Dispute settlement Mechanism under WTO law

Dispute settlement Mechanism under WTO law: A critical analysis


A central objective of the (WTO) dispute settlement system is to provide security and predictability to the multilateral trading system. Although international trade is understood in the WTO as the flow of goods and services between Members, such trade is typically not conducted by States, but rather by private economic operators. These market participants need stability and predictability in the government laws, rules and regulations applying to their commercial activity, especially when they conduct trade on the basis of long-term transactions. In light of this, the DSU aims to provide a fast, efficient, dependable and rule-oriented system to resolve disputes about the application of the provisions of the WTO Agreement[1]. By reinforcing the rule of law, the dispute settlement system makes the trading system more secure and predictable. Where non-compliance with the WTO Agreement has been alleged by a WTO Member[2], the dispute settlement system provides for a relatively rapid resolution of the matter through an independent ruling that must be implemented promptly, or the non-implementing Member will face possible trade sanctions.

Importance of the WTO dispute settlement system

The best international agreement is not worth very much if its obligations cannot be enforced when one of the signatories fails to comply with such obligations. An effective mechanism to settle disputes thus increases the practical value of the commitments the signatories undertake in an international agreement. The fact that the Members of the WTO established the current dispute settlement system during the Uruguay Round[3] of Multilateral Trade Negotiations underscores the high importance they attach to compliance by all Members with their obligations under the WTO Agreement. Settling disputes in a timely and structured manner is important. It helps to prevent the detrimental effects of unresolved international trade conflicts and to mitigate the imbalances between stronger and weaker players by having their disputes settled on the basis of rules rather than having power determine the outcome. Most people consider the WTO dispute settlement system to be one of the major results of the Uruguay Round. After the entry into force of the WTO Agreement in 1995, the dispute settlement system soon gained practical importance as Members frequently resorted to using this system.

The Dispute Settlement Understanding

The current dispute settlement system was created as part of the WTO Agreement during the Uruguay Round. It is embodied in the Understanding on Rules and Procedures Governing the Settlement of Disputes, commonly referred to as the Dispute Settlement Understanding and abbreviated “DSU[4]” (referred to as such in this guide). It should however be noted that, to a large degree, the current dispute settlement system is the result of the evolution of rules, procedures and practices developed over almost half a century under the GATT 1947. Explanatory note: The annexes of the WTO Agreement contain all the specific multilateral agreements. In other words, the WTO Agreement incorporates all agreements that have been concluded in the Uruguay Round. References in this guide to the “WTO Agreement” in general, therefore, include the totality of these rules. However, the WTO Agreement itself, if taken in isolation from its annexes, is a short Agreement containing 16 Articles that set out the institutional framework of the (WTO) as an international organization. Specific[5] references to the WTO Agreement relate to these rules.

Functions and key features of the dispute settlement system Preserving the rights and obligations of WTO Members

Typically, a dispute arises when one WTO Member adopts a trade policy measure that one or more other Members consider to be inconsistent with the obligations set out in the WTO Agreement. In such a case, any Member that feels aggrieved is entitled to invoke the procedures and provisions of the dispute settlement system in order to challenge that measure. Thus, the dispute settlement system provides a mechanism through which WTO Members can ensure that their rights under the WTO Agreement can be enforced. This system is equally important from the perspective of the respondent whose measure is under challenge, since it provides a forum for the respondent to defend itself if it disagrees with the claims raised by the complainant. In this way, the dispute settlement system serves to preserve the Members’ rights and obligations under the WTO Agreement[6]. The rulings of the bodies involved (the DSB the Appellate Body, panels and arbitrations are intended to reflect and correctly apply the rights and obligations as they are set out in the WTO Agreement. They must not change the WTO law that is applicable between the parties or, in the words of the DSU, add to or diminish the rights and obligations provided in the WTO Agreements.[7]

Clarification of rights and obligations through interpretation

The precise scope of the rights and obligations contained in the WTO Agreement is not always evident from a mere reading of the legal texts. Legal provisions are often drafted in general terms so as to be of general applicability and to cover a multitude of individual cases, not all of which can be specifically regulated. Whether the existence of a certain set of facts gives rise to a violation of a legal requirement contained in a particular provision is, therefore, a question that is not always easy to answer. In most cases, the answer can be found only after interpreting the legal terms contained in the provision at issue. As regards the methods of interpretation, the DSU refers to the “customary rules of interpretation of public international law” (Article 3.2 of the DSU)[8]. While Notably, Articles 31, 32 and 33 of the Vienna Convention on the Law of Treaties embody many of the customary rules of interpretation of public international law. While the reference in Article 3.2 of the DSU does not refer directly to these Articles, the Appellate Body has ruled that they can serve as a point of reference for discerning the applicable customary rules1.The three Articles read as follows:

“Mutually Agreed Solutions” as “Preferred Solution”

Although the dispute settlement system is intended to uphold the rights of aggrieved Members and to clarify the scope of the rights and obligations, which gradually achieves higher levels of security and predictability, the primary objective of the system is not to make rulings or to develop jurisprudence. Rather, like other judicial systems, the priority is to settle disputes, preferably through a mutually agreed solution that is consistent with the WTO Agreement[9]. Adjudication is to be used only when the parties cannot work out a mutually agreed solution. By requiring formal consultations as the first stage of any dispute, the DSU provides a framework in which the parties to a dispute must always at least attempt to negotiate a settlement.

Prompt settlement of disputes

The DSU emphasizes that prompt settlement of disputes is essential if the (WTO) is to function effectively and the balance of rights and obligations between the Members is to be maintained it is well known that, to be achieved, justice must not only provide an equitable outcome but also be swift. The detailed procedures are designed to achieve efficiency, including the right of a complainant to move forward with a complaint even in the absence of agreement by the respondent[10] If a case is adjudicated, it should normally take no more than one year for a panel ruling and no more than 16 months if the case is appealed (Article 20 of the DSU). If the complainant deems the case urgent, consideration of the case should take even less time (Articles 4.9 and 12.8 of the DSU).

Prohibition against unilateral determinations

WTO Members have agreed to use the multilateral system for settling their WTO trade disputes rather than resorting to unilateral action[11] (Article 23 of the DSU).

Exclusive jurisdiction

By mandating recourse to the multilateral system of the WTO for the settlement of disputes, Article 23 of the DSU not only excludes unilateral action, it also precludes the use of other for the resolution of a WTO-related dispute.

Compulsory nature

The dispute settlement system is compulsory. All WTO Members are subject to it, as they have all signed and ratified the WTO Agreement as a single undertaking, of which the DSU is a part. The DSU subjects all WTO Members to the dispute settlement system for all disputes arising under the WTO Agreement. Therefore, unlike other systems of international dispute resolution, there is no need for the parties to a dispute to accept the jurisdiction of the WTO dispute settlement system in a separate declaration or agreement. This consent to accept the jurisdiction of the WTO dispute settlement system is already contained in a Member’s accession to the WTO. As a result, every Member enjoys assured access to the dispute settlement system and no responding Member may escape that jurisdiction.

Substantive scope of the dispute settlement system  

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”[12]. 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 decision, 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.  

Developing country Members and the dispute settlement system

The DSU also addresses the particular status of developing country Members of the (WTO), although the approach taken differs from that of the other covered agreements. Unlike those agreements, which set out the Members’ substantive trade obligations, the DSU chiefly specifies the procedures under which such substantive obligations can be enforced. Accordingly, in the dispute settlement system, special and differential treatment[13] does not take the form of reducing obligations, providing enhanced substantive rights or granting transition periods. Rather, it takes a procedural form, for instance, by making available to developing country Members additional or privileged procedures, or longer or accelerated deadlines. These rules of special and differential treatment will be mentioned in subsequent chapters in the relevant procedural context in which they apply. The rules of special and differential treatment and other aspects of the developing countries’ role in the dispute settlement system are also the subject of a separate chapter[14].  

Historic development of the WTO dispute settlement system

The (WTO) dispute settlement system is often praised as one of the most important innovations of the Uruguay Round. This should not, however, be misunderstood to mean that the WTO dispute settlement system was a total innovation and that the previous multilateral trading system based on GATT 1947 did not have a dispute settlement system. On the contrary, there was a dispute settlement system under GATT 1947[15]. Several of the principles and practices that evolved in the GATT dispute settlement system were, over the years, codified in decisions and understandings of the contracting parties to GATT 1947. The current WTO system builds on, and adheres to, the principles for the management of disputes applied under Articles XXII and XXIII of GATT 1947 (Article 3.1 of the DSU). Of course, the Uruguay Round brought important modifications and elaborations to the previous system, which will be mentioned later.1 This chapter provides a brief overview of the historic roots of the current dispute settlement system.

WTO Bodies involved in the dispute settlement process

The operation of the (WTO) dispute settlement process involves the parties and third parties to a case, the DSB panels, the Appellate Body, the WTO Secretariat, arbitrators, independent experts and several specialized institutions. This chapter gives an introduction to the WTO bodies[16] involved in the dispute settlement system. The involvement of the parties and third parties, the primary participants in a dispute settlement proceeding, has already been outlined here. The precise tasks and roles of each of the actors involved in the dispute settlement process will become clear in the later chapter on the stages of the dispute settlement process. The DSB has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations and authorize the suspension of obligations under the covered agreements (Article 2.1 of the DSU). A later chapter on the stages of the dispute settlement procedure will explain exactly what all these actions mean. In less technical terms, the DSB is responsible for the referral of a dispute to adjudication (establishing a panel); for making the adjudicative decision binding (adopting the reports); generally, for supervising the implementation of the ruling; and for authorizing “retaliation” when a Member does not comply with the ruling.  

The process — Stages in a typical WTO dispute settlement case

This chapter explains all the various stages through which a dispute can pass in the (WTO) dispute settlement system. There are two main ways to settle a dispute once a complaint has been filed in the WTO:

(i) The parties find a mutually agreed solution, particularly during the phase of bilateral consultations; and
(ii) Through adjudication, including the subsequent implementation of the panel and Appellate Body reports, which are binding upon the parties once adopted by the DSB.

There are three main stages to the WTO dispute settlement process:

(i) Consultations between the parties;
(ii) Adjudication by panels and, if applicable, by the Appellate Body; and
(iii) The implementation of the ruling, which includes the possibility of countermeasures in the event of failure by the losing party to implement the ruling.  


The system has both strengthens and weaknesses. For example, with respect to its weaknesses, despite the deadlines, a full dispute settlement procedure still takes a considerable amount of time, during which the complainant suffers continued economic harm if the challenged measure is indeed (WTO)-inconsistent. No provisional measures (interim relief) are available to protect the economic and trade interests of the successful complainant during the dispute settlement procedure. Moreover, even after prevailing in dispute settlement, a successful complainant will receive no compensation for the harm suffered during the time given to the respondent to implement the ruling. Nor does the “winning party” receive any reimbursement from the other side for its legal expenses. In the event of non-implementation, not all Members have the same practical ability to resort to the suspension of obligations. Lastly, in a few cases, a suspension of concessions has been ineffective in bringing about implementation. However, these cases are the exception rather than the rule.    


Argentina — Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted 12 January 2000, DSR 2000: I, 515.
Brazil — Export Financing Programmed for Aircraft, WT/DS46/AB/R, adopted 20 August 1999, DSR 1999: III, 1161.
Canada — Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999: III, 1377. European Communities — Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/R and Add.1, adopted 5 April 2001, as modified by the Appellate Body Report, WT/DS135/AB/R.
German Import Duties on Starch and Potato Flour, 16 February 1955, undaunted, BISD 3S/77.
Italian Discrimination against Imported Agricultural Machinery, adopted 23 October 1958, BISD 7S/60.
Japan — Taxes on Alcoholic Beverages, 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:I, 125.
Korea — Taxes on Alcoholic Beverages, WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, DSR 1999: I, 3.
Thailand — Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland, WT/DS122/AB/R, adopted 5 April 2001.
United States — Section 110(5) of the US Copyright Act — Recourse to Arbitration under Article 25 of the DSU, WT/DS160/ARB25/1, 9 November 2001. [1] Typically, a dispute arises when one WTO Member adopts a trade policy measure that one or more other Members consider to be inconsistent with the obligations set out in the WTO Agreement. [2] WTO Members can ensure that their rights under the WTO Agreement can be enforced. [3] Most people consider the WTO dispute settlement system to be one of the major results of the Uruguay Round. [4] The DSU, which constitutes of the WTO Agreement, sets out the procedures and rules that define today’s dispute settlement system. [5] Article XVI of the WTO Agreement. [6] (Article 3.2 of the DSU). [7] (Articles 3.2 and 19.2 of the DSU). [8] Customary international law is normally unwritten; there is an international convention that has codified some of these customary rules of treaty interpretation. [9] (Article 3.7 of the DSU). [10] (Articles 4.3 and 6.1 of the DSU). [11] Abiding by the agreed procedures and respecting the rulings once they are issued — and not taking the law into their own hands. [12] The DSU itself and the WTO Agreement (in the sense of Articles I to XVI) are also listed as covered agreements. [13] “Special and differential treatment” is a technical term used throughout the WTO Agreement to designate those provisions that are applicable only to developing country Members. [14] See the sections on Developing country Members in dispute settlement — theory and practice, Special and differential treatment and Legal assistance. [15] That evolved quite remarkably over nearly 50 years on the basis of Articles XXII and XXIII of GATT 1947. [16] Among the WTO bodies involved in dispute settlement, one can distinguish between a political institution, the DSB, and independent, quasi-judicial institutions such as panels, the Appellate Body and arbitrators.