“Dispute Settlement mechanism under WTO law: a critical analysis”.

“Dispute Settlement mechanism under WTO law:

a critical analysis”.

INTRODUCTION:

The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly. A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO. The authors of these agreements are the member governments themselves — the agreements are the outcome of negotiations among members. Ultimate responsibility for settling disputes also lies with member governments, through the Dispute Settlement Body. Dispute settlement is the central pillar of the multilateral trading system, and the WTO’s unique contribution to the stability of the global economy. Without a means of settling disputes, the rules-based system[1] would be less effective because the rules could not be enforced. The WTO’s procedure underscores the rule of law[2], and it makes the trading system more secure and predictable. The system is based on clearly-defined rules, with timetables for completing a case. First rulings are made by a panel and endorsed (or rejected) by the WTO’s full membership. Appeals based on points of law are possible. By joining the WTO, member countries have agreed that if they believe fellow members are in violation of trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally — this entails abiding by agreed procedures (Dispute Settlement Understanding) and respecting judgments, primarily of the Dispute Settlement Body (DSB)[3], the WTO organ responsible for adjudication of disputes

Understanding of Dispute Settlement:

The World Trade Organization (WTO) dispute settlement system could be seized of a dispute carrying human rights claims or arguments in support of either a complaint or a defense. How would WTO adjudicating bodies address this issue? It is suggested that WTO law must evolve and be interpreted consistently with international law, including human rights law. Thus, a good faith interpretation of the provisions of the WTO, including its exception provisions, should lead to a reading and application of WTO law consistent with human rights. The recent Doha Declaration on TRIPS[4] and Public Health is a good example of such a possible coherent reading of WTO provisions taking into account potentially relevant human rights law. WTO adjudicating bodies cannot formally interpret other treaties and customs and thus cannot apply or enforce other treaties or customs or determine the legal consequences of rights and obligations that WTO Members may have under other treaties or by custom; these may be examined only when necessary for the interpretation of WTO law and/or as a factual determination. WTO Members do not appear to have granted WTO remedies for the enforcement of rights and obligations other than those under the covered agreements’. Since states are bound simultaneously by all their international rights and obligations, WTO Members in violation of human rights law may be liable, but this responsibility cannot be enforced by WTO adjudicating bodies.

When dispute arise:

Typically, a dispute arises when a country adopts a trade policy measure or takes some action that another member considers to be a violation of a WTO agreement.  A dispute may also arise if a member feels that, as a result of another country’s action, it has been denied WTO benefits to which it is entitled.  A third group of countries can also declare that they have an interest in the case and, when that is the case, they enjoy some rights as Third Parties.

The WTO negotiators were very cognizant that formal dispute settlement through litigation is not always the best outcome.  Article 7[5] of the DSU states that

Before bringing a case, a Member shall exercise its judgment as to whether action under these procedures would be fruitful. The aim of the dispute settlement mechanism is to secure a positive solution to a dispute. A solution mutually acceptable to the parties to a dispute and consistent with the covered agreements is clearly to be preferred. In the absence of a mutually agreed solution, the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements. The provision of compensation should be resorted to only if the immediate withdrawal of the measure is impracticable and as a temporary measure pending the withdrawal of the measure which is inconsistent with a covered agreement.  The last resort which this Understanding provides to the Member invoking the dispute settlement procedures is the possibility of suspending the application of concessions or other obligations under the covered agreements on a discriminatory basis vis-à-vis the other Member, subject to authorization by the DSB of such measures.

How WTO Dispute Settlement Works:

A WTO dispute proceeds through three main stages: consultation; formal litigation; and, if necessary, implementation (figure 1). All disputes start with a request for consultations, in which the member government bringing the case to the WTO (the complainant) sets out its objections to the trade measure(s) of another member government (the defendant). The two sides are then required to consult for 60 days with the goal of negotiating a mutually satisfactory solution to the dispute. Interestingly, a large proportion of cases are successfully resolved during consultations; 46% of all disputes brought to the WTO end at this stage, and three-quarters of those yield at least partial concessions from the defendant. Even if the petitions would be filed with knowledge that they would not be granted, there may be transparency rationales for such an instrument if industries find it useful to get such actions and denials on record to engage an otherwise unresponsive government[6]. If consultations do not result in a mutually satisfactory solution, the complainant can request a panel proceeding, marking the start of the formal litigation stage.

Dispute Settlement in the WTO

The Mandate

Panels are comprised of three to five persons with a background in trade law, agreed to by the parties on a case-by-case basis. For the case of WTO trade litigation, a legal services centre for developing countries—the Advisory Centre on WTO Law (ACWL)—was established in Geneva in 2001. In addition to more general legal advice on WTO matters, it offers support to complainants, respondents and third parties in WTO dispute settlement proceedings at subsidized (below market) rates, provided the parties are developing countries, customs territories, or economies in transition[7]. There are typically two rounds of testimony, including from other countries (third parties) that notify the WTO of a “substantial” interest in the case. The panel then circulates an “interim report,” offering both sides an opportunity to comment and seek clarification. The complainant and defendant can still negotiate a settlement at this point. In fact, another 13% of all cases end at this stage before a ruling is rendered[8]. If not, the panel issues its final report, which is then adopted by the WTO, unless one of two things happens. First, the two sides can agree not to adopt the panel report for whatever reason, although to date this has not happened. Second, one or both sides (but not third parties) can appeal the panel’s report, which happens frequently (i.e., in 73% of panel rulings). The Appellate Body[9] (AB) handles these appeals. Unlike panels, the AB is a standing body of jurists which is designed to ensure greater consistency across its rulings. The AB is tasked with hearing testimony from the parties, and any third parties, on how the panel may have erred in its legal reasoning. The AB can uphold or overturn the panel in whole or in part, and its decision is final. If this verdict favors the defendant, the case typically ends. If this verdict, instead, favors the complainant, the dispute may proceed to the implementation stage.

When a defendant is ruled against, the panel and (or) AB calls for it to bring its measures into accordance with its WTO obligations. What this means in practice is, itself, often contested. If the complainant feels that the defendant has not taken appropriate steps, it can subsequently request a “compliance” panel. This panel, which is often comprised of the original panel members, must determine whether the defendant’s efforts have, in fact, brought its measure(s) into compliance. If not – a judgment the defendant can appeal to the AB – the complainant can request a second panel to set the level at which it can “retaliate” against the defendant.

This typically involves imposing tariffs on the defendant’s exports. It is essential to note two things about retaliation. First, requests for authorization to retaliate are rare. Indeed, complainants have asked for authorization to retaliate in just seven of the hundreds of cases handled by the WTO. Second, it is up to the complainant.

WTO’s dispute settlement system:

The WTO’s dispute settlement agreement is formally known as the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).  The DSU provides the primary legal means of settling trade related conflicts in the WTO.  Settlement of disputes is the responsibility of the Dispute Settlement Body (composed of all Members of the WTO). The Dispute Settlement Body (DSB) has the sole authority to establish “panels” of experts to consider the case, and to accept or reject the panels’ findings or the results of an appeal. It monitors the implementation of the rulings and recommendations, and has the power to authorize retaliation when a country does not comply with a ruling.

Dispute Settlement Time Line
The approximate periods for each stage of a dispute settlement procedure are target figures and can be extended somewhat. In addition, the countries can settle their dispute themselves at any stage. Totals for each stage are approximate.
60 days Consultations, mediation, etc
45 days Panel established by DSU and appointment of panelists
6 months Final panel report to parties
3 weeks Final panel report to WTO members
60 days Dispute Settlement Body adopts report
(if no appeal)
Total = 1 year (without appeal)
60-90 days Appeals report
30 days Dispute Settlement Body adopts appeals report
Total = 1 year  3 months (with appeal)

A procedure for settling disputes existed under the General Agreement on Tariffs and Trade (GATT)[10], which preceded the WTO, but it had no fixed timetables, rulings were easier to block, and many cases dragged on for a long time inconclusively. The DSU introduced a more structured process with more clearly defined stages in the procedure and times limits for these stages.  The agreement emphasizes that prompt settlement is essential if the WTO is to function effectively. It sets out in considerable detail the procedures and the timetable to be followed in resolving disputes. A case that runs its full course should normally take no more than about one year to a first ruling and15 months if there is an appeal. If the case is considered urgent (e.g. if perishable goods are involved), then the allowed time is shorter.

A Schematic of the WTO Dispute Settlement Process:

Dispute Settlement fact:

In looking at the evidence, the first thing to note is that most WTO disputes are among a few members that account for the bulk of international trade, most notably the US and Europe. By comparison, developing countries have had little experience with dispute settlement. But, as Table 1 indicates, this disparity is largely explained by differences in trade volumes. Consistent with this explanation, a few developing countries, such as Brazil and India, have launched a relatively large number of disputes[11], while others, like China, are increasingly active in dispute settlement as third parties, seeking to gain experience with the system.

Nonetheless, the record of dispute outcomes testifies to the acuteness of the legal capacity problem for the smaller and poorer countries in the developing world. The below table displays the data on dispute outcomes since 1995. To be sure, despite their weak market power, the poorest complainants have nonetheless managed to get larger defendants to concede fully in over 40% of their cases. Yet their developed counterparts gain full concessions in nearly three quarters of their complaints[12]. As we show in a recent study (Busch and Reinhardt 2003), this is not just an artifact of differences in economic size. Rather, while the system is clearly working for all complainants, it is working better for those with the know-how and savvy to take maximum advantage of the legal opportunities the system affords.

WTO DISPUTE SETTLEMENT

Without a means of settling disputes, the rules-based system would be worthless because the rules could not be enforced.  The WTO’s procedure underscores the rule of law, and it makes the trading system more secure and predictable. The system is based on clearly-defined rules, with timetables for completing a case.

SUBSTANTIVE SCOPE OF THE DISPUTE SETTLEMENT SYSTEM:

The ‘‘covered agreements”:

The WTO dispute settlement system applies to all disputes brought under the WTO agreements listed in Appendix 1 of the DSU (Article 1.1 of the DSU). In the DSU, these agreements are referred to as the “covered agreements”. The DSU itself and the WTO Agreement (in the sense of Articles I to XVI) are also listed as covered agreements. In many cases brought to the dispute settlement system, the complainant invokes provisions belonging to more than one covered agreement. The covered agreements also include the so-called Plurilateral Trade Agreements contained in Annex 4 to the WTO Agreement (Appendix 1 of the DSU), which are called “plurilateral” as opposed to “multilateral” because not all WTO Members have signed them. However, the applicability of the DSU to those Plurilateral Trade Agreements is subject to the adoption of a decision by the parties to each of these agreements setting out the terms for the application of the DSU to the individual agreement, including any special and additional rules or procedures (Appendix 1 of the DSU). The Committee on Government Procurement has taken such a decision12, but not the Committee on Trade in Civil Aircraft for the Agreement on Trade in Civil Aircraft. Two other plurilateral agreements, the International Dairy Agreement and the International Bovine Meat Agreement, are no longer in force.

A single set of rules and procedures:

By applying to all these covered agreements, the DSU provides for a coherent and integrated dispute settlement system. It puts an end to the former “GATT `a la carte”, where each agreement not only had a different set of signatories but also separate dispute settlement rules.13 Subject to certain exceptions, the DSU is applicable in a uniform manner to disputes under all the WTO agreements. In some instances, there are so-called “special and additional rules and procedures” on dispute settlement contained in the covered agreements (Article 1.2 and Appendix 2 of the DSU). These are specific rules and procedures “designed to deal with the particularities of disputes under a specific covered agreement”. They take precedence over the rules in the DSU to the extent that there is a difference between the rules and procedures of the DSU and the special and additional rules and procedures (Article 1.2 of the DSU). Such a “difference” or conflict between the DSU and the special rules exists only “where the provisions of the DSU and the special or additional rules and procedures of a covered agreement cannot be read as complementing each other” because they are mutually inconsistent.

Dispute Settlement and Developing countries perspective

The poorest WTO member countries almost universally fail to engage as either complainants or interested third parties in formal dispute settlement activity related to their market access interests. This paper focuses on costs of the WTO’s extended litigation process as an explanation for the potential but ‘missing’ developing country engagement. I tried to provide a positive examination of the current system, and we catalogue and analyze a set of proposals encouraging the private sector to provide DSU-specific legal assistance to poor countries. Think tanks and research institutes—entities with a focus on development but with a greater analytical capacity or interest than most NGOs—might have a greater incentive to assist in dispute settlement. Existing entities that may “fit” this mould, and to some extent may already have a mandate to assist countries with dispute settlement, do many other things as well[13]. High-income members of the ACWL—who do not have access to the legal services provided by the Centre—have made substantial contributions to the Endowment Fund[14]. In the absence of systemic rules reform, the public-private partnership model imposes a substantial cooperation burden on such groups as they organize export interests, estimate the size of improved market access payoffs, prioritize across potential cases, engage domestic governments, prepare legal briefs, assist in evidentiary discovery, and pursue the public relations effort required to induce foreign political compliance.

Conclusion:

Although much of the procedure resembles a court or tribunal, the preferred solution is for the countries to settle the dispute by themselves. Before a country can request the formation of a dispute settlement panel, it must consult with the other side for a minimum period of 60 days after it first requests a formal consultation. Therefore, formal consultations invoked under the specific provisions of the DSU are the first stage of the process.  Even when the case has progressed to other stages, consultation, negotiation and mediation remain an option for resolving the issue.

In principle, the sanctions should be imposed in the same sector as the dispute. If this is not practical or if it would not be effective, the sanctions can be imposed in a different sector of the same agreement. In turn, if this is not effective or practicable and if the circumstances are serious enough, the action can be taken under another agreement. The objective is to minimize the chances of actions spilling over into unrelated sectors while at the same time allowing the actions to be effective. In any case, the Dispute Settlement Body monitors how adopted rulings are implemented. Any outstanding case remains on its agenda until the issue is resolved.

Furthermore, as the experience of the US, EU and an increasing number of developing countries illustrates[15],  it is difficult for governments to restrain the use of such trade remedies once the statutes have been established .Developing countries have a great deal at stake in the WTO and its legal system. With trade disciplines in areas from textiles and agriculture to health and safety standards taking firmer root under the WTO system, questions regarding how the WTO legal system works in practice and how it can be improved for developing countries’ benefit beg careful attention.

Bibliography:

This bibliography is a thorough list of books, chapters of books, journal articles, and other resources on the WTO dispute settlement procedure and operation.  The materials are used in the following sections:

I.                  Books and Chapters: focusing on any aspect of the dispute settlement procedures and operation.

II.              Articles: focusing on general issues, specific WTO dispute settlement cases, and system reform.

III.           Other Resources: highlights papers and web sites that have a focus on any aspect of WTO dispute settlement.

A number of databases and other resources were consulted while preparing this bibliography.

1. Nordström, Håkan (2005) “The Cost of WTO Litigation, Legal Aid and Small Claim Procedures,” manuscript, Swedish National Board of Trade (Global Trade Department), February.

2. Bown, Chad P., and Bernard M. Hoekman (2005) “Tough Love, Reciprocity and Enforcement of WTO Commitments in Developing Countries,” Brandeis University manuscript, in progress.

3. Busch, Marc L. and Eric Reinhardt (2003) “Developing Countries and GATT/WTO Dispute Settlement,” Journal of World Trade 37(4): 719-735.

4. Bermeo, Sarah and Christina Davis (2005) “Who Files? Developing Country Participation in the WTO Adjudication,” Princeton University manuscript, May.

5. Blonigen, Bruce A. and Chad P. Bown (2003) “Antidumping and Retaliation Threats,” Journal of International Economics 60(2): 249-273.

6. Bown, Chad P. (2005a) “Trade Remedies and WTO Dispute Settlement: Why Are So Few Challenged?” Journal of Legal Studies (forthcoming).

7. William J. Davey, WTO Dispute Settlement: Segregating the Useful Political Aspects and Avoiding “Over-Legalization,” in New Directions in International Economic Law: Essays in Honour of John H. Jackson 291 (Marco Bronckers & Reinhard Quick eds., The Hague; Boston: Kluwer Law International, 2000).

8. Claude Barfield, Free Trade, Sovereignty, and Democracy: The Future of the World Trade Organization (Washington, D.C.: AEI Press, 2001).

9. Theofanis Christoforou, Settlement of Science-Based Trade Disputes in the WTO: A Critical Review of the Developing Case Law in the Face of Scientific Uncertainty, 8 N.Y.U. Envtl. L.J. 622 (2000).

10.  Christian Schede, The Strengthening of the Multilateral System: Article 23 of the WTO Dispute Settlement Understanding: Dismantling Unilateral Retaliation under Section 301 of the 1974 Trade Act?, 20 World Competition 109 (1996).

11.  Claude Barfield, WTO Dispute Settlement System in Need of Change, 37 Intereconomics 131 (2002).

12.  Judith Hippler Bello, The WTO Dispute Settlement Understanding: Less is More, 90 Am. J. Int’l L. 416 (1996).

13.  Chad P. Bown, The Economics of Trade Disputes, the GATT’s Article XXIII and the WTO’s Dispute Settlement Understanding, Brandeis University, January 2002, available at http://people.brandeis.edu/~cbown/papers/ dispute.pdf.

14.  Marc Busch, Democracy, Consultation, and the Paneling of Disputes Under GATT, Harvard University, October 1999, available at http://www2.cid.harvard.edu/cidtrade/Issues/busch.pdf.

15.  Steve Charnovitz, WTO Dispute Settlement as a Model for International Governance, December 10, 2001, paper available from the Global Environment & Trade Study Library, http://www.gets.org/library/ listcontent.cfm (under the topic “dispute settlement”).

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[1] Marakas, George. Decision Support Systems in the 21st Century. Prentice Hall, 1999, p.29

[2] Gedicks, Frederick. “An Originalist Defense of Substantive Due Process: Magna Carta, Higher-Law Constitutionalism, and the Fifth Amendment”, Emory Law Journal, Vol. 58, pages 585-673 (2009). See also Edlin, Douglas “Judicial Review without a Constitution“, Polity, Volume 38, pages 345-368 (2006).

[3] World Trade Organization, comp. “WTO, dispute settlement – the disputes – DS160.” World Trade Organization website. 30 May 2008. World Trade Organization. 23 Oct. 2008

[4] David Cronin, “EU Acceptance Of TRIPS Health Amendment Adds 28 Members”, Intellectual Property Watch (December 1, 2007)

[5] Terms of Reference of Panels: “To examine, in the light of the relevant provisions in (name of the covered agreement(s) cited by the parties to the dispute), the matter referred to the DSB by (name of party) in document … 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).”

[6] Bermeo and Davis (2005) provide empirical support for the proposition that developing countries that are more democratic may be more likely to engage in dispute settlement activity at the WTO. The transparency benefits

would, however, likely need to be tempered by some political “escape” provision to ensure that the government is

not legally required to pursue a case that it cannot win for political reasons, i.e., if pushing forward such a case

threatens a broader economic and foreign policy relationship. Levy and Srinivasan (1996) argue that if a domestic

industry would have automatic ability to file before the WTO this might adversely affect the obligations the

domestic government might be willing to take on in prior stage negotiations.

[7] As of November 2004, services provided by the Centre were available to 27 developing countries who had

become Centre Members, in addition to another 41 WTO Members and countries in the process of acceding to the

WTO (but non-Members of the ACWL) designated by the United Nations as LDCs. All information on the ACWL

was taken from its website, http://www.acwl.ch, last accessed on 20 April 2005. Jackson (2002) provides an initial

description of the role the ACWL might play at its inception.

[8] Jolls (2005) provides an excellent survey of these organizations’ role in enforcing provisions of employment law.

[9] Steinberg, Richard H. “In the Shadow of Law or Power? Consensus-based Bargaining and Outcomes in the GATT/WTO.” International Organization. Spring 2002. pp. 339-374.

[10] Michael Hudson, Super Imperialism: The Origin and Fundamentals of U.S. World Dominance, 2nd ed. (London and Sterling, VA: Pluto Press, 2003), 258.

[11] Dispute counts include all filed from 1995 through the end of 2002. Trade figures are from 2000 and count both goods and services but only external trade in the case of the European Community (EC). World Bank country classifications for 2002 are used. The “Number of WTO Members” column reports the 2002 figure and does not include the 15 members of the EC, as apart from the EC itself. Sixteen of the 20 “low income” complaints were filed by India alone; the other four were initiated by Indonesia and Pakistan.

[12]. The table includes all WTO disputes begun from 1995 through 2000 and concluded by early 2003. Too few disputes with low income complainants occurred in this period for them to be counted separately. The association here is statistically significant (c2=11.96, 4 d.o.f., p=0.02). Sources: World Bank (2003); Busch and Reinhardt (2003).

[13] Possible examples include the International Centre for Trade and Sustainable Development (ICTSD) and iLEAP.

The former focuses mostly on negotiations, policy advice and provision of information and opinion on trade issues.

Litigation advice is not a major activity. ILEAP may come closer to the type of entity required, but here also the

focus is mostly on capacity-building and policy advice.

[14] Developed countries that have each contributed $1 million or more to the Endowment Fund include Canada,

Denmark, Finland, Ireland, Italy, Netherlands, Norway, Sweden and the United Kingdom.

[15] Some of the largest users of the antidumping mechanism are now developing countries, including India, South

Africa, Argentina, Brazil and Mexico (Zanardi, 2004).