WTO Dispute Settlement Mechanism

1. Introduction

The World Trade Organization (WTO) is an international organization that promotes, facilitates and regulates trade between nations. The WTO grew out of the General Agreement on Tariffs and Trade (GATT), created in 1947 and adopted by 23 nations in 1948. That agreement represented a multi-lateral attempt by nations to reduce tariffs and thereby promote international trade. At the time it was created, the GATT was intended only to be provisional. It was originally hoped that an International Trade Organization (ITO) would be created to oversee and facilitate the growth of international trade; however, an ITO never materialized. Nonetheless, the GATT's signatory countries convened on a regular basis for "rounds" of talks to continue negotiations on the regulation and promotion of international trade.

At the eighth round of negotiations, the Uruguay Round (1986–1994), 123 country participants agreed to replace the GATT with a much more expansive set of provisions that would constitute and be administered by the WTO. Beginning in 1995, the WTO substantially expanded on the terms of the GATT and included provisions regarding services and intellectual property rights – subjects that were previously not included in the GATT. The World Trade Organization (WTO) has 164 member countries from all over the world. The WTO's current responsibilities include administering WTO trade agreements, providing a forum for trade negotiations, resolving trade disputes, monitoring national trade policies, providing technical assistance and training to developing countries, and cooperating with other international organisations.

2. Structure of WTO

Article IV of the WTO Agreement provides for the basic institutional structure of the WTO; subordinate committees and working groups have been added to this structure by later decisions.

The Ministerial Conference is the WTO's supreme body composed of minister level representatives from all members, stands at the top of the WTO's institutional structure and has decision-making authority over all matters under any multilateral WTO agreements. The ministerial conference has to meet at least once every two years.

At the second level are the General Council (which is composed of ambassador-level diplomats), the Dispute Settlement Body (‘DSB’) and the Trade Policy Review Body (‘TPRB’). All these three bodies are actually the same. The General Council is responsible for the continuing, day-to-day management of the WTO and its many activities and exercises, between sessions of the Ministerial Conference, the full powers of the latter. When the General Council runs the WTO Dispute Settlement System, it becomes the DSB. When it comes to administering the WTO's trade policy review mechanism, the General Council serves as the TPRB.

The Dispute Settlement Body has two divisions at the General Council level: the "Dispute Settlement Panels" of specialists selected to adjudicate on outstanding conflicts, and the "Appellate Body" that deals with appeals. The Appellate Body was founded in 1995 under Article 17 of the Dispute Settlement Rules and Procedures (DSU). The DSB shall appoint persons to serve on the Appellate Body for a four-year term. The Appellate Body can uphold, alter or overturn the legal findings and conclusions of a panel, and Appellate Body Reports must be accepted by the parties to the dispute once adopted by the Dispute Settlement Body (DSB).

There are three so-called specialized councils below the level of General Council, the DSB and the TPRB. These are the Council for Trade in Goods (CTG), the council for Trade in Services (CTS) and the Council for TRIPS. Article IV (5) of the WTO agreement provides for the same. The explicit function of these specialized councils is, according to Article IX (2) of the WTO Agreement, to make recommendation on the basis of which the Ministerial Conference and the General Council adopt interpretations of the multilateral trade agreement in Annex I of the WTO Agreement overseen by these Councils.

3. WTO’s Dispute Settlement Mechanism

The Dispute Settlement Understanding (DSU) lays out the rules and procedure for the WTO's dispute settlement system, which is overseen by the Dispute Settlement Body (DSB), which is composed up of representatives from all WTO members. The DSU establishes an unified dispute resolution system that applies to all WTO agreements specified in Appendix 1 of the WTO Agreement, as well as the twelve WTO multilateral trade agreements on trade in goods; the GATS; the TRIPS; the Agreement on Procurement and the Agreement on Trade in civil aircraft, and the DSU itself. The DSU contains twenty-seven articles and four appendices. The DSU sets out the basic institutional and jurisdictional scope of WTO dispute settlement.

3.1. Power & Functions of DSB

Article 2.1 of the DSU broadly defines these functions as the administration of the dispute settlement system. However, the administration of the dispute settlement system, is not limited one particular function rather having the multifaceted role.

The DSB has the power to:

  • Appoint Panelists and adopt terms of reference for Panels

  • Adopt or reject a recommendation of a Panel or the Appellate Body

  • Maintain surveillance of the implementation of recommendations

  • Appoint arbitrators to make recommendations on the ‘reasonable period of time’

  • Appoint a second, ‘implementation’ Panel to make recommendations on measures to restore conformity with the Agreement(s).

Disputes arise for a variety of reasons or as a result of an act that violates some fundamental provisions, such as most-favored-nation (MFN) treatment (GATT Article I), which prohibits a country from discriminating at the border between one trading partner and another, and national treatment (GATT Article III), which prohibits a country from discriminating behind the border between its own products and those from another country.

There are some issues that fall within the scope of general exceptions which are provided in GATT Article XX or, in the case of services, in its GATS counterpart (Article XIV). A respondent often argues that the measures in question are permitted under one or more of the general exceptions. These exceptions include, among others, the following topics:

  • protection of public morals

  • protection of human, animal or plant life or health

  • products of prison labour

  • protection of national treasures of artistic, historic or archaeological value

  • conservation of exhaustible natural resources

  • inter-governmental commodity agreements

  • restrictions on exports of domestic materials

  • products in general or local short supply.

These exclusions allow nations to justify measures that are otherwise prohibited under WTO rules, but they do not grant nations an automatic "free pass" to impose any limitations they think politically essential and that they claim are related to one or more of these principles.

3.2. Dispute Settlement Process

The World Trade Organization's (WTO) dispute settlement process is divided into three stages: (1) consultations; (2) panel and, if requested, Appellate Body review; and (3), if necessary, implementation.

First Stage – Consultations (Article 4)

The dispute settlement process typically begins when one or more WTO members formally challenge (i.e., a formal complaint is filed) another member’s measures that are alleged to violate that member’s commitments. These claims of violation are often based on the contention that the measure in question contravenes. WTO members must indicate which WTO agreements are allegedly being violated when filing a complaint. The first stage is referred to as a "request for consultations," because the parties involved will attempt to address the conflict by consulting with one another.

If the respondent fails to respond within ten days or enter into consultations within thirty days, the complainant may then proceed directly to Dispute Settlement Body (DSB) with the request of establishing a panel.

Also, if the dispute is not resolved within 60 days, the complaining Member may request a panel. If the defending Member fails to engage in discussions or the disputants agree that consultations have been fruitless, a panel may be called before the time limit expires.

The panel once established is under the obligation of submitting its findings in the form of written report to the DSB. As a general rule, it shall not exceed six months from the formation of the panel to submission of the report to the DSB.

Second Stage – Establishment of Dispute Panel (Articles 6, 7 & 8) & Appellate Body

The WTO Member requesting a panel must do so in writing and “identify the specific measures at issue and provide a brief summary of the legal basis for the complaint sufficient to present the problem clearly.

The panels are independent, quasi-judicial bodies created by the DSB to handle disputes that have not been settled throughout the consultation process. Each of the panels is normally composed of three, and exceptionally five, well-qualified and independent experts selected on an ‘ad hoc’ basis.

The function of the panel is making an objective assessment on both of the factual and legal aspects of the case (Article 7.1) and submitting a report to the DSB in which it expresses its conclusions including its recommendation in case of finding breaches of the obligations of a member of the WTO. In so doing, Panels will address the relevant provisions in the covered agreements cited by the parties to a dispute (Article 7.2)

Article 6.1 of the DSU stipulates that the panel is established at the latest at the DSB meeting following the meeting at which the request for the establishment first appears as an item on the agenda of the DSB, unless at that meeting the DSB decides by consensus not to establish a panel.

According to Article 8.10 of the DSU, in the case of a dispute between a developing country member and a developed country member, at least one panelist shall be from a developing country member if the developing country member so requests.

The Appellate Body is the next stage in the adjudicatory part of the dispute settlement system. As are the panels, the Appellate Body is an independent, quasi-judicial institution, but unlike the panels, it is a permanent institution composed seven individuals each of whom serves a four-year term and can be reappointed once.

Appellate Body has its own separate secretariat to provide legal assistance and administrative support to the Appellate Body. To ensure the Appellate Body's independence, the Secretariat is administratively linked to the WTO secretariat but otherwise operates independently. All meetings of the Appellate Body or of Divisions of the Appellate Body, as well as oral hearings in appeal are also held on the premises of Appellate Secretary office.