were to be recognised – according to which the EU would be bound to provide internal balancing mechanisms when accepting international retaliation (see Chapter 4 and above) – retaliation victims cannot seek any redress from the EU for damage suffered as a consequence of its conduct. At present, the EU courts have not recognised any unlawful conduct that justified a right to compensation in the context of international trade disputes. First, they have denied in principle the direct effect of WTO law obligations, a characteristic that they consider crucial in the context of annulment as well as compensation actions.88 Second,

87 88

Ibid., para. 184. See also the discussion in Chapter 4, section 4.2.1. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 58. For the so-called Plaumann formula defining ‘direct and individual concern’, see, e.g., Case C-50/00 P, Unio´n de Pequenos Agricultores.

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while traders active in the banana or beef sector might (at least in theory) have been able to bring an annulment action challenging the EU conduct leading to the WTO dispute, traders hit by retaliation are active in different trade sectors and thus might not even have been aware of such EU conduct. Moreover, even if they had been aware of it, their standing under Article 263(4) TFEU would have certainly been denied because of a complete lack of direct and individual concern of EU conduct at this stage of the international trade dispute, given that the contested EU legislation concerns a sector that is different from that of the applicants. Providing a remedy for retaliation victims on the basis of liability in the absence of unlawfulness would furthermore counterbalance the very restrictive conditions of EU liability for unlawful conduct, in particular with regard to the necessity to show a ‘sufficiently serious breach’ of a rule of law that ‘confers rights’ on individuals, by providing victims who suffered a particularly severe damage because of EU conduct the possibility of obtaining compensation.89 It is claimed here that this would not lead to a high number of compensation cases that could endanger the functioning of the EU. If the liability principle in the absence of unlawfulness were to be recognised in the future, applicants would have to prove that the ‘actual’ and ‘certain’ damage they suffered through retaliatory measures was ‘unusual’ and ‘special’ in order to claim compensation. These requirements would limit the number of applicants appropriately. Nonetheless, and despite the conclusion reached by the GC, it has been argued here that damage suffered through retaliatory measures might need to be considered as ‘unusual’ in nature.90 Retaliation by non-EU WTO members is not necessarily a realisation of risk inherent in the business of internationally active traders, who should be entitled to rely on WTO members’ compliance with WTO law in principle and cannot foresee retaliation in sectors different from those in which the infringements take place. As long as there is no ‘carousel’ system applied by WTO members imposing retaliatory measures, the damage suffered should also be considered as ‘special’, since only an identifiable group of traders is affected.91 89

90 91

Advocate General Maduro considers this to have also been the courts’ motivation for never having abandoned the possibility of recognising the principle of liability in the absence of unlawfulness in the past; see Cases C-120 and 121/06 P, FIAMM et al., para. 57. See the discussion in Chapter 5, section 5.2.2. For a more detailed discussion of ‘unusual and special damage’, see Chapter 5, section 5.2.3.

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6.2.2.2 Effect of the principle on the political scope for manoeuvre The principle of EU liability in the absence of unlawfulness is particularly well suited to respect both the EU’s political interest in upholding measures in breach of WTO law obligations and the individual’s interest in not being disproportionately damaged as a consequence of the upholding of those measures. The right to compensation would not interfere with the scope for manoeuvre of institutions vis-a`-vis the EU’s trading partners at the international level, which the EU courts has intended to respect since the EU became a member of the WTO.92 The implications for the EU institutions of enforcing a right to compensation in the absence of unlawfulness are purely financial, as such a court ruling would not assess the EU conduct – or its non-invokable WTO law incompliance or breach of EU general principles – that caused the damage, but would only evaluate the severe consequences of the EU conduct.93 Again, the necessity of showing unusual and special damage would limit the number of cases in which a right to compensation were to be acknowledged.94 The potential financial burden on the EU budget could thus not affect the political freedom of the institutions.95 The political and legislative institutions of the EU could continue to pursue their political goals, with implications for the WTO system, as protected by the courts’ case law on the lack of direct effect of WTO law obligations; the exercise of this political or arguably also international legal discretion would not be diminished by the ‘financial threat’ of some potential compensation actions. The aim of the EU courts when rejecting in principle any review of EU conduct in the light of WTO law, namely not to interfere with the scope for manoeuvre of the political and legislative EU institutions,96 is not impeded where they acknowledge the exceptional right to compensation because of liability in the absence of unlawfulness.97

92 93

94 95 96 97

See Chapters 1 and 3. See also section 6.1.2 above for a discussion on the outcome of compensation actions for unlawful conduct. See also discussion Chapter 5, section 5.2.4, at note 94. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 78. See Chapter 3. For a discussion of the relevance of granting compensation due to unlawful conduct, see section 6.2.1 above.

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6.2.2.3 Good governance and the use of discretionary powers At the same time, however, the payment of compensation will make the political decision to continue a breach of WTO law visible and will possibly trigger a public discussion, which should be in the interests of every democratic system.98 Such a discussion could entail the issue of whether the political decision – e.g., to grant more banana import licences to traders of some countries than others or to prevent the consumption of hormone-treated beef at all costs – is valid despite the costs resulting from it. Granting compensation on the basis of liability in the absence of unlawfulness would, as mentioned above, not constitute a direct restriction of the discretionary powers of the EU institutions at the WTO level. However, the possibility of an obligation to grant compensation would constitute a guarantee for an informed use of discretionary power.99 Acknowledging the principle of liability in the absence of unlawfulness could thus contribute to ‘good governance’100 of the EU.101 In view of the potential obligation to grant compensation, political power would be under an obligation to take more fully into account the costs that can result (from the continuous breach) for citizens of the EU when upholding EU measures, despite the expiry of the reasonable period of time provided by the DSB to comply with its ruling identifying the breach of WTO law. This would allow for a more nuanced balancing of the costs arising for some, or possibly the entire EU budget, with the advantages for the sector(s) in the interest(s) of which the upholding of the EU measure is made. The possibility that internal costs result from a continuous breach of WTO law might increase democratic pressure, since not only the budgets of some traders but also the entire budget of the EU would be affected if compensation were to be granted in exchange for such a breach. It seems to be in the interests of democracy to allow for an open dialogue regarding the predominant interest of the EU, namely to either uphold the WTO breaches in the general interest while ‘paying’ for it internally (to some retaliation victims) or to end the WTO breach in 98

99 100

101

A. Thies, ‘Case Note on FIAMM et al.’, CML Rev, 43(4) (2006), 1145–68, 1158; M. Bronckers, ‘The Relationship of the EC Courts with Other International Tribunals: Non-commital, Respectful or Submissive’, CML Rev, 44(3) (2007), 601–27, 623. Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 59. For a collection of essays on good governance in Europe, see C. Joerges and R. Dehousse (eds.), Good Governance in Europe’s Integrated Market (Oxford University Press, 2002). Advocate General Maduro in Cases C-120 and 121/06 P, FIAMM et al., para. 59.

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order to comply with international law and to reduce the costs caused for the EU through the payment of compensation. It also seems to be a more desirable transparent political process to address openly the issues of ‘EU general interests’ underlying WTO law breaches than leaving it to the power of lobbying within the EU system when deciding on the continuation or ending of the breach, namely whether the industry benefiting from the WTO breach has stronger lobbying power than the industry damaged by the retaliatory measures. Furthermore, how the costs for a breach of WTO obligations are allocated within the EU legal order would not depend on the WTO members imposing retaliatory measures. Instead, the judicial system of the EU would be in a position to decide whether damage occurring to retaliation victims should be borne by those individual traders or the EU itself (‘re´parti sur l’ensemble de la socie´te´’).102 The balancing of interests within the EU legal order and the redistribution of losses should be based on EU standards. It should not be relevant in this context whether the aim of retaliatory measures under the DSU is to enable WTO members to balance their losses by hitting particular traders within the EU or the EU itself.

6.3 Concluding remarks: the EU as a global actor, the international legal order and individual rights The last section of this book returns to the particular challenge for the EU courts to maintain and further develop standards of EU fundamental protection of rights and EU law remedies for individuals who are affected by EU conduct with an international dimension. It is again suggested here to understand not only EU external action activities (i.e., measures are directed towards ‘the wider world’) as ‘EU conduct with an international dimension’, but also EU conduct that falls within the scope of application of international law while also, or even primarily, having implications for the EU internal legal order or market (i.e., measures that implement or derogate from international obligations).103 In 102 103

Cases C-120 and 121/06 P, FIAMM et al., para. 60. The used terminology of ‘implementation and derogation’ is borrowed from the EU courts’ case law on the obligation of Member States to comply with EU fundamental rights when acting within the scope of application of EU law to illustrate that the EU might also take action that finds a basis in EU domestic law while being also ‘regulated’ by international law, which, in turn, possibly also binds the Member States of the EU; for a discussion and references to relevant case law, see Craig and De Bu´rca, EU Law, 5th edn, pp. 381ff.

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principle, the EU courts have to accommodate and protect the interests of individuals, Member States and supranational institutions, which have expressed their commitment to both individual rights protection104 and international law.105 The EU courts thereby need to find the appropriate balance between respecting the rights and obligations of the EU as a global actor under international law on the one hand and the protection of individual interests under EU constitutional law on the other.106 It is suggested here that this constellation is different from a purely EU internal context of exercising political discretion, possibly interfering with individual rights, as it involves an additional layer of law, namely international law, which not only possibly binds the EU but is also in the interests of and/or binding on the EU Member States as individual subjects of the international legal order. As has already been stated in the previous chapters, EU conduct with an international dimension possibly interferes with individual rights under EU law either because of the compliance of the EU and its Member States with international law, which requires public interference with the legal position of individuals under EU law (Kadi), or because of the derogation of the EU and its Member States from international law, such as WTO law obligations that trigger countermeasures by other subjects of the international legal order (FIAMM). It is claimed here that international treaties can provide an additional legal basis and/or platform for governmental action that affects or constrains individuals, going beyond what would have been possible within the domestic framework.107 This raises questions of accountability where governmental action is taken to directly regulate or govern individuals – such as the domestic implementation of targeted sanction regimes established by the UN Security Council and the Sanctions

104 105

106

107

See, e.g., Article 6 TEU and the Charter of Fundamental Rights of the EU. See, e.g., Article 3(5) TEU, which states that: ‘In its relations with the wider world, the Union shall uphold and promote its values and interests and contribute to the protection of its citizens. It shall contribute to peace, security, the sustainable development of the Earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and the protection of human rights, in particular the rights of the child, as well as to the strict observance and the development of international law, including respect for the principles of the United Nations Charter.’ For a discussion of ‘human-rights based challenges to EU action’, see Craig and De Bu´rca, EU Law, 5th edn, pp. 372ff. See, e.g., the Kyoto Protocol to the United Nations Framework Convention on Climate Change, OJ 2002 L 130, p. 4 (UNTS, Vol. 2303, p. 148); and the Open Skies Agreement between the EU and the USA, OJ 2007 L 134, p. 4.

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Committee.108 Moreover, governmental action taken in a global context also raises questions of accountability where it leads indirectly to constraints of individuals. While the latter category might be less frequently discussed, the implications for individuals of governmental decisions can be comparable and thus deserve further attention. The previous chapters have addressed this issue in the context of the EU’s membership of the WTO, focusing on the applicability and scope of rights and remedies under EU law where EU action triggered international trade disputes that led to the imposition of retaliatory measures by other WTO members. Where international law is relied upon in order to justify a restriction of individual rights under the EU constitutional order, further light needs to be shed on the limits to such a restriction. As established by the ECJ in Kadi,109 the EU courts must ‘ensure the review, in principle the full review, of the lawfulness of all [EU] acts in the light of fundamental rights forming an integral part of the general principles of [EU] law, including review of Community measures which, like the contested regulation, are designed to give effect to the resolutions adopted by the Security Council under Chapter VII of the Charter of the United Nations’.110 The review of the validity of EU measures in the light of fundamental rights ‘must be considered to be the expression, in a community based on the rule of law, of a constitutional guarantee stemming from the [EU treaties] as an autonomous legal system which is not to be prejudiced by an international agreement’.111 This book has claimed throughout that such a clear constitutional obligation to make fundamental rights, and other principles in the interests of individuals, part of the EU’s benchmark when reviewing EU conduct also exists where the interference with EU rights might be justified by the interests of the EU to take measures that infringe international law. Again, the political option to breach international law, 108

109 110 111

This issue has recently been subject to extensive debate in the context of the Kadi case (Joined Cases C-402/05 P and C-415/05 P, Kadi et al.), after the adoption of targeted sanctions by the UN Security Council and the Sanctions Committee under the counterterrorism regime had directly constrained individuals through the implementing EU legislation. See Eckes, EU Counter-Terrorist Policies; see also P. De Sena and M. C. Vitucci, ‘The European Courts and the Security Council: Between De´doublement Fonctionnel and Balancing of Values ’, EJIL, 20(1) (2009), 193 and the following EJIL –Debate! Kadi with replies by G. de Bu´rca, A. Nollkaemper and I. Canor, and a rejoinder by P. De Sena and M. C. Vitucci: EJIL, 20(3) (2009), 853ff, with references to further literature. See the discussion in Chapter 4, section 4.2.3. Joined Cases C-402/05 P and C-415/05 P, Kadi et al., paras. 281ff, 326. Ibid., para. 316.

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or here WTO law obligations in the current context of international trade disputes, does not bar the courts from maintaining EU law standards vis-a`-vis individuals with regard to EU conduct. At the same time, it is suggested that the international and EU legal orders are intertwined to an extent that the layers of international law – which here enable the EU to accept retaliatory measures in exchange for a breach of WTO law – enlarges governmental discretion.112 Where such discretion is exercised in the EU’s general interest, the global dimension of the legitimisation of the EU conduct thus possibly shapes and hence diminishes the actual scope of rights and remedies under EU law. In other words, the rights and obligations of the EU under international law can possibly justify certain constraints of individual rights under EU law. Given the implications for individuals, the EU courts should provide detailed reasoning in such situations, not least to establish more legal certainty through the development of case law in this area.113 On the basis of EU case law on the possible interference with individual rights, it is suggested that constraints warranted by the EU’s role as a global actor can only be justified to the extent that they do not impair the very substance of the EU rights.114 To make the picture more complete, it is added that international law and its implementation often improves the situation of individuals, including those benefiting from rights protection under the EU legal order. International treaties sometimes add individual rights to the domestic catalogue of their contracting parties, either through the application or implementation of treaties at the domestic level or through the establishment of international mechanisms to protect such treaty rights. International or regional human rights treaties are of course the most prominent example of this category. They possibly also complement the domestic system of available remedies of individuals to the extent that rights conferred by international treaties become directly effective and enforceable before domestic, regional or

112 113 114

See Chapter 2, section 2.3.3.2.1 and Chapter 3, section 3.2. See Chapter 4, sections 4.3 and 4.4. Cases C-120 and 121/06 P, FIAMM et al., para. 183, with reference to Case 265/87, Schra¨der HS Kraftfutter [1989] ECR 2237, para. 15; Case C-280/93, Germany v. Council, para. 78; Case C-295/03 P, Alessandrini and others v. Commission [2005] ECR I-5673, para. 86. See also Case 5/88, Wachauf [1989] ECR 2609, para. 18; Case C-177/90, Ku¨hn, para. 16; Case C-22/94, Irish Farmers Association and others v. Minister for Agriculture, Food and Forestry, Ireland and the Attorney General [1997] ECR I-1809, para. 27. See also Joined Cases C-402/05 P and C-415/05 P, Kadi et al., paras. 334, 369.

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global judicial bodies. For example, and despite the already-existing overlap between EU fundamental rights and rights under the ECHR in substance, the accession of the EU to the ECHR will expand the overall catalogue of rights and remedies.115 In particular, it will enable individuals to rely directly on Convention rights not only to challenge Member State action but also EU institutional action and, if need be, to take their case before the ECtHR.116 It will be for the ECJ to find an appropriate balance between its respect for the political scope for manoeuvre of the EU and the protection of individual rights. The ECJ should take its role as a constitutional court seriously in order to make the EU constitutional order sustainable and to ensure respect for its own jurisdiction from the perspective of both its Member States and the international legal order.

115

116

For a discussion of the implications for the autonomy of the EU legal order, see T. Lock, ‘Walking on a Tightrope: The Draft Accession Agreement and the Autonomy of the EU Legal Order’, CML Rev, 48(4) (2011), 1025–54. Ibid.

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other sources Reilhac, Gilbert, ‘Vote Ends EU–U.S. Hormone-Treated Beef Row’, Reuters, 14 March 2012, www.reuters.com/article/2012/03/14/eu-trade-beefidUSL5E8EE50620120314.

217

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absence of unlawfulness, liability in 78–80, 148–9, 172 application of liability regime to situation of retaliation victims 159–71, 189–95 actual and certain damage 161 damage not being justified by general economic interest 169–71 special damage 167–9 unusual damage 161–7 critical evaluation 154–9 effect of principle on political scope for manoeuvre 193 EU system of legal protection and judicial remedies 191–2 FIAMM et al. case 148, 149, 150–4, 159, 161, 162, 165, 167, 169, 170, 189–91 good governance and use of discretionary powers 194–5 accountability 197 actual damage 161 administration, proper 138, 140 annulment of measures 6, 37, 39, 47, 49, 74, 97, 99, 139, 176 association agreements 88 bananas, trade in 13–19, 174 Canada EU ban on hormones in meat and meat products and 9, 10, 11, 12, 13 position of individuals in WTO law 183–4, 186 carousel 168 case law see jurisprudence of the EU causation liability for unlawful conduct and causal link 57, 69, 71, 81, 121–4 certain damage 161 certainty, legal 132, 140

218

compensation claims 39, 42, 44, 45, 46, 49, 58–71, 100, 119, 124, 137 breach of international law 58–64, 179 conditions for EU liability developed by EU courts 50–8 causal link 57, 69, 71, 81, 121–4 conferral of rights 56–7, 68–71, 81, 114–19, 179 damage 57, 69, 71, 81, 119–21 sufficiently serious breach of law 51–6, 64–5, 81, 179 consistency with principle of Member State liability 76–8 different aim of action 75–6 discretion and its limits 65–7 EU and WTO laws as two separate legal orders and no right to compensation 175–80 EU courts and international law 62–4 EU membership in international legal regimes and 67–8 grounds 81 insufficient competence to breach international law 65–7 liability see liability for unlawful conduct nature of infringed rule 68–71 need for full judicial protection 74–5 relevance of Francovich decision 76–7 relevance of Ko¨bler decision 77–8 sufficiently serious breach of law 64–5, 81, 112–14, 179 suggestion of new approach 72–8 competence norm, breach of 110–25 conferral of rights 114–19 sufficiently serious breach 112–14 conferral of rights 56–7, 68–71, 81, 114–19, 179 consistent interpretation principle 110–25 conferral of rights 114–19 sufficiently serious breach 112–14

index cooperation agreements 88 countermeasures 166 see also retaliation criminal offences 132 damage actual and certain damage 161 gravity of 167 liability for unlawful conduct and 57, 69, 71, 81, 119–21 not justified by general economic interest 169–71 special damage 167–9 unusual damage 161–7 inherent versus exogenous risk 163–6 sectoral versus market risk 162–3 damages 37, 39, 47–9 see also compensation claims democracy 194 direct effect 95 EU law 45, 69, 71 WTO law 82, 84, 85, 87, 91, 92, 93, 96, 101, 102, 103, 104, 112, 116, 177, 182, 184 exceptional direct effect of WTO primary law 105–10 discretion granted to EU institutions 39, 97, 112, 113, 124, 187 discretion and its limits 65–7 EU membership in international legal regimes and 67–8 good governance and use of discretionary powers 194–5 insufficient competence to breach international law 65–7 discrimination 57 right to non-discrimination 140, 146–7 Dispute Settlement Understanding (DSU) 7, 86, 106 disputes see international trade disputes economic activities, right to pursue 140, 141–3 Ecuador EU preferential trade in bananas and 13, 14, 16, 17, 18 European Convention on Human Rights (ECHR) 127, 199 European Court of Human Rights (ECtHR) 94 European Free Trade Area (EFTA) 95 European Union (EU) 42 ban on hormones in meat and meat products 8–13, 174 compensation for successful claim see compensation claims consistent interpretation principle 110–25

219

conferral of rights 114–19 sufficiently serious breach 112–14 constitutional law and retaliation victims 187–95 EU and WTO laws as two separate legal orders and no right to compensation 175–80 as global actor 195–9 human rights and 37, 39, 127, 130, 132, 137, 197, 198, 199 infringement of EU general principles 126–8, 147, 148–9, 187–9 actual and certain damage 161 application of liability regime to situation of retaliation victims 159–71, 189–95 critical evaluation 154–9 damage not justified by general economic interest 169–71 effect of external dimension of EU conduct on applicability of general principles of EU law 128–37 effect of external dimension of EU conduct on scope of general principles of EU law 138–40 existence of liability principle in absence of unlawfulness under EU law 149, 172, 189–95 FIAMM et al. case 131–30, 134, 136, 141, 142, 143, 148, 149, 150–4, 159, 161, 162, 165, 167, 169, 170, 177, 187–91 general principles, role of in international trade disputes 134 Intertanko case 130, 188 Kadi case 132–3, 134, 136, 137, 188 prevailing international legal obligations 136–7 principle of legitimate expectations 138, 140, 143–6 right to non-discrimination 140, 146–7 right to property and principle to pursuit of economic activity 140, 141–3 scope of general principles of EU law invoked by retaliation victims 140–7, 188 special damage 167–9 unusual damage 161–7 vertical relationship between EU and traders 134–6 international trade disputes see international trade disputes jurisprudence 19–20 case law on effect of WTO law as benchmark for validity of EU measures 20–30 courts’ approach with regard to GATT 22

220

index

European Union (EU) (cont.) courts’ approach with regard to WTO Agreements 22–30 implementation principle 25–6 liability cases 30–3, 37 review in light of DSB rulings 27–30 review in light of mixed agreements 26 review in light of primary WTO law 22–5 legal discretion granted to EU institutions 39, 97, 112, 113, 124, 187 discretion and its limits 65–7 EU membership in international legal regimes and 67–8 good governance and use of discretionary powers 194–5 insufficient competence to breach international law 65–7 nature of infringed rule 68–71 liability for infringements of WTO law 37, 42 liability for unlawful conduct see liability for unlawful conduct as member of WTO 7 obligations under international law 60, 100, 111, 136–7 obligations under WTO law 89, 97, 114 political scope for manoeuvre 193 preferential trade in bananas 13–19, 174 relationship with WTO 7 review of EU conduct 37–42 exogenous risk 163–6 expectations, legitimate 138, 140, 143–6 France liability in absence of unlawfulness 157, 160 freedom to pursue economic activities 140, 141–3 General Agreement on Tariffs and Trade (GATT) 7, 22, 185 General Agreement on Trade in Services (GATS) 7 Germany liability in absence of unlawfulness 158 governance 194–5 grace periods, breach of WTO law after expiry of 98–104, 124 gravity of damage 167 Guatemala EU preferential trade in bananas and 14 Honduras EU preferential trade in bananas and 14 hormones in meat and meat products 8–13 human rights EU and 37, 39, 127, 130, 132, 137, 197, 198, 199

implementation principle 25–6, 105–10 Bananas case 107–9 Hormones case 109–10 infringement of EU general principles 126–8, 147, 148–9, 187–9 effect of external dimension of EU conduct on applicability of general principles of EU law 128–37 FIAMM et al. case 131–30, 134, 136, 141, 142, 143, 148, 149, 150–4, 159, 161, 162, 165, 167, 169, 170, 177, 187–91 general principles’ role in international trade disputes 134 Intertanko case 130, 188 Kadi case 132–3, 134, 136, 137, 188 prevailing international legal obligations 136–7 vertical relationship between EU and traders 134–6 effect of external dimension of EU conduct on scope of general principles of EU law 138–40 existence of liability principle in absence of unlawfulness under EU law 149, 172 actual and certain damage 161 application of liability regime to situation of retaliation victims 159–71, 189–95 critical evaluation 154–9 damage not justified by general economic interest 169–71 effect of principle on political scope for manoeuvre 193 EU system of legal protection and judicial remedies 191–2 FIAMM et al. case 148, 149, 150–4, 159, 161, 162, 165, 167, 169, 170, 189–91 good governance and use of discretionary powers 194–5 special damage 167–9 unusual damage 161–7 scope of general principles of EU law invoked by retaliation victims 140–7, 188 principle of legitimate expectations 138, 140, 143–6 right to non-discrimination 140, 146–7 right to property and principle to pursuit of economic activity 140, 141–3 inherent risk 163–6 insurance 165 intellectual property Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement 24 International Court of Justice 94 international law 196–9

index compensation for breach 58–71, 179 breach of international law 58–64 consistency with principle of Member State liability 76–8 different aim of action 75–6 discretion and its limits 65–7 EU courts and international law 62–4 EU obligations under international law 60, 100 grounds 81 need for full judicial protection 74–5 relevance of Francovich decision 76–7 relevance of Ko¨bler decision 77–8 suggestion of new approach 72–8 obligations under 60, 100, 111, 136–7 international trade disputes 6, 7–8, 42, 43 Bananas case 13–19, 30–1, 34, 94, 96, 98, 174 implementation principle in 107–9 compensation claims see compensation claims EU law general principles’ role in 134 prevailing international legal obligations 136–7 vertical relationship between EU and traders 134–6 Hormones case 8–13, 31, 94, 95, 98, 174 implementation principle in 109–10 liability see liability for unlawful conduct position of individuals in WTO law 173–86 EU and WTO laws as two separate legal orders and no right to compensation 175–80 international comparison 180–6 review of EU conduct 37–42 interpretation, consistent 110–25 conferral of rights 114–19 sufficiently serious breach 112–14 Japan position of individuals in WTO law 184–6 jurisprudence of EU 19–20 case law on effect of WTO law as benchmark for validity of EU measures 20–30 courts’ approach with regard to GATT 22 courts’ approach with regard to WTO Agreements 22–30 implementation principle 25–6 liability cases 30–3, 37 review in light of DSB rulings 27–30 review in light of mixed agreements 26 review in light of primary WTO law 22–5 legal certainty 132, 140 legal discretion see discretion granted to EU institutions legitimate expectations 138, 140, 143–6

221

liability for unlawful conduct 42, 44–5, 80, 81 background 45–7 breach of WTO law 82–3 breach after expiry of grace period 98–104, 124 breach before dispute is brought before DSB 89–93 breach identified by DSB 93–8 breach of primary WTO law 83–105 corollary breach of competence norm because of principle of consistent interpretation 110–25 current reasoning of EU courts 84–5 implementation principle 105–10 compensation for breach of international law 58–71, 179 breach of international law 58–64 conferral of rights 114–19 consistency with principle of Member State liability 76–8 different aim of action 75–6 discretion and its limits 65–7 EU courts and international law 62–4 EU membership in international legal regimes and 67–8 EU obligations under international law 60, 100 grounds 81 insufficient competence to breach international law 65–7 nature of infringed rule 68–71 need for full judicial protection 74–5 relevance of Francovich decision 76–7 relevance of Ko¨bler decision 77–8 sufficiently serious breach of law 64–5, 81, 112–14, 179 suggestion of new approach 72–8 conditions for EU liability developed by EU courts 50–8 causal link 57, 69, 71, 81, 121–4 conferral of rights 56–7, 68–71, 81, 114–19, 179 damage 57, 69, 71, 81, 119–21 sufficiently serious breach of law 51–6, 64–5, 81, 179 independence and complementarity of legal actions in EU legal order 47–9 liability cases 30–3, 37 Bananas case 30–1, 34 brought by retaliation victims 34–7 Hormones case 31 liability due to infringement of EU general principles 126–8, 147, 148–9, 187–9 effect of external dimension of EU conduct on applicability of general principles of EU law 128–37

222

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liability for unlawful conduct (cont.) effect of external dimension of EU conduct on scope of general principles of EU law 138–40 FIAMM et al. case 131–30, 134, 136, 141, 142, 143, 148, 149, 150–4, 159, 161, 162, 165, 167, 169, 170, 177, 187–91 general principles, role of in international trade disputes 134 Intertanko case 130, 188 Kadi case 132–3, 134, 136, 137, 188 prevailing international legal obligations 136–7 principle of legitimate expectations 138, 140, 143–6 right to non-discrimination 140, 146–7 rightto propertyand principletopursuit of economic activity 140, 141–3 scope of general principles of EU law invoked by retaliation victims 140–7, 188 vertical relationship between EU and traders 134–6 liability in absence of unlawfulness 78–80, 148–9, 172, 189–95 actual and certain damage 161 application of liability regime to situation of retaliation victims 159–71, 189–95 critical evaluation 154–9 damage not justified by general economic interest 169–71 effect of principle on political scope for manoeuvre 193 EU system of legal protection and judicial remedies 191–2 FIAMM et al. case 148, 149, 150–4, 159, 161, 162, 165, 167, 169, 170, 189–91 good governance and use of discretionary powers 194–5 special damage 167–9 unusual damage 161–7 wording of article and leeway for EU courts 50 Lome´ Convention 13 marine pollution 131 market risk 162–3 Mexico EU preferential trade in bananas and 14 Nicaragua EU preferential trade in bananas and 17 no-fault liability 42 see also absence of unlawfulness, liability in non-discrimination, right to 140, 146–7

Panama EU preferential trade in bananas and 17 partnership agreements 88 political scope for manoeuvre 193 preferential trade in bananas 13–19, 174 proper administration principle 138, 140 property rights 140, 141–3 Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement 24 proportionality principle 140, 142 remedies 138 see also compensation claims; damages retaliation 7, 74, 100, 111, 117, 122 application of liability regime in absence of unlawfulness to situation of retaliation victims 159–71, 189–95 actual and certain damage 161 damage not justified by general economic interest 169–71 special damage 167–9 unusual damage 161–7 EU ban on hormones in meat and meat products and 10 EU constitutional law and retaliation victims 187–95 EU liability for infringements of WTO law 37, 42 EU preferential trade in bananas and 14–16 liability cases brought by retaliation victims 34–7 position of individuals in WTO law 173–86 EU and WTO laws as two separate legal orders and no right to compensation 175–80 international comparison 180–6 risk inherent versus exogenous risk 163–6 sectoral versus market risk 162–3 rule of law 74, 128, 138, 140 Sanitary and Phytosanitary Measures (SPS) Agreement 7 EU ban on hormones in meat and meat products and 9 scope for manoeuvre 101 sectoral risk 162–3 Spain liability in absence of unlawfulness 158 special damage 167–9 subsidiarity principle 66 sufficiently serious breach of law 51–6, 64–5, 81, 112–14, 179 supremacy of EU law 45

index Technical Barriers to Trade (TBT) Agreement 7 terrorism 132 trade, right to 140, 141–3 trade disputes see international trade disputes Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement 24 United Nations Convention on the Law of the Sea 115, 131, 132 United States of America (USA) 123 EU ban on hormones in meat and meat products and 8, 10, 11, 12, 13 EU preferential trade in bananas and 13, 14–16, 17, 18 position of individuals in WTO law 180–3, 186 unlawful conduct, liability for see liability for unlawful conduct unusual damage 161–7 inherent versus exogenous risk 163–6 sectoral versus market risk 162–3 vertical relationship between EU and traders 134–6 World Trade Organization (WTO) Agreement 7, 91 breach of WTO law breach after expiry of grace period 98–104, 124 countermeasures 166 see also retaliation direct effect of WTO law 82, 84, 85, 87, 91, 92, 93, 96, 101, 102, 103, 104, 112, 116, 177, 182, 184 exceptional direct effect of WTO primary law 105–10

223

Dispute Settlement Body (DSB) 6 disputes in see international trade disputes EU as member of 7 EU case law on effect of WTO law as benchmark for validity of EU measures 20–30 courts’ approach with regard to GATT 22 courts’ approach with regard to WTO Agreements 22–30 implementation principle 25–6 liability cases 30–3, 37 review in light of DSB rulings 27–30 review in light of mixed agreements 26 review in light of primary WTO law 22–5 EU liability for infringements of WTO law 37, 42 obligations under WTO law 89, 97, 114 position of individuals in WTO law 173–86 EU and WTO laws as two separate legal orders and no right to compensation 175–80 international comparison 180–6 relationship with EU 7 unlawful conduct in breach of WTO law 82–3 breach before dispute is brought before DSB 89–93 breach identified by DSB 93–8 breach of primary WTO law 83–105 corollary breach of competence norm because of principle of consistent interpretation 110–25 current reasoning of EU courts 84–5 implementation principle 105–10