WORLD TRADE ORGANIZATION DISPUTE SETTLEMENT MECHANISM

Trina Bhagat NItika Singh Rishika Mittal Meghraj Gawande Susrita Sen Swati Randhawa MBA AB 2009 2011 Symbiosis Institute of International Business Settlement of dispute under GATT A dispute arises when one country adopts a trade policy measure or takes some action that one or more fellow-WTO members considers to be breaking the WTO agreements, or to be a failure to live up to obligations. A procedure for settling disputes existed under the old GATT but it had no fixed timetables, rulings were easier to block, and many cases dragged on for a long time inconclusively.

Source: The WTOs new dispute resolution system International Affairs KAREN J. ALTER The Uruguay Round Agreement The Uruguay Round agreement introduced a more structured process with more clearly defined stages in the procedure. The agreement emphasizes that prompt settlement is essential if the WTO is to function effectively. Strict timelines were created for each stages of the dispute resolution process to speed up the resolution of disputes. If a case runs its full course to a first ruling, it should not normally take more than about one year 15 months if the case is appealed. The agreed time limits are flexible, and if the case is considered urgent (e.g. if perishable goods are involved), it is accelerated as much as possible. The Uruguay Round agreement also made it impossible for the country losing a case to block the adoption of the ruling. Previously under GATT adoption of a panel report required unanimous support , now a country need unanimous support to block a panel report. Now, rulings are automatically adopted unless there is a consensus to reject a ruling any country wanting to block a ruling has to persuade all other WTO members (including its adversary in the case) to share its view. The reforms brought other changes too. Unilateral retaliation is now explicitly prohibited, and a permanent Appellate Body was created to allow bad rulings to be appealed. The Reforms also brought greater legal transparency. Functions and Objectives Of DSU Providing security and predictability to the multilateral trading system. Preserving the rights and obligations of WTO Members Clarification of rights and obligations through interpretation Mutually Agreed Solutions as Preferred Solution Prompt settlement of disputes Prohibition against unilateral determinations Exclusive jurisdiction Compulsory nature

Scope of the dispute settlement system The Covered Agreement: The (WTO) dispute settlement system applies to all disputes brought under the WTO Agreements listed in Appendix 1 of the DSU. In the DSU, these agreements are referred to as the covered agreements 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. A single set of rules and procedures: Provides a coherent and integrated dispute settlement system applicable to the Covered Agreements End of GATT la carte Subject to certain exceptions, the DSU is applicable in a uniform manner to disputes under all the WTO Agreements.

BODIES INVOLVED IN DISPUTE SETTLEMENT

Dispute Settlement Body (DSB) The DSB is similar to the WTO General Council which comprises of the entire membership of WTO. The DSB has the power to establish panels, adopt panels and Appellate Body reports etc. 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.

Other independent bodies in dispute settlement: The Director General and the WTO Secretariat. Panel Appellate Body Arbitrator Experts The Director General In a dispute settlement procedure the Director-General mediates and tries to resolve the dispute, before a request for a panel is made. The Director-General convenes the meetings of the DSB and appoints panel members upon the request of either party. The Director-General also appoints the arbitrator (s) for the determination of the reasonable period of time for implementation, if the parties cannot agree on the period of time and on the arbitrator . The WTO Secretariat The staff of the WTO Secretariat, which reports to the Director-General, assists Members in respect of dispute settlement at their request conducts special training courses. Provides additional legal advice and assistance to developing country. The Secretariat also assists parties in composing panels

by proposing nominations for potential panellists to hear the dispute. Assists panels once they are composed Provides administrative support for the DSB. Panel Panels are the quasi-judicial bodies, in a way tribunals, in charge of adjudicating disputes between Members in the first instance. Panel members are required to be well-qualified governmental or non-governmental individuals Or who have been previously panel members, or have served as governmental representatives to the GATT or WTO, as senior trade policy officials or with the secretariat, 3 or 5 members of a panel has to be independent, drawn from diverse background with wide experience. Members cannot be from countries involved in disputes before the panel. Developing countries can also request that the panel include at least one member from the developing country. Appellate Body A permanent body of seven members entrusted with the task of reviewing the legal aspects of the reports issued by panels. The Appellate Body is thus the second and final stage in the adjudicatory part of the dispute settlement system. The DSB appoints the members by consensus , for a four year term and can reappoint a person once .. Appellate Body members must be persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally, and they must not be affiliated with any government . Arbitrator In addition to panels and the Appellate Body, arbitrators, either as individuals or as groups, can be called to adjudicate certain questions at several stages of the dispute settlement process. Arbitration results are not appeal able but can be enforced through the DSU. Two forms of arbitration: The first such situation, which an arbitrator may be called to decide on, is the establishment of the reasonable period of time granted to the respondent for implementation The second is where a party subject to retaliation may also request arbitration if it objects to the level or the nature of the suspension of obligations proposed Experts Where a panel considers it necessary to consult experts in order to discharge its duty to make an objective assessment of the facts, it may consult either individual experts or appoint an expert review group to prepare an advisory report y Expert review groups perform their duties under the panels authority and report to the panel. y Expert review groups only have an advisory role. Where panels have so far resorted to experts, they did not establish expert review groups, but consulted experts on an individual basis.

LEGAL BASIS FOR DISPUTE The basis or cause of action for a WTO dispute must be found in the covered agreements listed in Appendix 1 to the DSU, namely, in the provisions on consultation and dispute settlement contained

in those WTO Agreements. e.g. Articles XXII and XXIII of GATT 1994 y Article 19 of the Agreement on Agriculture

When to complain? If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of the failure of another contracting party to carry out its obligations under this Agreement, or the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, or the existence of any other situation, the contracting party may, with a view to the satisfactory adjustment of the matter, make written representations or proposals to the other contracting party or parties which it considers to be concerned. Any contracting party thus approached shall give sympathetic consideration to the representations or proposals made to it.

Types of Complaints: Violation Complaint Nullification or impairment due to the failure of another contracting party to carry out its obligations under WTO Agreement Non-violation Complaint Nullification or impairment due to the application by another contracting party of any measure, whether or not it conflicts with the provisions of WTO Agreement Situation Complaint Nullification or impairment due to the existence of any other situation

WTO DISPUTE SETTLEMENT PROCESS

Two ways to settle a dispute The parties find a mutually agreed solution, particularly during the phase of bilateral consultations; and y 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: Consultations between the parties y Adjudication by panels and, if applicable, by the Appellate Body The implementation of the ruling, which includes the possibility of countermeasures in the event of failure by the losing party to implement the ruling.

Flow Chart of Dispute Settlement Mechanism Consultations 1. Objective for consultations First stage of formal dispute settlement. It give the parties an opportunity to discuss the matter and to find a satisfactory solution without resorting to litigation 2. Legal basis and requirements for a request for consultations y Under GATT 1994 two legal bases are available for launching a dispute with a request for consultations, that is, either Articles XXII:1 or XXIII:1 The main difference between these two legal bases relates to the ability of other WTO Members to join as third parties. 3. Procedure for consultations y (WTO) Secretariat is not involved . Respondent must reply to the request within ten days and enter into consultations in no more than 30 days . Rules are different in cases of urgency e.g. perishable goods. 4. Third parties in consultations :Third party may have trade interest or tend to benefit from that. The request must be addressed to the consulting Members and the DSB within ten days. If the respondent disagrees, there is no recourse through which the interested Member can impose its presence at the consultations 1. Establishment of a panel A request for the establishment of a panel must be made in writing and is addressed to the Chairman of the DSB. y In addition to determining the panels terms of reference, the request for establishment of the panel also has the function of informing the respondent and third parties of the basis for the complaint. y In the first DSB meeting in which such a request is made, the responding Member can still block the panels establishment, as was the case in the dispute settlement system under GATT 1947. At the second DSB meeting where the request is made, however, the panel will be established, unless the DSB decides by consensus not to establish the panel (i.e. the negative consensus rule applies)

Stages in which a panel works Before the first hearing:

Each side in the dispute presents its case in writing to the panel. First hearing: the case for the complaining country and defence: the complaining country (or countries), the responding country, and those that have announced they have an interest in the dispute, make their case at the panels first hearing. Rebuttals: the countries involved submit written rebuttals and present oral arguments at the panels second meeting. Experts: If one side raises scientific or other technical matters, the panel may consult experts or appoint an expert review group to prepare an advisory report. First draft: the panel submits the descriptive (factual and argument) sections of its report to the two sides, giving them two weeks to comment. This report does not include findings and conclusions. Interim report: The panel then submits an interim report, including its findings and conclusions, to the two sides, giving them one week to ask for a review.

Review: The period of review must not exceed two weeks. During that time, the panel may hold additional meetings with the two sides. y Final report: A final report is submitted to the two sides and three weeks later, it is circulated to all WTO members. If the panel decides that the disputed trade measure does break a WTO agreement or an obligation, it recommends that the measures be made to conform with WTO rules. The panel may suggest how this could be done. y The report becomes a ruling: The report becomes the Dispute Settlement Bodys ruling or recommendation within 60 days unless a consensus rejects it. Both sides can appeal the report (and in some cases both sides do).

Appellate review 1. Rules on the appellate review-Article 17 is the only article dealing specifically with the structure, function and procedures of the Appellate Body. The gap-filling Rule 16(1) of the Working Procedures permits an Appellate Body division under certain circumstances to adopt additional procedures for a particular appeal in which the need to do so arises.

2. Deadline for filing an appeal-DSU implies that the panel report must be appealed before it is adopted by the DSB 3. Right to appeal -DSU makes clear that only the parties to the dispute, not the third parties, can appeal the panel report. 4. Third participants at the appellate stage-Third parties cannot appeal a panel report. However, third parties that have been third parties at the panel stage may also participate in the appeal as a so-called third participant. 5. Conclusion and Recommendations of Appellate Body are addressed to the DSB, which is then to request the Member concerned to bring its measure into conformity with the relevant provisions of WTO law.

Non-implementation Either compensation or the suspension of WTO obligations.

COMPENSATION Compensation does not mean monetary payment; rather, the respondent is supposed to offer a benefit, for example a tariff reduction

Recommendations and rulings of the DSB First, panels and the Appellate Body only apply WTO law as it is contained in the covered agreements. They cannot add to or diminish the rights and obligations provided in the WTO Agreements . Second, member that does not bring its WTO- inconsistent measure into conformity with the WTO Agreement risks consequences: it either has to provide compensation with the agreement of the complainant, or it may face retaliatory countermeasures Third, the DSU specifically states that there is no obligation to withdraw the WTO-consistent measure in the event of a successful non-violation complaint . Legal status of adopted/un adopted reports in other disputes- the reports of panels and the Appellate Body are not binding precedents for other disputes.

Alternative ways of solving a dispute 1. Bilateral negotiations - take place at the beginning of any dispute. But also at the stage of appellate review, the appellant may withdraw the appeal at any time for bilateral negotiation. Dispute resolution mechanisms such as good offices, conciliation or mediationA prerequisite for such arbitration is that the complainant has requested the DSBs authorization for the suspension of obligations and that the respondent disagrees with the proposed level of retaliation.

2. Participation in dispute settlement proceedings : Parties and third parties and principle of confidentiality Members enter as parties or third parties in the mechanism. The confidentiality of the process Members have the right to disclose their submissions to the public Non-participants cannot make any contribution to the ongoing dispute settlement proceeding

3. Legal representation: WTO agreement has given the countries the right to decide the composition of the delegation Private legal counsel can appear as representatives of the party but have to respect the confidentiality of the proceedings. Helpful for the developing countries

4.

Amicus Curiae submissions : Friend of the court Unsolicited advices from neither the parties nor the third parties. Generally come from Non Governmental Organizations . According to the Appellate Body, the panels have the right to accept or reject information even if unsolicited. Contentious among WTO members Only few panels till date have used their discretionary right to accept and consider unsolicited briefs

Developing countries in WTO dispute settlement

Theory and practice Theory says that the very existence of a compulsory multilateral dispute settlement system is itself a particular benefit for developing country and small Members. In practice, also dispute settlement system has already offered many examples of developing country Members prevailing in dispute settlement over large trading nations. At the same time these members also face considerable burdens. Often do not have a sufficient number of specialized human resources. It may also be difficult for a developing country Member to endure the economic harm arising from another Members trade barrier for the entire period of the dispute settlement proceedings. In theory, since 1995 developing countries have been the complainant in one third of the cases and the respondent in two fifth of the cases. (Shows a healthy number) y In practice however majority of the cases are still involving developed countries. Developed countries form two third of the trade volume. But then, the moderate trade volume affected by a possibly WTO-incompatible trade barrier maintained by another Member might not always justify the considerable investment of time and money necessary for a WTO dispute.

Special and differential treatment Special and differential treatment in consultations y Special and differential treatment at the panel stage y Special and differential treatment in implementation y Accelerated procedure at the request of a developing country Member Decision of 5 April 1966. Least-developed country Members involved in a dispute In addition to the above a few particular rules applicable for LDCs are: Members must exercise due restraint in bringing disputes against a least-developed country member and in asking for compensation or seeking authorization to suspend obligations against a least-developed country member that has lost a dispute . The DSU also specifically foresees good offices, conciliation and mediation.

Legal assistance Representation by private counsel and the Advisory Centre on WTO Law receive effective assistance in dispute settlement from the recently established, Geneva-based Advisory Centre on WTO Law. Assistance in the form of legal assistance and legal advice.

Evaluation of the WTO dispute settlement system

As a statistical snapshot, in the first ten years of operation of the DSU : 313 disputes were initiated (i.e. formal Article 4 consultations were requested). 128 panels were established, covering 158 of the 313 disputes formally initiated (i.e. roughly half). 104 panels were composed, covering 133 disputes. 80 panel reports were adopted, covering 103 disputes. 53 Appellate Body Reports were adopted. One of the encouraging conclusions which can be drawn from the above is that many disputes appear to be settled at the consultation stage. Source:DSU Negotiations WTO Conference Paper Taipei, November 2005

Complainants per income category trend 1995-2003

Source: DSU Negotiations, WTO Conference Paper, Taipei, November 2003

Achievement of the objectives? The large number of cases in which parties invoked the dispute settlement system in the first ten years of the WTO suggests that Members have faith in the system. It appears that the WTO dispute settlement system has fulfilled its main function: to contribute to the settlement of trade disputes. Moreover, the reports of panels and the Appellate Body have served to provide clarification of the rights and obligations contained in the covered agreements Source:DSU Negotiations WTO Conference Paper Taipei, November 2005

Weaknesses The long duration of the full dispute settlement procedure causes economic harm if the challenged measure is indeed WTO inconsistent. y A successful complainant will receive no compensation for the harm suffered during the time given to the respondent to implement the ruling. y The winning party receives no reimbursement from the other side for its legal expenses. y In a few cases, a suspension of concessions has been ineffective in bringing about implementation.

Source:DSU Negotiations WTO Conference Paper Taipei, November 2005 Basic Advantage: Compared with other multilateral systems of dispute resolution in international law, the compulsory nature and the enforcement mechanism of the WTO dispute settlement system certainly stand out.

Current negotiations The Doha Development Round and DSU Negotiations Proposals for reform on a significant number of issues, including: the extension of third party rights; improved conditions for Members seeking to be joined in consultations; the introduction of remand and interim review in appellate review proceedings; the sequencing issue and other problems concerning the suspension of concessions or other obligations; the enhancement of compensation as a temporary remedy for breach of WTO law; the strengthening of notification requirements for mutual agreed solutions; and the strengthening of special and differential treatment for developing country Members

Conclusion: To date, the negotiations of the reform have not yet lead to any agreement on the amendment of the DSU. Many of these proposals are to be welcomed as they will strengthen the WTO dispute settlement system. With respect to other proposals not included in the Chairmans Text, it should be noted that their time has not come yet.

CASE STUDY

United States Anti-Dumping and Countervailing Measures on Steel Plate from India Key Facts: Complainant: India Respondent: United States Of America y Third Parties: Chile ; European Communities ; Japan Request for Consultations received: 4 October 2000 Panel Report circulated: 28 June 2002

Complaint by India. Final affirmative determinations of sales of certain cut-to-length carbon quality steel plate products from India at less than fair value by US Department of Commerce (DOC) on 13 December 1999 and affirmed on 10 February 2000; Interpretation and use of provisions relating to facts available in the anti-dumping and countervailing duty investigations by DOC; and Determination and interpretation by the US International Trade Commission (ITC) of negligibility, cumulation and material injury caused by the said Indian steel imports.

Panel and Appellate Body proceedings The DSB established a Panel at its meeting of 24 July 2001. Chile, the EC and Japan reserved their third-rights. y On 16 October 2001, India requested the Director General to determine the composition of the Panel. y On 26 October 2001, the Director-General composed the Panel. y On 16 April 2002, the Chairman of the Panel informed the DSB that the Panel would not be able to complete its work in six months in light of scheduling conflicts. y The Panel expected to complete its work in June 2002, depending on translation. On 28 June 2002, the Panel circulated its report to Members. The Panel concluded that: y the United States statutory provisions governing the use of facts available, sections 776(a) and 782(d) and (e) of the Tariff Act of 1930, as amended, are not inconsistent with Articles 6.8 and paragraphs 3, 5, and 7 of Annex II of the AD Agreement. the United States did not act inconsistently with Article 15 of the With respect to Indias claims not addressed above, the Panel concluded that: it would not rule on Indias abandoned claim; and in light of considerations of judicial economy, it was neither necessary nor appropriate to make findings with respect to the remainder of Indias claims. The Panel therefore recommended that the DSB request the United States to bring its measure into conformity with its obligations under the AD Agreement. At its meeting on 29 July 2002, the DSB adopted the Panel report. Implementation of adopted reports On 1 October 2002 the United States and India they have mutually agreed that the reasonable period of time to implement the DSB recommendations and rulings in this dispute shall be five months. On 14 February 2003, the parties informed the DSB that they had agreed on certain procedures under Article 21 and 22 of the DSU. India agrees not to request the authorization to suspend concessions under Article 22 until the adoption of the compliance reports (Panel and AB, if any) and the US agrees not to assert that India is precluded from doing so given that the request would be made outside the 30-day period.