By the late 1980s, a growing number of nations decided that GATT could better serve global trade expansion if it became a formal international organization. In 1988, the US Congress, in the Omnibus Trade and Competitiveness Act, explicitly called for more effective dispute settlement mechanisms. They pressed for negotiations to formalize GATT and to make it a more powerful and comprehensive organization. The result was the World Trade Organization, (WTO), which was established during the Uruguay Round (1986-1993) of GATT negotiations and which subsumed GATT [10]. The WTO provides a permanent arena for member governments to address international trade issues and it oversees the implementation of the trade agreements negotiated in the Uruguay Round of trade talks.

The WTO is not simply GATT transformed into a formal international organization, ft covers a much broader purview, including subsidies, intellectual property, food safety and other policies that were once solely the subject of national governments. The WTO also has strong dispute settlement mechanisms. As under GATT, panels weigh trade disputes, but these panels have to adhere to a strict time schedule. Moreover, in contrast with GATT procedure, no country can veto or delay panel decisions. If US laws protecting the environment (such as laws requiring gas mileage standards) were found to be de facto trade impediments., the US must take action. It can either change its law or do nothing and face retaliation, or compensate the other party for lost trade if it keeps such a law (Jackson, 1994).

Despite its broader scope and powers, the WTO has had a mixed record. Nations have clamored to join this new organization and receive the benefits of expanded trade and formalized multinational rules. Today the WTO has grown 142 members. Nations such as China, Russia, Saudi Arabia and Ukraine hope to join the WTO soon. But since the WTO was created, its members have not been able to agree on the scope of a new round of trade talks. Many developing countries believe that their industrialized trading partners have not fully granted them the benefits promised under the Uruguay Round of GATT. Some countries regret including intellectual property protections under the aegis of the WTO.

A wide range of citizens has become concerned about the effect of trade rules upon the achievement of other important policy goals. In India, Latin America, Europe, Canada and the United States, alarmed citizens have taken to the streets to protest globalization and in particular what they perceive as the undemocratic nature of the WTO. During the fiftieth anniversary of GATT in Geneva in 1998, some 30,000 people protested, some violently. When the WTO attempts to kick off a new round in Doha, Qatar later this year, protestors are again planning to disrupt the proceedings (Aronson, 2001). [11] During the first thirty years of GATT’s history, the relationship of trade policy to human rights, labor rights, consumer protection, and the environment were essentially “off¬stage.” This is because GATT’s role was limited to governing how nations used traditional tools or economic protection- border measures such as tariffs and quotas.

Why did policy makers limit the scope of GATT ? The US could participate in GATT negotiations only by congress granting extensions of the Reciprocal Trade Agreements Act of 1934. But this act allowed the president only to negotiate commercial policy. As a result, GATT said almost nothing about the effects of trade (Whether trade degrades the environment or injures workers) or the conditions of trade (Whether disparate systems of regulation, such as consumer, environmental, or labor standards, allow for fair competition). From the 1940s to the 1970s, few policy makers would admit that their systems of regulations sometimes distorted trade. Such regulations were the turf of domestic policy makers, not foreign policy makers.

  1. Dr. S.K. Kapoor & Dr. Nagendra, “International Law & Human Rights”, Central Law Agency, AHahabab, 14* edition 2002. P.593
  2. Aaronson, Susan.”From GATT to WTO: The Evolution of an obscure Agency to One perceived as Obstructing Democracy”. EJi.Net Encyclopedia, edited by robert Whaples. Februay 10.2008

GATT also said little about domestic norms or regulations. la 1971, GATT established a working party on environmental measures and international trade, but it did not meet until 1991, after much pressure from some European nations.

Policy makers and economists have long recognized that trade and social regulations can intersect Although the United States did not ban trade in slaves until 1807, the US was among the firs nations to ban goods manufactured by forced labor (prison labor) in the Tariff Act of 1890 (section 51) (Aaronson, 2001, 44). This provision influenced many trade agreements that followed, including GATT, which includes a similar provision. But In the 1970s, public officials began to admit that domestic regulations, such as health and safety regulations, could with or without intent, also distort trade (Keck and sikkink, 1998, 41-47). They worked to include rules governing such regulations in he preview of GATT and other trade agreements. This process began in the Tokyo Round (1973-79) of GATT negotiations, but came to fruition during the Uruguay Round. Policy makers expanded the turf of trade agreements to include rules governing once domestic policies such as intellectual property, food safety, and subsides (GATT Secretariat, 1993, Annex IV, 91 i)

Rights and obligations of WTO membership

Like its predecessor organization, the General Agreement on Tariffs and Trade (GATT), the WTO is founded on two core principles: non-discrimination and national treatment. The non-discrimination principle dictates that China cannot impose one level of barriers (e.g,,tariffs) against one member country and another level for others. (China’s current trade dispute with Japan touches on this principle.)

National treatment requires China to treat foreign firms the same as domestic firms are treated in the Chinese market. These are the basic requirements of a global market. Besides these core principles, China has assumed a long list of specific obligations. The Uruguay Round of multilateral negotiations (1986-93), which established the WTO, mandated that members of the new body cannot subscribe to GATT rules a la carte but must adhere to all of the provisions of the various agreements, with a few minor exceptions.

These agreements provide for both increased market access and substantive rules. They vary in content but generally require “transparency”: open publication or dissemination of measures affecting trade and investment, including not only tariffs and quotas but also subsidies, licensing requirements, and other measures.

The WTO’s stated goal is to improve the welfare of the peoples of its member countries, specifically by lowering trade barriers and providing a platform for negotiation of trade. Its main mission it “to ensure that trade flows as smoothly, predictably and freely as possible”. This main mission is further specified in certain core functions serving and safeguarding five fundamental principles, which are the foundation of the multilateral trading system. [12] Among the various functions of the WTO, these are regarded by analysts as the most important: It oversees the implementation, administration and operation of the covered agreements. It provides a forum for negotiations and for settling disputes.


In the present era of globalization, countries seek strengthened security as regards economic relations Vis-a-vis other members of the international system. With the expansion of transporter transition among counters since early 20* century, members of the international community have found themselves intrinsically involved in more and more trade related disputes with each other. While such dispute can be attributed, on the one hand, to arbitrary exercise of power and dominance by a handful of developed countries dissatisfaction over the existing rules and procedures governing inter — state economic relations has also contributed to a large extent to aggravate the situation further, With such relations, countries overwhelmingly felt the need of finding a common ground to resolve any such disputes posing threat to destabilize the state of their economic affairs.

A regulatory framework for international trade is the sum of actions taken by the members of the international community with a view to facilitate trading among nation by resolving all conflicts and misunderstandings that many pose threat to jeopardize their economic relations. One of the fundamental impacts of such disputes is the impairment of trade relations. One of the fundamental impacts of such disputes is the impairment of trade relations. One of the Fundamental impacts of such disputes is the impairment of trade relationship between private parties, private party and state and inter-state trade relationship (ICC-B2004). The WTO’S dispute settlement system is a quite novel international jurisdictional process in this regard. Although the General Agreement on tariffs and trade GATT), the precursor of the WTO, also had this feature, it is the uniqueness of the WTO regime that clearly draws the line of difference between the two regimes.

While the establishment of the WTO, as a result of the Uruguay round negotiations epitomizes a landmark achievement in designing a set of disciplines and commitments as to enhance trading relations among nations, the adoption of the understanding on rules and procedures governing the Settlement of Disputes (DSU)2 is perhaps the most important of them all another significant point of departure from GATT to WTO is that members are no longer Contracting parties3; rather they are bound by the unique trait of single undertaking the WTO evolves as a rules based system rather than a consensus bused out.

With the increasing number of disputes threatening horizontal sustainability of economic relations among the WTO members, the question regarding authoritative power and efficacy of the WTO-DSM haunts the minds of many. Since the establishment of the WTO in 1995, as many as 324 complaints4 (relating to both trade remedy measures) have been brought to the DSB till end-2004. Majority of these complaints were placed by the developed countries with the USA, the EC and Canada being the top three complaints5, it is, therefore, of much concern for the developing and least developed members of the WTO to understand the rules of game in the DSM, particularly when their interest is at stake. It may. however, be noted that the LDCs are yet to resort to the DSB in a substantive manner. Bangladesh has so far been the first LDC to file a complaint with the DSB6. Before embarking upon the core section which will deal with the state of LDC and developing country interests in the WTO-DSU, a brief overview of the dispute system under both the GAIT and WTO will be quite helpfiil in understanding the nitty-gritty of the matter.

Dispute Settlement under the GATT System

The provision for settlement of dispute were laid down in articles XXH (Consultations) and XXIII (Nullification and Impairment) (!) A brief look at the GATT dispute settlement system indicates the following administrative phases adopted with a view to settling down any dispute.

  • The Chairman of the contracting parties: The initial investigative responsibility was vested upon the Chairman.

A trade dispute brought under the DSU deals with government actions concerning trade rights rather than with private rights, e.g. the TRIPS agreement.3 Under the GATT system, members were termed Contracting Parties. 4 WTO website: 2004, 5 No. of complaints by; US-81, EC-64, and Canada-26. 6 The lead Acid Battery case with respect to India’s imposition of Anti-Dumping Measures (DS306).

*   Working party: The matter, after being dealt with by the chairman, was referred to a working party for detailed examination. Such working parties were responsible for conciliation and compromise: it did not play any adjudicative role. Moreover, over time, skepticism began to grow as regards objectivity and impartiality of the working party. This apprehension, coupled with the increasing complexity of the subjects of disputes, compelled the contracting parties to go for the penal system.

Panel system: The penal system fulfilled, to some extent, the need for a quasi judicial system. Though the initial practice was to appoint sessional penal, appointment of ad hoc panels replaced the exercise in 1955. These ad hoc panels consisted of three to five individuals representing countries having no direct interest in the dispute.

It needs to be mentioned here that the GATT provision, at the initial stage, permitted the contracting only. Parties, however, increasingly felt the need of going beyond this structure. Subsequently, in 1958; the procedures for consultation under Article XXH were adopted allowing-third parties, nevertheless, one major flaw persisted with the system: tendency to treat consultations as private affairs, (narayan 2003). Tough the contracting parties aspired for a practical system to bring end to any dispute, reports of both.

The working part}’ and the panels were treated as advisory opinions only. The provision of legal binding as regards implementation of these reports were completely absent in the GATT provision.

It is in the greater interest of the WTO members that this review process is brought to a meaningful conclusion. It has to be conceded that any amendment in the DSU must be commensurate, in principle, with successfully, such vicissitudes will undoubtedly give the developing countries a sigh of relief and boost their confidence in the rules- based system. One has to keep in mind that these countries are the ones which have the greater stake in the system.

Dispute settlement proceedings in the WTO

Toeing the legitimate quasi-judicial authority under the WTO, the DSB performs according to a defined set of rules and procedures. Starting with filing an application for consultation, a number has to go through a series of legal proceedings until the final rulings is implemented. The various phases of WTO DSB proceedings are briefly discussed here.


The consultation phase is aimed at bringing about amicable resolution to disputes. As has been laid down in Article 4 of the DSU, a Member to whom a request for consultation is made must response within 10 days and consultations must be entered into within 30 days. Maximum timeframe for reaching an agreement through consultation is 60 days. Failing to this, the complaining party can request for panel. It may, however, be noted that consultations may last for a longer period as the initiative to request for panel establishment lies with the complaining party. Country (ies) haying substantial interest in the matter may submit written request to the DSB for joining the consultations as third party (ies).


Establishment of panel, upon the request by a complainant, is guaranteed by th* provision of negative or reverse consensus. This implies that a panel request can be turned down only if all the DSB members decides so, by consensus. As the complainant itself is a member of the DSB, panel formation is automatic,

Panel Composition

A DSB Panel consists of three to five members. The secretariat produces an indicative list of qualified governmental and nongovernmental candidates maintained by the secretariat. Parties to the dispute have the right to object to proposed names only for compelling reasons. Falling to confirm the names within 20 days of panel establishment, the WTO Director General, upon request by earlier party, can choose the panel members.

A ‘DSB panel generally takes six months to issue its final Report. During this period, the process consists of written pleadings from both the parties to the dispute and the third party (ies), a first oral hearing at which both parties and third party (ies) are heard, and a second hearing excluding the third party (ies). This processes meant to be over within four months. As for the preparation of a report by the panel, it is mandated to “make an objective assessment of the matter before it including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements” [24]. This includes an interim report and the final report Either party has the right to appeal against the final panel report,

Adoption of panel Reports

If not appealed, the Panel report is to be adopted by the parties within 60 days of it being circulated. Though the option lies for the DSB not to adopt the report by consensus, It is again the negative or reverse consensus that guarantees the adoption.

Appeal Procedures

The appellate Body (AB) is a standing body composed of seven individuals appointed for four year terms by the DSB. Once an appeal is brought the procedures before the AB consists of a written pleading by the appellant, a written response by the appellee and written submission and notification from third parties. An oral hearing by the appellee and written submission by the parties come next. The stipulated time limit for the whole procedure is 60 days (90 days in exceptional circumstances) from the date of filing the appeal to the date the AB report is delivered. The jurisdiction of the AB is limited to “issues of law covered in the panel report and legal interpretations developed by the panel” [25]. The AB report is to be adopted within 30 days of circulation. Such adoption entails adoption of those portions of the panel report not appealed.

Implementations of AB Report

Once adopted, the report is to be “unconditionally accepted by the parties to the dispute”. However, an extended timeline may be allowed if the responding party finds it impracticable to comply immediately with the recommendations. Previous examples show that up to 15 months have been allowed to the responding parties to comply with the Panel or AB decisions.

  1. WTO-DSU: Article 11 (Function of Panels)
  2. WTO-DSU: Article 17.6


In the event of non-compliance, by the responding parties, with the DSB decisions the complaining party has been allowed to go for compensation or resort to retaliation. These, however, are temporary measures. If the disputant parties fail to agree on mutually acceptable compensation, the complaining party may request the DSB for light to retaliate. Retaliation generally takes the form of withdrawal of concessions i.e. imposition of additional customs duties on products originating in the responding country.


Arbitration lies at the bottom of dispute settlement procedure. When a responding party objects to the level of sanctions imposed against it the complaining party, with authorization from the DSB, may refer the matter to arbitration.

These various phases of the DS procedures, by practice, consume a great deal of time to bring an end to any dispute. Thus one might speculate the causal effects of such time lagging procedures particularly when an LDC is involved in such disputes. One has to understand that trading of good in question remains suspended until a solution is reached upon. Hence, the economic impact of such lengthy procedures can sometimes by more devastating than the loss supposed to be incurred by the complaining party had. it not resorted to the DSB

Basic: Features of the DSU

Although the two major criteria of the DSU is that the procedures are quite time consuming and causes high expenditure for the disputant parties, there are a number of commendable traits of the regime which gave it more acceptability than the GATT system.

following are the distinguishing features of the DSU from the GATT 1947 system:

  • Explicit time frame for settlement of disputes.
  • right to automatic establishment of panel upon request by complaining party (negative or reverse consensus)
  • Automatic adoption of Panel Reports (negative or reverse consensus).
  • Establishment of standing Appellate Body (AB) (to deal with appeals from Panel Reports).
  • Stringent rules and procedures for implementation of AB rulings.
  • Right to retaliation and specific rules on cross retaliation. The aforementioned features have given the DSU its current acceptability in terms of providing