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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.

Once a panel issued its report, the reports or any part of it may be appealed by either party to a standing Appellate Body, the appeals must be based on legal issues like legal interpretation. The parties cannot request re-examination of existing evidence or examination of any new evidences. The Appellate Body has 90 days to issue its own reports. The Appellate Body may further uphold, modify or reverse the legal finding and conclusions of the panel in the due course of dispute settlement process.

Third Stage – Implementation of Panel & Appellate Body Reports (Article 21)

Article 21 of DSU is concerned with the response of Members in bringing their trade policy into compliance with the WTO rules. Members have 30 days from the date of the adoption of a report to notify the DSB of their plans to implement Panel or Appellate Body recommendations. If immediate compliance is “impracticable,” the Member will be given a “reasonable period of time” to comply, subject to the conditions set forth in paragraphs 3(a), (b), and (c). In the event of a disagreement about a member's compliance with a Panel's recommendations and findings, the dispute resolution procedures may be used, which will result in a Panel Report within 90 days. The DSB keeps an eye on the implementation of accepted recommendations and judgements under Article 21.6.


4. Other Modes of Dispute Settlement

It is important to note that the involvement of panels and the Appellate Body is not the only way to settle disputes between WTO members. Within the WTO framework, there are a number of other options for resolving disputes besides panels and the Appellate Body, consultations, good offices, conciliation and mediation, and arbitration are some of the other options.

The World Trade Organization's (WTO) dispute settlement procedure favours peaceful resolution rather than case victory. More than half of all WTO disputes have been resolved amicably without the need for a panel of arbitrators. The DSU further stipulates that by his "good offices," mediation, or conciliation, the Director General can assist members in resolving their issues.

Article 5: Good Offices, Conciliation and Mediation - This Article is concerned with the provision by the WTO of good offices, conciliation and mediation procedures to resolve trade disputes between Members.

The primary function of good offices is to provide logistical support to help the parties negotiate in a productive manner. In addition, conciliation entails the direct involvement of a third party in the discussions and negotiations between the parties. The mediator not only participates in and contributes to the discussions & negotiations in a mediation process but may also suggest a solution to the parties. These suggestions would not be binding on the parties. This alternative process of dispute settlement can begin any time but not prior to a request for consultations. The proceedings of mediation are strictly confidential and do not diminish the position of either party in any following dispute settlement procedure as provided under Article 5.2 of the DSU.

Article 25: Arbitration - Within the WTO framework (Article 25.1), arbitration provides an alternative way of dispute resolution subject to mutual agreement (Article 25.2), the involvement of third parties (Article 25.3) and the application of Articles 21 and 23 of the DSU to arbitration awards (Article 25.4).

Article 21.5 states that parties can resort the disputes by way of arbitration. Arbitrators either an individual or group, can be called to adjudicate certain questions at several stages of the dispute settlement process.


5. Conclusion

The rules, procedures and practices adopted under the General Agreement on Tariffs & Trade (GATT) 1947, form the cornerstone of the WTO's dispute settlement system. However, it improves upon the previous system in a number of ways, including by being more accessible. The rising participation of underdeveloped countries demonstrates this.

The regular use of the WTO’s dispute settlement system by both developing and developed members is a clear indication that the system is dispensing its duties effectively. The system plays a crucial role in ensuring that WTO agreements are respected. This, in turn, supports economic growth by fostering more peaceful trading connections among members.

But on the other hand, the WTO DSU has, nevertheless, faced a number of criticisms, most of which concern the pattern and structure of incentives for its use. A detailed examination of the new dispute resolution system's performance reveals that it is prone to institutional bias, favouring major trading nations over most developing countries. Because of their financial and legal constraints, developing countries are not fundamentally sound, which has a considerable impact on their posture when dealing with disputes.

Therefore, the legitimacy of WTO as a multilateral organisation can sustain only if it ensures to safeguard the interest of all members rather than some of its members.



REFERENCES

  1. https://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm

  2. https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm

  3. https://www.drishtiias.com/important-institutions/drishti-specials-important-institutions-international-institution/world-trade-organisation-wto

  4. https://www.wto.org/english/thewto_e/20y_e/dispute_brochure20y_e.pdf

  5. NGUYEN DANG THANG & NGUYEN DUC KIEN, TEXTBOOK INTERNATIONAL TRADE & BUSINESS LAW, (Edited by Prof. Dr Surya P. Subedi)

  6. Peter Gallagher, Guide to Dispute Settlement, 40-55 (Kluwer Law International Geneva, 2002)

  7. General Agreement on Tariffs & Trade 1947, Article XX (Came into force on 1 January 1948)

  8. Understanding on Rules & Procedures Governing the Settlement of Disputes

  9. Robert Read, Trade Dispute Settlement Mechanisms: The WTO Dispute Settlement Understanding in the Wake of the GATT, RESEARCHGATE 13 (April 2005)

  10. P. V. Bossche, The Law and Policy of WTO, Text Case and Material, 256 (Cambridge University)


Name – Vishal Rana

Batch – May, 2021

Institution Name – C P J College of Higher Studies & School of Law

(4th Year Student)


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