WTO Dispute Settlement Mechanism: A Critical Analysis [Type the document subtitle] WTO is the Central Pillar of the multilateral trading system. The dispute settlement body of the WTO is deciding the trade disputes between nations following the dispute settlement understandings and the covered agreements. The existing system under GATT, 1947 was renewed with the separate body called DSB. The cases decided by the body and the problems with the settlement proceedings were analysed in this article. . Balaji P Nadar 3rd Semester, ILI New Delhi
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WTO Dispute Settlement
Mechanism: A Critical Analysis
[Type the document subtitle]
WTO is the Central Pillar of the multilateral trading system. The
dispute settlement body of the WTO is deciding the trade disputes
between nations following the dispute settlement understandings and
the covered agreements. The existing system under GATT, 1947 was
renewed with the separate body called DSB. The cases decided by the
body and the problems with the settlement proceedings were analysed
in this article.
.
Balaji P Nadar 3rd Semester, ILI New Delhi
Contents
I. Introduction
II. WTO over GATT
� GATT Dispute Settlement Scheme
� Establishment of WTO and its Specific Objectives
� Dispute Settlement Understanding
III. Procedure to be by the DSB
� Consultation and Mediation
� Establishment of Panel
� Report of the Appellate Body
� Necessary Implications
IV. Case Analysis
� Cases Filed by Less Developed Countries
� Cases Filed against LDC
� India in DSB
V. Criticism
VI. Conclusion
Introduction:
Economy of a nation depends heavily on the trade and commercial activities within and
outside its jurisdictions. Jurisprudence of trade in the classical era was that there should be no
restriction and there was no state to control the affairs over trade. But with the industrial
revolution, it was felt by majority nations that the trade between two individuals having
consequence in the income of the nation as whole and needs to be regulated with their own laws
and external agencies. Trade between two individuals belongs to a same nation can be regulated
by the law of that particular nation. But with regard the commercial transactions between
nations, there was no uniform mechanism or a body to systemize the international trade,
particularly when it comes a dispute between the parties or states. Immediately after the World
War II, negotiations between large counts of nation were initiated in the year 1944 at Bretton
Woods to form a body and treaty to coordinate international trade and successfully concluded
with the preparation of multilateral treaty with the General Agreement on Tariffs and Trade in
the Geneva meetings, 1947 and the GATT provisionally came into effect from January 1, 1948.
At the same time the attempt to establish an international body called International Trade
Organization was completed with the charter but failed to exist as it was not adopted by the
United States of America’s congress which was an important arm intended in creating such an
international body. From then, GATT was the only international instrument administering
international trade until 1995 when World Trade Organization was established.1
One of the important purposes for the establishment of GATT agreement was settling any
kind of trade disputes arising between nations. This article will discuss the provisions and the
procedures under GATT and WTO regarding international trade dispute settlement. Discussion
in the first part would be on the evolution of GATT and the emergence of the international body
WTO for settling disputes and the agreements under it. Second part will give a brief overview of
the Dispute Settlement Understanding followed by the WTO Dispute Settlement Body in
deciding trade disputes. In the third part, cases decided by the DSB will be analysed with a
special focus on the disputes which has involved developing countries. Then in the last part some
criticism of the DSB process will be looked into.
1 Safia Gupta, “From GATT to WTO”, available at: http://legalserviceindia.com/article/l378-From-GATT-to-
WTO.html (Visited on September 12, 2011).
WTO over GATT:
GATT Dispute Settlement Scheme:
Main objective of the GATT was to limit the tariff charges and facilitating free trade for
the benefit of all the GATT contracting parties. Under the GATT, there was a procedure for
settlement of disputes in consensus mode, intended to provide an alternative measure to
retaliation, under two provisions.2 Article XXII allows for consultation among the disputed
nations and Article XXIII provides for panels comprising of all the contracting parties to
investigate and present its recommendations to resolve the conflict. Retaliation can also be
recommended under Article XXIII but it has occurred only once in the GATT history, almost all
the parties agree to windup the policies in question.3 In the beginning, disputes under the GATT
procedure were decided by rulings of the chairman of the council and later on disputes were
referred to the working parties which comprise of all the interested party’s representatives. Then
all these procedures were replaced by a new process of establishing an independent expert panel
consists of three or five experts who are not associated to the disputed parties.4 The report of the
expert panel will sent for approval to the GATT council and once the recommendations of the
panel got approved, it will become binding on the parties. This evolution of GATT dispute
settlement process was the basis for the foundations for WTO Dispute Settlement Mechanism.
In spite of the salient features of the DSP under GATT, it was not effectively enforceable
due to many reasons like positive consensus and retaliation measures which are not possible in
all the cases. The defects in the GATT underwent eight rounds of multilateral trade negotiations
to reduce tariffs and other barriers to international trade, but none of them were succeeded in
restoring the faith in world trading system.5 The seventh round of multilateral trade negotiations
named as Tokyo round (1973-79) concentrated on a new way of promoting free trade by
reducing non-tariff barriers. Tokyo round had a significant role in reducing the blocking of
2 Mitsuo Matsushita, Thomas J. Schoenbaum and et. al., The World Trade Organization- Law, Practice and Policy
5 (Oxford University Press, New York, 2nd
edn., 2006). 3 Dan Kovenock and Marie Thursby, “GATT, Dispute Settlement and Cooperation”, Working Paper available at:
http://www.nber.org/papers/w4071.pdf (Visited on September 12, 2011). 4 Historic Development of WTO Dispute Settlement System, available at:
http://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c2s1p1_e.htm#txt4 (Visited on March 14,
2011). 5 Surendra Bhandari, World Trade Organisation and Developing Countries 3(Deep & Deep Publications Pvt. Ltd.,
2001).
consensus by a single party in the dispute settlement process. The inborn defects in the GATT
dispute settlement process led to number of problems in the mid-80s and the need for improving
and strengthening the process was felt by almost all nations.6
Establishment of WTO and its Specific Objectives:
In addition to the non-tariff barrier reduction method introduced in the Tokyo round, dispute
settlement was also included and given higher importance in the later negotiation called Uruguay
round(1986-94) which was the last round of GATT multilateral negotiations concluded with the
creation of a new body to regulate and administer international trade. The final act of the
Uruguay round singed in the ministerial meeting at Marrakesh transformed the GATT in to new
international organization called WTO came into being from 1st January 1995.
7 The new WTO
had its notable feature of creating a new procedure for adjudicating legal disputes under GATT
and WTO with a dispute settlement procedure.8 WTO established with four main tasks under the
agreement:
i) to provide a forum for negotiations among members both to current matters and any
future agreements,
ii) to administer the system of dispute settlement,
iii) to administer the trade policy review mechanism, and
iv) to cooperate as needed with the IMF and the World Bank.9
Settling trade disputes between the members is the primary objective of the WTO. For this
purpose the Uruguay round established a new system of dispute settlement with the
Understanding on Rules and Procedures Governing the Settlement of Disputes, in short the
Dispute Settlement Understanding. The concept of Appeal was introduced in the dispute
settlement under WTO in order to have an effective decision making authority called Appellate
Body
6 Supra note 4.
7 Supra note 2 at 7.
8 Robert E. Hudec, “The New WTO Dispute Settlement Procedure: An Overview of the First Three Years”, 8 Minn.
Journal of Global Trade 2 (1999). 9 Art III of the WTO Agreement.
Dispute Settlement Understanding:
The scheme of the DSU is to be an overall framework for the resolution of disputes in
field of international trade under WTO.10
The understanding consists of 27 articles providing the
rules and procedures to be followed by the Dispute Settlement Body in interpreting and
enforcing all the covered agreements that make up the WTO.11
DSU itself under Article 3.1
provides for the application of Article XXII and XXIII of the GATT 1947.12 General provisions
contained under Article 3 of the understanding addresses a set of objectives of the dispute
settlement mechanism under WTO. It says that the dispute settlement system of the WTO is the
central pillar of the multilateral trading system and the decision or rulings of the DSB shall be
aimed at achieving a satisfactory settlement of the disputes in accordance with the provisions of
the understandings and the covered agreements.13 Furthermore, Article 3.2 provides for the
application of customary rules of interpretation of public international law to clarify the
provisions of the understandings and the covered agreements. But the link between article 31 and
32 of the Vienna Convention and the interpretation requirement stated in Article 3.2 of the
understanding is now almost eliminated in the WTO law.14
In November 2001, at the Doha
Ministerial Conference, member governments agreed to negotiate to improve and clarify the
DSU, which was compelled in the 1994 decision itself to review the DSU after five years.15
Under Article 2 of the understanding, the general council has to establish a DSB which is
responsible for the administration of entire mechanism. DSB is composed of the ambassadors
from all the member countries representing their nation. The conclusion reached by the DSB
should be done only by consensus among the members, but not like the positive consensus as in
GATT. This new procedure under the understanding eliminates the blocking possibility through
a procedure known as ‘reverse consensus’.16
It is the sole authority responsible for establishing
10
M B Rao and Manjula Guru, WTO Dispute Settlement and Developing Countries 38 (Lexis Nexis, New Delhi,
2004). 11
Bryan Mercurio and Mitali Tyagi, “Treaty Interpretation in WTO Dispute Settlement: The Outstanding Question
of the Legality of Local Working Requirements”, 19 Minnesota Journal of International Law 275 (Summer, 2010). 12
Understanding on Rules and Procedures Governing the Settlement of Disputes(DSU), Art 3.1: Members affirm
their adherence to the principles for the management of disputes heretofore applied under Articles XXII and XXIII
of GATT 1947, and the rules and procedures as further elaborated and modified herein. 13
Id Art 3.4. 14
Supra note 10 at 50. 15
Source: http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm (Visited on October 17, 2011). 16
John H. Jackson, “International Law Status of WTO Dispute Settlement Reports: Obligation to Comply or Option
to ‘Buy Out’?”, 98 American Journal of International Lsaw 109 (2004).
panel, appellate body and implementing the findings or recommendation of the panel or appellate
body. DSU explicitly establishes in the text itself the procedure for implementation of the reports
of the panel or the recommendation of the appellate body. It addition, it clearly establishes a
choice for an obligation to implement the findings and the matter shall be kept under surveillance
until the necessary implementation.17
Article 3.7 of the DSU warns the member countries to be
prudent while invoking the DSB procedures and they should consider whether such action under
the procedure would be fruitful and the aim of the mechanism is to secure positive solution to a
dispute.18 Only when any positive solution is not possible, a member can invoke the dispute
settlement procedures. WTO members have filed over 427 complaints in just fifteen years. The
detailed procedures to be followed by the DSB will be briefly explained under the following
heads.
Procedures to be followed by the DSB:
Generally a dispute arises when it seems to a member government that another member
government is violating an agreement or commitment under WTO. The dispute settlement
mechanism proceeds through three main stages i) Consultation, ii) Formal Litigation and iii)
Necessary Implementation. Settling dispute is the responsibility of the DSB and it is the sole
authority to do four main functions:
i) establish a panel of experts to consider the case,
ii) to accept or reject the report(findings) of the panel,
iii) to accept or reject the results of an appeal,
iv) to retaliate the parties which has failed to comply with the rulings.
Consultation and Mediation:
The formal proceeding starts, before taking over any action, when a member country
requests bilateral consultation at the WTO under article 4.19
This discussion process is to provide
an opportunity to the parties to the dispute to negotiate themselves to see if they can settle their
17
John H. Jackson, “The WTO Dispute Settlement Understanding – Misunderstandings on the Nature of Legal
Obligation”, 91(1) American Journal of International Law 60 (Jan 1997). 18
Supra note 2 at 113. 19
Henrick Horn, Petros C. Mavroidis and et. al., “Is the Use of the WTO Dispute Settlement System Biased?”,
available at: www.econ-law.se/Papers/Disputes000117.PDF (Visited on March 14, 2011).
differences amicably. This is a private process and there will be no secretariat or other member’s
involvement. But additional (third) parties can join the consultation proceedings with the consent
of the respondent. Strict time period should be maintained during the consultation. Once the
process started after joinder of third parties, the parties should complete their consultation within
60 days and if it fails to settle the disputes between parties, the parties can ask the WTO director
general to mediate or try to help in any other way.20
46% of the disputes filed before the DSB
resolved among the parties themselves in this consultation process itself.
Establishment of Panel:
Complainant can request the DSB to establish the panel of experts to decide the case
when there is no response from the respondent on their request for consultation within 10 days or
the consultation process did not reach any solution within 60 days.21
A panel of experts should be
appointed by the DSB within 45 days and the panels should consists of three or five persons,
well qualified governmental or non-governmental individuals, including persons who have
served on or presented a case to a panel, picked from a list of persons suggested by the members
of the WTO.22
Generally the panel should start hearings on the basis of written submission made
by the parties. The procedures to be followed by the panels are given under Article 12, which
mandates the panel to afford enough opportunity to the parties by framing a suitable time table to
make their submissions.23
The third parties should also be given hearing opportunity by the panel
and they can make their written submissions to the panel. The panel may seek information and
technical advices from any appropriate individual or body when scientific and technical issues
were raised by the parties. It should send its interim reports and should send its final report the
parties and all the members of the DSB within 60 days of its establishment and in case of
urgency, the deadline may be shortened to three months. The panel discussions are highly
confidential and the reports shall be drafted by the panel even without the parties. If there is no
consensus among the members against the findings of the panel, DSB must adopt the panel’s
20
Supra note 12 Art. 6. 21
Id Art. 4.7. 22
Supra note 2 at 109 and Id Art. 8. 23
Supra note 10 at 74.
report within 60 days of its submission. The panel, officially, helps the DSB in making rulings or
recommendations. The panel’s findings have to be based on the agreements cited.24
Report of the Appellate Body:
Any party to a dispute, but not the third party, can appeal the report of the panel, even
both the parties can appeal to the Appellate Body. An appeal is limited to issues of law covered
in the panel report and legal interpretations developed by the panel. Factual findings and
conclusions of the panel cannot be appealed.25
Each appeal is to be heard by a three member
division from a permanent seven member Appellate Body. Permanent members of the AB are
appointed by the DSB for a fixed term of four years, who are not affiliated to any government
and at the same time broadly representing the range of WTO membership.26
They have to be
persons with demonstrated expertise in law, international trade and the subject matter of the
covered agreements.27
The procedure to be followed by the AB should be drafted by the AB
itself in consultation with the Chairman of the DSB and the Director General. This AB can
uphold, modify or overturn the legal findings of the panel but they cannot reexamine the existing
evidence or examine a new issue. As like the panel’s proceedings, AB hearings are also
confidential and AB can draft its final report in the absence of parties. The proceedings of the
AB should be completed within 60 days and in certain cases additional 30 days shall be
permitted. On submission of the AB’s report, the DSB has to adopt or reject it within 30 days.
Rejection is possible only when the DSB decides by a consensus not to adopt the report. Unless
otherwise agreed by the parties to the dispute, the period from establishment of the panel to
adoption or rejection of the report of the panel or the AB by the DSB shall as a general rule not
exceed nine months if the panel report is not appealed, and twelve months if the report was
appealed. 28
Once adopted, the report will become the recommendation or rulings of the DSB and the
same can advise the party concerned to bring their policies in conformity with the agreement, if
they are found to be inconsistent with that covered agreement. In order to ensure transparency,
24
Source: “Understanding the WTO: Settling Disputes, A Unique Contribution” available at:
http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm (Visited on October 17, 2011). 25
Supra note 10 at 91. 26
Id. 27
Supra note12 Art. 17.3. 28
Id Art. 20.
all the written submissions made by the parties to the panel or the AB shall be treated as
confidential only available to the parties, but the parties themselves can disclose any statements
or their position to the public. Furthermore even a party to a dispute cannot disclose any details
or any information which was designated as confidential by the party submitted it.29
Necessary Implications:
Once the case is decided in favour of the complainant the DSB may accord the losing
party(respondent) a reasonable period of time, not exceeding fifteen months, to bring their
inconsistent laws, regulations, policies into conformity with the WTO agreements.30
This is the
possible way or direction emerging from a WTO dispute and there is no concept of punishment
or even restitution, but the trade sanction can be imposed only in exceptional cases. On the
expiry of twentieth day of the ‘reasonable period’, the winning party may request the DSB for
retaliation measures to induce action on the part of the losing party. This is very rare as almost
all the WTO members voluntarily fulfill their obligation as per the DSB decisions in time. The
DSB must grant the authorisation to impose trade sanctions (suspension of concessions or
compensation) within 30 days of the expiry of the time limit given to the losing party.31
Furthermore, when a losing party brings is laws into conformity with the concerned agreement, it
can choose how to implement the decision and the DSB should monitor how the adopted rulings
are being implemented. The losing party has no obligation to follow the way of implementation
suggested by the winning party.
Case Analysis
Cases Filed by Less Developed Countries:
Developing countries account for seventy five percent of the WTO membership and are
increasingly able to use their power to influence negotiations traditionally dominated by
developed countries.32
Seven out of eleven most frequent complainants in the dispute settlement
29
Id Art. 18.2. 30
Id Art. 21.3(c) and Supra note 19 at 4. 31
Id Art. 22. 32
Swapneshwar Goutam, “WTO & Development in Developing Countries Perspective”, available at: