DISPUTE SETTLEMENT UNDER WTO

A Project of International Trade Law

SUBMITTED BY:
Anshika Singh
14/ILB/002
INTRODUCTION

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.

HISTORICAL ADVANCES

From its inception in 1947, the General Agreement on Tariffs and Trade
(GATT), signed by the United States and ultimately by a total of 128 countries,
provided for consultations and dispute resolution, allowing a GATT Party to
invoke GATT dispute settlement articles if it believes that another Party’s
measure, whether violative of the GATT or not, caused it trade injury. Because
the GATT did not set out a dispute procedure with great specificity, GATT
Parties developed a more detailed process including ad hoc panels and other
practices. The procedure was perceived to have certain deficiencies, however,
among them a lack of deadlines, a consensus decision-making process that
allowed a GATT Party against whom a dispute was filed to block the
establishment of a dispute panel and the adoption of a panel report by the GATT
Parties as a whole, and laxity in surveillance and implementation of panel
reports even when reports were adopted and had the status of an official GATT
decision.

Congress made reform of the GATT dispute process a principal U.S. goal in the
GATT Uruguay Round of Multilateral Trade Negotiations, begun in 1986 and
concluded in 1994 with the signing of the Marrakesh Agreement Establishing
the World Trade Organization (WTO Agreement). The WTO Agreement
requires any country that wishes to be a WTO Member to accept all of the
multilateral trade agreements negotiated during the Round, including the
General Agreement on Tariffs and Trade 1994, an updated version of the GATT
adopted in 1947, as well as the Understanding on Rules and Procedures
Governing the Settlement of Disputes, applicable to disputes arising under
virtually all WTO agreements.

The Uruguay Round package of agreements not only carries forward original
GATT obligations, such as according goods of other parties non-discriminatory
treatment, not placing tariffs on goods that exceed negotiated or “bound” rates,
generally refraining from imposing quantitative restrictions such as quotas and
embargoes on imports and exports, and avoiding injurious subsidies, but also
expands on these obligations in new agreements such as the Agreement on
Agriculture, the Agreement on the Application of Sanitary and Phyto-sanitary
Measures, the Agreement on Antidumping, and the Agreement on Subsidies and
Countervailing Measures. Congress approved and implemented the WTO
Agreement and the other agreements negotiated in the Uruguay Round in the
Uruguay Round Agreement Act, P.L. 103-465. The agreement entered into
force on January 1, 1995.[1]

OUTLINE OF THE DISPUTE SETTLEMENT

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
Duration of a Dispute Settlement procedure
These approximate periods for each stage of a dispute settlement
procedure are target figures
The agreement is flexible. In addition, the countries can settle
their dispute themselves at any stage.
Totals are also approximate.
60 days Consultations, mediation, etc.
45 days Panel set up and panellists appointed
6 months Final panel report to parties
3 weeks Final panel report to WTO members
60 days Dispute Settlement Body adopts report (if no appeal)
Total = 1 year (without appeal)
60–90
Appeals report
days
30 days Dispute Settlement Body adopts appeals report
Total = 1 year 3 months (with appeal)
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.[2]

Establishing a Dispute Panel (Articles 6, 8)

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. [3]

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.[4]

Remedies

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.

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.”

WTO DISPUTE PANELS AND THE BALANCE BETWEEN

TRADES

Agreements and National Policy

Since the various agreements that constitute the WTO cover such a wide range
of topics, dispute settlement panelists find that a number of subjects come under
their authority. This places WTO dispute panels in a delicate position. On the
one hand they must identify cases where nations are failing to comply with
international trade agreements; on the other, they must be cautious when
making recommendations that reverse the preferences of national governments.

Thus far, in the decisions of the panels and the Appellate Body, there has been a
tendency to write decisions in a way that minimizes the burden on nations to
change their regulations and laws in order to comply with their WTO trade
obligations. This does not mean that dispute settlement panels have not found
nations in violation of the trade agreements. When they have, however, they
have left national governments with a variety of options in order to come into
compliance.
REFRENCES

1. Dispute Settlement in the World Trade Organization (WTO): An

Overview By Jeanne J. Grimmett (Legislative Attorney) Dated April 8,
2010.

2. Once the WTO is notified that a request for consultations has been made,
the dispute will be assigned a number. Disputes are numbered in
chronological order. The prefix WT/DS, followed by the assigned
number, is then used to designate WTO documents issued in connection
with the dispute. For example, the pending dispute between the United
States and China, China—Measures Affecting Trading Rights and
Distribution Services for Certain Publications and Audio Entertainment
Products is DS363, with the U.S. request for consultations sent to China
on August 10, 2007, numbered WT/DS363/1, and the WTO Appellate
Body report issued on December 21, 2009, numbered WT/DS363/AB/R.

3. Dispute Settlement in the World Trade Organization (WTO): An

Overview By Jeanne J. Grimmett (Legislative Attorney) Dated April 8,
2010.

4. As of the date of this report, there have been 29 compliance panel

proceedings, 13 of which involved the United States. Nineteen of the 29
panel reports were appealed, including 11 appeals by the United States.
5. Dispute Settlement Mechanism under the WTO By
Mariyam Parveen Dated January 30, 2015.