INTRODUCTION

Canada and the United States appeal from certain issues of law and legal interpretations in the Panel Report, Canada - Certain Measures Concerning Periodicals (the “Panel Report”). The Panel was established to consider a complaint by the United States against Canada concerning three measures: Tariff Code 9958, which prohibits the importation into Canada of certain periodicals, including split-run editions; Part V.1 of the Excise Tax Act, which imposes an excise tax on split-run editions of periodicals; and the application by Canada Post Corporation (“Canada Post”) of commercial “Canadian”, commercial “international” and “funded” publications mail postal rates, the latter through the Publications Assistance Program (the “PAP”) maintained by the Department of Canadian Heritage (“Canadian Heritage”) and Canada Post.

The Panel Report was circulated to the Members of the World Trade Organization (the “WTO”) on 14 March 1997. It contains the following conclusions:

The Panel made the following recommendation:

On 29 April 1997, Canada notified the Dispute Settlement Body (the “DSB”) of its intention to appeal certain issues of law covered in the Panel Report and legal interpretations developed by the Panel, pursuant to paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the “DSU”), and filed a Notice of Appeal with the Appellate Body, pursuant to Rule 20 of the Working Procedures for Appellate Review (the “Working Procedures”).

INTRODUCTION

On 1 November 1996, the Dispute Settlement Body (the “DSB”) adopted (WT/DSB/M/25) the Appellate Body Report and the Panel Report, as modified by the Appellate Body Report, in Japan - Taxes on Alcoholic Beverages (WT/DS8/11, WT/DS10/11 and WT/DS11/8). As required by Article 21(3) of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the “DSU”), Japan informed the DSB on 20 November 1996 of its intentions in respect of the implementation of the DSB's recommendations and rulings (WT/DSB/M/26). Japan indicated that it would not be able to implement immediately but only within a “reasonable period of time”. Japan did not propose to the DSB a “reasonable period of time” for the latter's approval as provided for under Article 21(3)(a) of the DSU. It indicated that it would initiate negotiations with the European Communities, the United States and Canada, the other parties to the dispute, on what constitutes “a reasonable period of time”. These negotiations did not succeed, and no mutual agreement within the meaning of Article 21(3)(b) of the DSU was reached. The negotiations with the European Communities did, however, lead to an agreement on an accelerated reduction of the tariff rates on whisky and brandy as compensation for delayed implementation, but this agreement does not prejudge their position on the issue of a “reasonable period of time”.

In the absence of an agreement under Article 21(3)(b) of the DSU, the United States requested on 24 December 1996, that the “reasonable period of time” should be determined through binding arbitration as is provided for by Article 21(3)(c). After Japan and the United States failed to agree on the appointment of an arbitrator within the ten days envisaged by the note to Article 21(3)(c), the United States requested on 7 January 1997 that the Director-General appoint an arbitrator. Following consultations with the United States and Japan, the Director-General appointed me as arbitrator on 17 January 1997.

At an organizational meeting on 20 January 1997, it was agreed that all the original parties to the dispute could participate in the arbitration process, notwithstanding that only the United States had requested binding arbitration.

INTRODUCTION

India appeals from certain issues of law and legal interpretations in the Panel Report, United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/R (the “Panel Report”). That Panel was established on 17 April 1996 to consider a complaint by India against the United States relating to a transitional safeguard restraint imposed on imports of woven wool shirts and blouses (category 440) from India.

The measure was imposed by the United States on 14 July 1995 after bilateral consultations with India in April and June 1995 did not result in a mutually- agreed solution. The restraint was effective as from 18 April 1995 for one year and was later extended through 17 April 1997. The United States took this transitional safeguard action pursuant to Article 6 of the Agreement on Textiles and Clothing (the “ATC”). As required by Article 6.10 of the ATC, the United States referred the matter to the Textiles Monitoring Body (the “TMB”), which concluded and confirmed upon review that the transitional safeguard action in this case was imposed in accordance with the requirements of the ATC. The TMB found that “actual threat of serious damage had been demonstrated” and that “this actual threat could be attributed to the sharp and substantial increase in imports from India”. At India's request, the Dispute Settlement Body (the “DSB”) established a panel (the “Panel”) to examine the legality of the United States’ transitional safeguard measure.

After the release of the interim report of the Panel, the United States announced that it would withdraw the transitional safeguard measure, effective as of 22 November 1996, “due to a steady decline in imports of woven wool shirts and blouses from India and the adjustment of the industry”. Nevertheless, India requested that the Panel continue its work and produce a comprehensive report on the dispute. The Panel Report in United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India was circulated to the Members of the World Trade Organization (the “WTO”) on 6 January 1997. The Panel Report contains the following conclusions and recommendations:

INTRODUCTION

In a communication dated 14 March 1996, India requested that a panel be established at the next meeting of the Dispute Settlement Body (DSB) pursuant to Article XXIII:2 of GATT 1994, Article 6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and Article 8.10 and other relevant provisions of the Agreement on Textiles and Clothing (ATC) (WT/DS33/1). This arose from a restraint introduced by the United States in respect of India's exports of woven wool shirts and blouses (US category 440), under Article 6 of the ATC.

India noted that the matter had remained unresolved in spite of bilateral consultations between India and the United States held under Article 6.7 of the ATC in April and June 1995; the examination of the matter by the Textiles Monitoring Body (TMB) under Article 6.10 of the ATC in August and September 1995; the communication sent to the TMB under Article 8.10 of the ATC, within one month of the TMB recommendation under Article 6.10 of the ATC, explaining the reasons for India's inability to conform to the TMB recommendations; and the review of the matter by the TMB under Article 8.10 of the ATC in November 1995. Consequently, India considered that it had met all requirements in Article 8.10 of the ATC for direct recourse to Article XXIII:2 of GATT 1994. At its meeting held on 17 April 1996, the DSB established a panel pursuant to the request of India, with standard terms of reference, in accordance with Article 6 of the DSU (WT/DSB/M/14).

On 27 June 1996, the DSB informed Members that the terms of reference and the composition of the panel (WT/DS33/2) were as follows:

Five Members reserved their rights to participate in the Panel proceedings as third parties; namely Canada, the European Communities, Norway, Pakistan and Turkey.

INTRODUCTION: FACTUAL BACKGROUND AND STATEMENT OF THE APPEAL

This is an appeal by Costa Rica from certain issues of law and legal interpretations set out in the Panel Report, United States - Restrictions on Imports of Cotton and Man-made Fibre Underwear (the “Panel Report”). That Panel (the “Panel”) had been established to consider a complaint by Costa Rica relating to a transitional safeguard measure imposed by the United States on imports of cotton and man-made fibre underwear from Costa Rica under Article 6 of the Agreement on Textiles and Clothing (“ATC”).

The factual background essential to understanding this appeal, may be sketched quickly.

On 27 March 1995, the United States requested consultations with Costa Rica on trade in cotton and man-made underwear under Article 6.7 of the ATC. At the same time, the United States provided Costa Rica with a “Statement of Serious Damage”, dated March 1995 (the “March Statement”), on the basis of which the United States proposed the introduction of a restraint on imports of underwear from Costa Rica. Notice of the request for consultations, the proposed restraint and the proposed restraint level was published in the United States Federal Register on 21 April 1995. The consultations were held but the United States and Costa Rica failed to negotiate a mutually acceptable settlement during these consultations. The United States then invoked Article 6.10 of the ATC, and intro-duced a transitional safeguard measure in respect of cotton and man-made fibre underwear imports from Costa Rica on 23 June 1995. The measure was, by its terms, to be valid for a period of 12 months, effective as of 27 March 1995 (i.e., the date of the request for consultations).

At the same time, the United States referred the matter to the Textiles Monitoring Body (the “TMB”). The TMB found that the United States had failed to demonstrate serious damage to the United States domestic industry. However, the TMB did not reach a consensus on the existence of an actual threat of serious damage. The TMB similarly failed to make any findings on the effective date of application of the United States restraint. Accordingly, the TMB recommended that the United States and Costa Rica hold further consultations with a view to resolving the matter.

INTRODUCTION

On 27 November 1995, the Philippines requested consultations with Brazil under Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 (“GATT 1994”) concerning the countervailing duty imposed by Brazil on imports of desiccated coconut from the Philippines. (WT/DS22/1/Rev.1).

On 8 December 1995, Brazil replied that it was prepared to enter into consultations with the Philippines as long as it was mutually understood that those consultations would be undertaken exclusively under the 1979 Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (“Tokyo Round SCM Code”), under the auspices of which Brazil conducted the coconut subsidies investigations and imposed the countervailing duties.

On 13 December 1995, the Philippines replied that Brazil's response constituted a refusal of the request for consultations under Article XXIII:1.

Taking the view that Brazil had failed to enter into consultations within the period provided for in the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”), the Philippines, on 17 January 1996, requested the establishment of a Panel with standard terms of reference, pursuant to Article XXIII:2 of GATT 1994 and Articles 4.3 and 6 of the DSU. (WT/DS22/2).

At Brazil's request, a copy of document SCM/193, on the issue of the countervailing duties in question, was circulated to the Dispute Settlement Body (“DSB”). In that document, Brazil stated its view that the Tokyo Round SCM Code was the only legal framework applicable to the dispute. Brazil also indicated its understanding that the DSB was not the appropriate forum for the discussion on the dispute with the Philippines, and that document SCM/193 was circulated for information purposes only and without prejudice to its rights under the Tokyo Round SCM Code and to its position on the applicable law. (WT/DS22/3, attached as Annex 1).

At the 31 January 1996 meeting of the DSB, the Philippines stated that, for reasons mutually agreed to, the Philippines had not objected to postponing consideration of its request for establishment of a panel, but would make a statement at the next meeting of the DSB when this request would be considered.

INTRODUCTION

On 11 March 1996, the United States requested Canada to hold consultations pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and Article XXIII of the General Agreement on Tariffs and Trade 1994 (GATT 1994) on certain measures maintained by Canada, namely, measures prohibiting or restricting the importation into Canada of certain periodicals; tax treatment of so-called “split-run” periodicals; and the application of favourable postage rates to certain Canadian periodicals (WT/DS31/1). These consultations were held on 10 April 1996. As they did not result in a satisfactory adjustment of the matter, the United States, in a communication dated 24 May 1996, requested the Dispute Settlement Body (DSB) to establish a panel to examine the matter (WT/DS31/2).

The DSB, at its meeting on 19 June 1996, established a panel on the matter in accordance with Article 6 of the DSU. In document WT/DS31/3, the Secretariat reported that the Panel would have the following standard terms of reference and composition:

On 25 July 1996, the Panel was constituted with the following composition:

No Members reserved their rights to participate in the Panel proceedings as a third party.

The Panel met with the parties to the dispute on 11 October 1996 and 14- 15 November 1996. The Panel submitted its report to the parties on 21 February 1997.

FACTUAL ASPECTS

This Panel concerns three Canadian measures: Tariff Code 9958 which prohibits the importation into Canada of certain periodicals; Part V.I of the Excise Tax Act, as enacted by Bill C-103 of 15 December 1995, which imposes an excise tax on certain “split-run” periodicals; and the application of certain postal rates to certain Canadian periodicals including through actions of Canada Post Corporation and the Department of Canadian Heritage.

INTRODUCTION

On 22 December 1995, Costa Rica requested consultations with the United States under Article 4 and other relevant provisions of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Article XXIII of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and the corresponding provisions of the Agreement on Textiles and Clothing (ATC) (WT/DS24/1). Consultations were held on 18 January and 1 February 1996, however, no mutually satisfactory solution was reached. On 22 February 1996, Costa Rica requested the establishment of a panel (WT/DS24/2) which was considered by the DSB at its meeting on 5 March 1996 (WT/DSB/M/12). The Dispute Settlement Body (DSB) accordingly agreed to establish a panel with standard terms of reference in accordance with Article 6 of the DSU.

On 19 April 1996, the DSB was informed that the terms of reference and the composition of the Panel (WT/DS24/3) were as follows:

The Panel heard the parties to the dispute on 24-25 June 1996 and 29 July 1996. The Panel also met with the parties on 15 October 1996 to review aspects of the interim report, at the request of the parties. The Panel submitted its complete findings and conclusions to the parties to the dispute on 25 October 1996.

FACTUAL ASPECTS

Outward Processing Regime: “807 Trade” and “Guaranteed Access Levels”

In the course of the last six years, there has been a significant change in the US cotton and man-made fibre underwear manufacturing industry which has significantly switched from producing and assembling underwear domestically to producing components in the United States for assembly in other countries and subsequent return to the same enterprises in the United States for marketing.

Representation and political agency

Ideas of representation in political theory are notoriously diffuse and recalcitrant. We shall not here be concerned with the full array of these ideas. Our attention in this chapter will be focused on the issue of political agency – on the simple fact of representation, rather than its detailed form. The essential feature of representation, as we shall understand it, is that a mediating assembly of some kind is set between the citizenry and political decision making.

A simple model

In this chapter we take up the question – first broached in chapter 4 – of the relationship between the operation of institutions that seek to economise on virtue in use or in allocation, and the dispositional choices of individuals. The basic question is whether – or in what circumstances – institutions that economise on virtue in either of these senses may undermine or erode the virtue that they economise on. We will begin by sketching what we consider to be the simplest possible version of a model that is capable of capturing the feedback effect from institutions to dispositions; that is, a model that incorporates both dispositional choice and a structure of political institutions that operate as both sanctioning and screening mechanisms. In this context we will investigate the question of the conditions under which such an institutional structure has virtue producing properties, and the conditions under which the institutional structure may act to destroy virtue. Some of the limitations of this simple model will be addressed in the following section, where we will also outline some generalisations.

The basic model is organised around the choice between dispositions in the face of an imperfect screening device and an imperfect sanctioning device.

Motivation in politics

It seems self-evident that any account of the operation of democratic political institutions must depend on assumptions made about human nature – and specifically about human motivation. After all, within the analytic tradition that we will be working in – the rational actor tradition – human behaviour is understood as the outcome of rational choices, and rational choice is understood in terms of agents' beliefs and desires. The rational option, in the standard Humean/Davidsonian account, is just that option that maximises the agent's desire satisfaction, given the agent's beliefs (beliefs, say, about the consequences of alternative actions). Economists may, in most settings, talk about preferences rather than desires, but the Humean story – or something very like it – underlies virtually all modern economics and correspondingly all rational actor political theory.

Not all scholars admire the rational actor approach to politics. Their criticisms are varied and we will not try to address them all in this book.

Political parties in public choice and political theory

Any satisfactory analysis of the practice of Western democracy – and any discussion of how it might be made to work better – must recognise and account for the role of political parties. That much seems self-evident. Indeed, for many people, to be political is to be party political. So, for example, much of the discussion, both popular and academic, of matters like alternative voting procedures – proportional representation, preferential (transferable) voting, compulsory voting and so on – is preoccupied with an investigation of how existing and potential political parties would fare under the various procedures. On this general view, to conceive of politics without parties is rather like conceiving of football without teams. Whatever such an activity would be exactly, it would certainly not be politics (or football) as we know it.

Yet parties as such have not received much attention in public choice analysis. It is generally noted that electoral candidates will have a party affiliation; and often, as in the early work by Downs, parties are identified as the contestants in the electoral process.