The WTO’s procedure is a mechanism which is used to settle trade dispute under the Dispute Settlement Understanding. A dispute arises when a member government believes that another member government is violating an agreement which has been made in the WTO. However, these agreements are consequential to dialogues between the member States and hence they are the writers of such agreement. In case any dispute arises, the ultimate duty to settle it lies in the hands of member government through Dispute Settlement Body. This system already achieved a great deal and providing some of the necessary attributes of security and predictability which trader and other market participants need and which is called for in the Dispute Settlement Understanding under Article 3.
The WTO’s Dispute Settlement Understanding (DSU) advanced out of the ineffective means used under the GATT for settling disagreements among members. Under the GATT, procedures for settling disputes were ineffective and time consuming since a single nation, including the nation whose actions was the subject of complaint could effectively block or delay every stage of the dispute resolution process. It remains to be seen whether countries will comply with the new WTO dispute settlement mechanism, but thus far the process has met with relative success.
During the phase of 1980’s many new interest groups were fascinated by the GATT’s procedures which were held as model, and it was used by them for the purpose of accomplishing their goals. However, service sectors and intellectual property sectors who wanted to engage in multilateral agreements through GATT’s Uruguay round conference were influenced due to the success dispute settlement procedures and in role in augmenting the treaty rule compliance.
The DSU was designed to deal with the difficulty of reducing and eliminating non-tariff barriers to trade. A non-tariff trade barrier can be almost any government policy or regulation that has the effect of making it more difficult or costly for foreign competitors to do business in a country. In the early years of the GATT, most of the progress in reducing trade barriers focused on trade in goods and in reducing or eliminating the tariff levels on those goods. More recently, tariffs have been all but eliminated in a wide variety of sectors. This has meant that non-tariff trade barriers have become more important since, in the absence of tariffs, only such barriers significantly distort the overall pattern of trade-liberalization. Frequently, such non-tariff trade barriers are the inadvertent consequence of well-meaning attempts to regulate to ensure safety or protection for the environment, or other public policy goals. In other cases, countries have been suspected of deliberately creating such regulations under the guise of regulatory intent, but which have the effect of protecting domestic industries from open international competition, to the detriment of the international free-trade regime.
Outline of the dispute settlement understanding
The Dispute Settlement Understanding (DSU) officially known on rules and procedure governing the Settlement of Disputes, establishes rules and procedures that manage various disputes arising under the Covered Agreements of the Final Act of the Uruguay Round. There had been total 314 complaints brought by the member of WTO. All WTO member nation-states are subject to it and are the only legal entities that may bring and file cases to the WTO. The DSU created the Dispute Settlement Body (DSB), consisting of all WTO members, which administers dispute settlement procedures.
It provides strict time frames for the dispute settlement process and establishes an appeals system to standardize the interpretation of specific clauses of the agreements. It also provides for the automatic establishment of a panel and automatic adoption of a panel report to prevent nations from stopping action by simply ignoring complaints. Strengthened rules and procedures with strict time limits for the dispute settlement process aim at providing “security and predictability to the multilateral trading system” and achieving “[a] solution mutually acceptable to the parties to a dispute and consistent with the covered agreements.” The basic stages of dispute resolution covered in the understanding include consultation, good offices, conciliation and mediation, a panel phase, Appellate Body review, and remedies.
Stages in WTO
Consultations (Article 4)
The DSU permits a WTO Member to consult with another Member regarding “measures affecting the operation of any covered agreement taken within the territory” of the latter. If a WTO Member requests consultations with another Member under a WTO agreement, the latter Member must enter into consultations with the former within 30 days.
If the dispute is not resolved within 60 days, the complaining party may request a panel. The complainant may request a panel before this period ends if the other Member has failed to enter into consultations or if the disputants agree that consultations have been unsuccessful.
A panel request, which must be made in writing, must “identify the specific measures at issue and provide a brief summary of the legal basis for the complaint sufficient to present the problem clearly” (Art. 6.2). Under GATT and now WTO dispute settlement practice, a Member may challenge a measure of another Member “as such,” “as applied,” or both. An “as such” claim challenges the measure independent of its application in a specific situation and, as described by the WTO Appellate Body, seeks to prevent the defending Member from engaging in identified conduct before the fact.
If a panel is requested, the DSB must establish it at the second DSB meeting at which the request appears as an agenda item, unless it decides by consensus not to do so. Thus, while a defending Member may block the establishment of a panel the first time the complaining Member makes its request at a DSB meeting, the panel will be established, virtually automatically, the second time such a request is placed on the DSB’s agenda. While DSB ordinarily meets once a month, the complaining Member may request that the DSB convene for the sole purpose of considering the panel request. Any such meeting must be held within 15 days after the complaining Member requests that the meeting be held.
The panel is ordinarily composed of three persons. The WTO Secretariat proposes the names of panelists to the disputing parties, who may not oppose them except for “compelling reasons” (Art. 8.6). If there is no agreement on panelists within 20 days from the date that the panel is established, either disputing party may request the WTO Director-General to appoint the panel members.
Good Offices, Conciliation and Mediation
Unlike consultation in which “a complainant has the power to force a respondent to reply and consult or face a panel,” good offices, conciliation and mediation “are undertaken voluntarily if the parties to the dispute so agree.” No requirements on form, time, or procedure for them exist. Any party may initiate or terminate them at any time. The complaining party may request the formation of panel,” if the parties to the dispute jointly consider that the good offices, conciliation or mediation process has failed to settle the dispute.” Thus the DSU recognized that what was important was that the nations involved in a dispute come to a workable understanding on how to proceed, and that sometimes the formal WTO dispute resolution process would not be the best way to find such an accord. Still, no nation could simply ignore its obligations under international trade agreements without taking the risk that a WTO panel would take note of its behaviour.
Panel Proceedings (Articles 12, 15, Appendix 3)
After considering written and oral arguments, the panel issues the descriptive part of its report (facts and argument) to the disputing parties. After considering any comments, the panel submits this portion along with its findings and conclusions to the disputants as an interim report.
Following a review period, a final report is issued to the disputing parties and later circulated to all WTO Members. A panel must generally provide its final report to disputants within six months after the panel is composed, but may take longer if needed; extensions are usual in complex cases. The period from panel establishment to circulation of a panel report to WTO Members should not exceed nine months. In practice, panels have been found to take more than 13 months on average to publicly circulate reports.
Appellate Body Review
The DSB establishes a standing Appellate Body that will hear the appeals from panel cases. The Appellate Body “shall be composed of seven persons, three of whom shall serve on any one case.” Those persons serving on the Appellate Body are to be “persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the Covered Agreements generally.” The Body shall consider only “issues of law covered in the panel report and legal interpretations developed by the panel.” Its proceedings shall be confidential, and its reports anonymous.
This provision is important because, unlike judges in the United States, the members of the appellate panel do not serve for life. This means that if their decisions were public, they would be subject to personal retaliation by governments unhappy with decisions, thus corrupting the fairness of the process. Decisions made by the Appellate Body “may uphold, modify, or reverse the legal findings and conclusions of the panel.” The DSB and the parties shall accept the report by the Appellate Body without amendments “unless the DSB decides by consensus not to adopt the Appellate Body report within thirty days following its circulation to the members.”
Adoption of Panel Reports/Appellate Review (Articles 16, 17, 20)
Within 60 days after a panel report is circulated to WTO Members, the report is to be adopted at a DSB meeting unless a disputing party appeals it or the DSB decides by consensus not to adopt it. Within 60 days of being notified of an appeal (extendable to 90 days), the Appellate Body (AB) must issue a report that upholds, reverses, or modifies the panel report. The AB report is to be adopted by the DSB, and unconditionally accepted by the disputing parties, unless the DSB decides by consensus not to adopt it within 30 days after circulation to Members. The period of time from the date the panel is established to the date the DSB considers the panel report for adoption is not to exceed nine months (12 months where the report is appealed) unless otherwise agreed by the disputing parties.
Implementation of Panel and Appellate Body Reports (Article 21)
In the event that the WTO decision finds the defending Member has violated an obligation under a WTO agreement, the Member must inform the DSB of its implementation plans within 30 days after the panel report and any AB report are adopted. If it is “impracticable” for the Member to comply immediately, the Member will have a “reasonable period of time” to do so. The Member is expected to implement the WTO decision fully by the end of this period and to act consistently with the decision after the period expires.10 Compliance may be achieved by withdrawing the WTO-inconsistent measure or, alternatively, by issuing a revised measure that modifies or replaces it.
Under the DSU, the “reasonable period of time” is: (1) that proposed by the Member and approved by the DSB; (2) absent approval, the period mutually agreed by the disputants within 45days after the report or reports are adopted by the DSB; or (3) failing agreement, the period determined by binding arbitration. Arbitration is to be completed within 90 days after adoption of the reports. To aid the arbitrator in determining the length of the compliance period, the DSU provides a non-binding guideline of 15 months from the date of adoption. Arbitrated compliance periods have ranged from six months to 15 months and one week. The DSU envisions that a maximum 18 months will elapse from the date a panel is established until the reasonable period of time is determined.
Compliance Panels (Article 21.5)
Where there is disagreement as to whether a Member has complied i.e., whether a compliance measure exists, or whether a measure that has been taken is consistent with the WTO decision in the case either disputing party may request that a compliance panel be convened under Article 21.5. A compliance panel is expected to issue its report within 90 days after the dispute is referred to it, but it may extend this time period if needed. Compliance panel reports may be appealed to the WTO Appellate Body and both reports are subject to adoption by the DSB.12 Compensation and Suspension of Concessions (Article 22)
If the defending Member fails to comply with the WTO decision within the established compliance period, the prevailing Member may request that the defending Member negotiate a compensation agreement. If such a request is made and agreement is not reached within 20 day.
There are consequences for the member whose measure or trade practice is found to violate the Covered Agreements by a panel or Appellate Body. The dispute panel issues recommendations with suggestions of how a nation is to come into compliance with the trade agreements. If the member fails to do so within the determined “reasonable period of time,” the complainant may request negotiations for compensation. Within twenty days after the expiration of the reasonable period of time, if satisfactory compensation is not agreed, the complaining party “may request authorization from the DSB to suspend the application to the member concerned of concessions or other obligations under the Covered Agreements.”
Retaliation shall be first limited to the same sector(s). If the complaining party considers the retaliation insufficient, it may seek retaliation across sectors. The DSB shall grant authorization to suspend concessions or other obligations within thirty days of the expiry of the reasonable time unless the DSB decides by consensus to reject the request. The defendant may object to the level of suspension proposed. The original panel, if members are available, or an arbitrator appointed by the director-general” may conduct arbitration.
Members may seek arbitration within the WTO as an alternative means of dispute settlement “to facilitate the solution of certain disputes that concern issues that are clearly defined by both parties.” Those parties must reach mutual agreement to arbitration and the procedures to be followed. Agreed arbitration must be notified to all members prior to the beginning of the arbitration process. Third parties may become party to the arbitration “only upon the agreement of the parties that have agreed to have recourse to arbitration.” The parties to the proceeding must agree to abide by the arbitration award. “Arbitration awards shall be notified to the DSB and the Council or Committee of any relevant agreement where any member may raise any point relating thereto.”