WTO, NAFTA and International Judicial Abstention

Last month the WTO issued a decision (available here) in favor of the United States regarding the illegality of Mexico’s beverage tax. According to the USTR press release, under the Mexican tax, “soft drinks made with imported sweeteners, such as high-fructose corn syrup (HFCS) and beet sugar, are subject to a 20 percent tax on their sale and distribution. Beverages made with Mexican cane sugar are tax-exempt. The beverage tax resulted in an immediate drop in U.S. exports of HFSC to Mexico. As of 2004, U.S. exports of HFCS to Mexico remained at less than six percent of their pre-tax levels.”

One of the interesting procedural arguments at issue was the interplay between the WTO dispute resolution process and a NAFTA arbitration process. Specifically, the WTO panel rejected Mexico’s request for it to decline jurisdiction in favor of a NAFTA dispute settlement panel, concluding that WTO panels may not decline to exercise jurisdiction over disputes properly brought before them.

The key language in the WTO decision was that Mexico’s request for the WTO panel to exercise its discretion to decline jurisdiction implies “that the Panel has the power to decide whether or not to act. Indeed, discretion may be said to exist only if a legal body has the freedom to choose among several options, all of them equally permissible in law. It seems that such freedom for a panel would exist within the framework of the DSU only if a complainant did not have a legal right to have a panel decide a case properly before it…. [T]he aim of the WTO dispute settlement system is to resolve the matter at issue in particular cases and to secure a positive solution to disputes. A panel has thus to address the claims on which a finding is necessary to enable the DSB to make sufficiently precise recommendations or rulings to the parties. A panel would seem therefore not to be in a position to choose freely whether or not to exercise its jurisdiction. Were a panel to choose not to exercise its jurisdiction in a particular case, it would be failing to perform its duties.” (Paras. 7.7-7.8).

It then made quite an interesting conclusion regarding the legal nature of disputes before it, and how that nature would be compromised if the WTO engaged in a practice of judicial abstention. “Even assuming, for the sake of argument, that a panel might be entitled in some circumstances to find that a dispute would more appropriately be pursued before another tribunal, this Panel believes that the factors to be taken into account should be those that relate to the particular dispute. We understand Mexico’s argument to be that the United States’ claims in the present case should be pursued under the NAFTA, not because that would lead to a better treatment of this particular claim, but because it would allow Mexico to pursue another, albeit related, claim against the United States. The Panel fears that if such a matter were to be considered then there would be no practical limit to the factors which could legitimately be taken into account, and the decision to exercise jurisdiction would become political rather than legal in nature.” (Para. 7.17)

This conclusion makes immanent good sense. With the proliferation of international tribunals and arbitral bodies, concurrent jurisdiction between international tribunals will increasingly become an issue. This of course risks the possibility of inconsistent judgments, as Susan Franck discusses here. But the risk of a doctrine of international judicial abstention appears even greater, potentially leading international judges and arbitrators to render decisions beyond the scope of their authority and without sufficient regard to their treaty or contractual obligations to resolve the cases submitted to them.