This essay has been submitted by a law student. This is not an example of the work written by our professional essay writers.

Published: Fri, 02 Feb 2018

The WTO Dispute Settlement System

1. Introduction

The WTO Dispute Settlement System

Looking back over the 1946-94 history of GATT allows one to reflect as to how surprising it was that this relatively feeble institution with many ‘birth defects’ managed to play such a significant role for almost five decades. It certainly proved to be far more successful than was predicted in the late 1940s’. One of the interesting and certainly more controversial aspects of the GATT as an institution was its dispute- settlement mechanism. It is probably fair to say that this mechanism was unique. It was also flawed, due in part to the troubled beginnings of the GATT. Yet these procedures worked better than expected, and some could argue that in fact they worked better than those World Court and many other international dispute procedures.

The WTO provides an executive, legislative and enforcement apparatus for a code of conduct regulating international trade policies and practices of nation states.The effectiveness of dispute settlement system is critical for the operation of the World Trade Organization. In WTO the Dispute Settlement Understanding ‘DSU’ deals with the dispute arisen out violation of the WTO agreements between the parties. As stated in Article 3.2 of the DSU, “[T]he dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system”. In commercial world this security and predictability are viewed as fundamental prerequisites to conducting business internationally. The present WTO system of dispute settlement builds on the practises in the GATT as they had evolved over five decades. The WTO’s Dispute Settlement contains two major innovations- provision for appellate review of panel decisions by a standing Appellate Body, and provision for compensation or retaliation if a respondent party found to be out of compliance does not repeal or modify its objectionable practise.Presently trade is the key sphere of concern for developed states in the international economic relations. International trade is about market access to trade, it involves according to the “concession” of market access to other states. As such international trade has a built in enforcement mechanism, which not only serves it well in its implementation and development, but also is a powerful tool for legislating in allied spheres.

Developing countries, especially the weaker ones inevitably need the WTO Dispute Settlement. Examples abound of instances when their economic development has been imperilled because of the imposition of cavalier trade measures or because patently unjustifiable decisions are taken and implemented by their trading partners, be they other developing or developed countries. Hence, whether it is a problem between Kenya and Pakistan regarding rice and tea export duties (in which Kenya raised duties on imports of Pakistani rice from 35% to 75% as a result of the provisions in the East African Customs Union Protocol regarding the common external tariff and, in turn, Pakistan threatened to restrict imports of Kenyan tea. The matters are further complicated by the Pakistan-Sri Lanka Free Trade Agreement signed on 9 February 2005, in which duty on a range of items is reduced to zero. Sri Lanka is a major tea producer and a competitor to Kenya), Nepal and India over ginger export bans due to licensing requirements and sanitary and phytosanitary concerns, or West African cotton exports that are locked out of the market because of subsidies by developed countries (The issue of cotton is one that has taken centre stage at the WTO recently, both in the negotiations (attribute the failure of the Cancun Ministerial Conference to the inability to resolve the issue, among others) and in the dispute settlement system. In a dispute lodged by Brazil against the United States subsidies program under the Farm Security and Rural Investment Act of 2002, both the Panel and the Appellate Body found in favour of Brazil (hinging on the finding that pursuant to Article 13(b)(ii) of the Agriculture Agreement, the US domestic support measures ‘grant support to a specific commodity in excess of that decided during the 1992 marketing year’ and were therefore not exempt from actions based on GATT Article XVI:1 or Articles 5 and 6 of the Subsidies and Countervailing Measures Agreement), the issue comes down to what perception and faith these potential players have in the system’s reliability, inclusiveness, and delivery. The thrust of the argument for greater involvement and participation derives from an acknowledgement that the WTO dispute settlement system is not only about one-off disputes between trading partners.

2. Dispute Settlement Body.

The DSU is effectively an interpretation and elaboration of GATT Articles XXII and XXIII, which were not modified in Uruguay Road. There are essentially four phases in the WTO dispute settlement process and surveillance of implementation.

Applicability of the DSU to covered agreements:

The WTO Dispute Settlement Understanding applies to the so-called covered agreements, which are listed in its Appendix 1. The covered agreements consist of all of the Multilateral Trade agreements, plus the plurilateral Agreements on Government procurement. The Agreement on Trade in Civil Aircrafts is not subject to the DSU rules.

The Dispute Settlement Body (DSB):

The DSU is administered by the Dispute Settlement Body (DSB), which is the WTO’s General Council meeting to discharge the responsibilities of the DSB under the DSU. As such, all WTO Members are members and may participate in the DSB. Under the WTO Agreement, the DSB is authorised to elect its own chair. It has the authority to establish panels, adopt panels and Appellate Body reports, maintain surveillance of implementation of its recommendations and rulings, and authorise suspension of concessions. The DSU provides that the DSB shall take decisions provided for in the DSU by consensus.

The DSU’s general principles:

The general philosophy of WTO dispute settlement is set out in Article 3 of the DSU. Among the principles that are enshrined in that article are the following:

Firstly, it recognised that the system serves to preserve the rights and obligations of Members and to clarify the existing provisions of the WTO agreement in accordance with the customary rules of interpretation of public international law.

Secondly, it is agreed that the results of the dispute settlement process cannot add to or diminish the rights and obligations provided in the WTO agreements.

Thirdly, several provision highlights that the aim of dispute settlement process is to secure a positive solution to a dispute and that a solution that is acceptable to the parties and consistent with the WTO Agreements is clearly to be preferred.

Fourthly, although the DSU provides for the eventuality of non compliance, it is explicitly stated in DSU Article 3.7 that “the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements”. Retaliatory action is described as the last resort.

Dispute Settlement Procedure at WTO:

  • Consultation

It is the very first formal step in the Dispute Settlement Chronology. A member may ask for consultation with another WTO Member if the complaining Member believes that the other Member has violated a WTO agreement or otherwise nullified or impaired benefits accruing to it. The purpose of the consultation is to enable the disputing parties to understand better the factual situation and legal claims in respect of the dispute and to resolve the matter without further proceedings. Article 3.7 provides that “[T]he aim of the dispute settlement mechanism is to secure a positive solution to a dispute. A solution mutually acceptable to the parties involved in a dispute and consistent with the [WTO] agreements is clearly to be preferred.”

If consultations are requested under Article XXII of GATT 1994 or the equivalent provision of another WTO Agreement, WTO Members with a substantial trade interest may request to be joined in consultation as third parties. It has to be done in good faith and has to be held within 30 days of a request.

  • (b). The Panel Process:

Panel establishment:

if consultation fails to resolve the dispute within 60 days of request for consultations, the complaining WTO Member may request the DSB to establish a panel to rule on the dispute.

Panel Selection:

After the panel is established by the DSB, it is necessary to select the three individuals who will serve as panellist. The DSU provides that the panellist shall be composed of:-

“well qualified governmental and/or non governmental individuals, including persons who have served on or presented a case to a panel, served as a representative of a member or of a contracting party to GATT 1947 or as a representative to a Council or Committee of any covered Agreement to its predecessor Agreement, or in the Secretariat, taught or published on international trade law or policy, or served as a senior trade policy official of a member.” Article 8.9 DSU provides that the panellist to serve in their individual capacities and that Member should not give them instructions or seek to influence them.

Panel Proceedings:

A panel normally meets with the parties shortly after its selection to set its working procedures and time schedule. The standard proposed timetable for panels makes provisions for holding two meetings between the panel and the parties to discuss the substantive issues in the case. To evaluate the complaint, panels must follow certain basic evidentiary rules. The most important basic rule concerns the assignment of burden of proof. Generally speaking, the decisions of Appellate Body have held that the burden of proof rests upon the party who asserts the affirmation of a presumption of what is claimed is true, then the burden shifts to the other party to rebut the presumption.

After completing the fact gathering and argument phase, the panel issues a draft of “descriptive part” of its report, which summarizes the arguments of the parties and on which the parties may submit comments. Following receipt of comments, the panel issues its “interim report”, which contains the revised descriptive part, as well as the panel’s findings and recommendations. The interim report becomes the final report unless one of the parties requests the panel to review ‘precise aspects’ of the report.

Several aspects of panel reports merit are mentioned as follows. Firstly, it has become common in WTO dispute settlement cases for the complaining party to assert a broad range of violations, often under several WTO agreements. Considering that the purpose of WTO dispute settlement is to resolve disputes and not make law, panels often exercise what is referred to as judicial economy. Secondly, as noted above, if the panel finds that a WTO rule has been violated, it typically cites the DSU presumption that there has been a nullification or impairment of benefits. Thirdly, the standard practise of panels, which is specifically provided to the DSU, is to recommend that any measure found to be in violation of WTO rules must be brought into conformity with those rules. The Panel is authorised to make suggestions on how the recommendations could be implemented, but tend not do so.

After its circulation to WTO Members, the final report is referred to DSB for formal adoption, which is to take place within 60 days unless there is a consensus not to adopt the report or an appeal of the report to WTO Appellate Body. However the losing party cannot block adoption of a report, it has a right of appeal. If a panel report is appealed, then after completion of appeal, it is adopted as affirmed, modified or reversed by the Appellate Body.

Special Problems of Dispute Settlement:

  • Third-Party right:

Non- party WTO Members may participate in the dispute settlement process to a limited degree as third parties if they have a substantial interest in the matter. It is generally upto the individual Member to decide for itself if it has a substantial interest, in the matter and it is not uncommon for a member to become a third party because of a “systemic” interest in case. In case of Bananas case, the panel permitted third parties to attend both of its substantive meetings with the parties and make statements at both meetings. Whether to grant such expanded rights is upto the panel.

  • Multiple Complaints

The DSU makes special provision for the multiple complaints. If more than one Member asks for a panel on same matter, a single panel may be established. However, when such a situation is not feasible (eg. the requests are made at different times), the DSU provides that, to the greatest extent possible, the same individual should serve as panelists on the related panels and their timetables should be harmonised. In practise, these provisions have been utilised frequently, although in some cases, harmonization is simply not possible because of the time difference between the starting dates of the panels.

  • Confidentiality

Except for attendance to a limited degree of third parties, panel proceedings are not open to non-parties. Parties may make their own submissions to a panel public and if a party does not do so, it may be requested to provide a non- confidential summary of its submissions that can be made public.

  • Amicus submissions

The Appellate body in exception to rule of DSB allows non members to file amicus curiae (friend of the court) submissions to panels and the Appellate Body. AB in US- Shrimps on the basis of Article 13, which authorises the panel to seek information from any source, that panel may accept unsolicited submissions from non-members. It have been reaffirmed in the US- Hot rolled lead and Bismuth Carbon Steel Products.

Provisions for developing countries.

There are a number of DSU provisions that grant special rights to developing countries. For example, it provides the possibility (used only once under GATT) of an expedited process (Art. 3.12), that special considerations should be given to developing countries in consultations(Art. 4.10,12.10) and in panel process (Art. 8.10,12.10,12.11) and that account should be taken of developing country interests in the surveillance phase (Art. 21.2,21.7,21.8). There are also special provisions for least developed countries (Art.24), although none of those countries has been involved in the dispute settlement proceeding to date. They provide that particular consideration is to be given to special situation of least developed Members and other Members are expected to exercise due restraint in bringing cases against them.

Role of the Secretariat.

The WTO Secretariat is charged by the DSU with the responsibility of assisting panels, especially on legal, historical and procedural aspects of the matter dealt, and of providing secretarial and technical support. The Secretariat is also charged with assisting developing country Members in respect of dispute settlement and conducts training course in that regard. The Appellate Body has its own secretariat, which is separate from the WTO Secretariat.

The Appellate Process

The phenomenon of appeal is a new feature of the WTO dispute settlement system. The Appellate Body consists of seven individuals, appointed by the DSB for a term of four years. The Appellate Body is authorised to draw up its own working procedures, in consultation with the Chairman of DSB and the Director- General. These procedures regulate the operation of the Appellate body and process by which appeals are made and considered.

The Appellate Body’s review is limited to issues of law and legal interpretation developed by the panel. However, the Appellate Body has taken a broad view of its power to reverse, modify or affirm panel decisions, but the DSU does not discuss the possibility of a remand to a panel.

Surveillance of Implementation:

This is designed to ensure that the DSB recommendations (based on adopted panel/ Appellate Body reports) are implemented. Under Article 19.1 DSU, a panel may suggest ways of implementation; however it is ultimately left to Members to determine as to how to implement. Under surveillance the offending Member is required to state its intentions with respect to implementation within 30 days of adoption of applicable report(s) by DSB. If immediate implementation is impractical, a Member is to be granted a reasonable period of time (not exceeding 15 months) for implementation. If a party fails to implement the report within the reasonable period of time, the prevailing party may request compensation. If that is not forthcoming, it may request the DSB to authorise it to suspend concessions (i.e. take retaliatory action) owed to the non-implementing party. DSB authorization is automatic, absent consensus to the contrary, subject to arbitration of level of suspension if requested by non-implementing Member.

3. Developing Countries at the Dispute Settlement:

“IT IS A WASTE OF TIME AND MONEY FOR developing countries to invoke the WTO’s dispute settlement procedure against industrial countries”
Robert E. Hudec(2002)

In 1966, a Decision was adopted in regard to the application of dispute settlement procedures to developing countries. Article 3.12 of the DSU indicates that developing countries may use some provisions, if they have a compliant against a developing countries may. WTO dispute settlement system has a threefold important role for the developing countries. Firstly, it acts as a guarantor of rights. Secondly, it keeps a check against economic hegemony. Lastly, it is a mechanism to ensure that systemic changes brought about through the WTO jurisprudence do not undermine developing country interests and concerns. But developing member countries have been reluctant in the usability of the DSB as it involves high litigation costs, lack of qualified human resources to identify and defend the national interests, and the ineffectiveness of clauses favourable to developing countries in the WTO agreements.

The DSU itself contains a number of specific provisions dealing with developing countries rights. Some would apply in all cases. Other would apply in cases where the 1966 Decision has not been utilised. Where consultations are concerned, the DSU also has a provision allowing for a unilateral reference to good offices, conciliation or mediation in relation to least developed Members only. Article 4.10 of the DSU provides that during consultations Members should give special attention to the particular problems and interests of developing country Members. Article 12.10 of the DSU also provides that in case of complaints against a developing country Member the Panel shall accord sufficient time for that Member to prepare and present its argumentation. Any such extension does not affect the express time limits in the DSU for Panel to issue a report and for implementation of recommendations and rulings. Where either party is a developing country Member the Panel’s Report shall explicitly indicate the form in which account has been taken of relevant provisions on differential and more favourable treatment for developing country Members in relevant covered agreements. When a dispute is between a developing country Member and a developed country Member, then on the request of the developing country Member, the Panel shall include at least one panellist from a developing country Member. The WTO Secretariat shall make available a qualified legal expert to provide additional legal advice and assistance to the developing country Members in respect of dispute settlement. This is an important initiative as many developing countries have inadequate resources to support optimal representation at Geneva. This has lead to constitution of Advisory Centre on WTO laws (A.C.W.L) in support of developing and LDC members. Where Least Developed Country Members are involved either as complaint or respondent particular consideration shall be given to their special situation at all stages. Members shall exercise due restraint in raising matters under DSU involving a LDC Member.

The use of the Dispute Settlement System had a mushroom growth during 2000-04. In the first five years of the system’s existence, developing countries, initiated roughly one-quarter of the consultation requests. In the four and one-half years from 2000- June’04, developing countries initiated 62% of the consultation requests more than doubling their relative share of initiations. That is to say that developing countries seem to have found the WTO Dispute Settlement System to be a useful mechanism to deal with wide range of trade disputes- using it not only against developed countries.

Though developing countries vary significantly in terms of trading profiles, they generally face three primary challenges if they are to participate effectively in the WTO dispute settlement system. These challenges are: (i) a relative lack of legal expertise in WTO law; (ii) fear of political and economic pressure; and (iii) constrained financial resources, including for the hiring of outside counsel.

Many developing and especially least-developed countries (LDC) cannot even afford to mount a serious defence if they are facing a claim; let alone identifying and preparing a case. Only one case has ever been brought by a least developed country and not a single panellist from a LDC has been appointed.African Countries have been absent as players at the WTO DSB in its first decade. In the recent literature, the low volume of trade, roughly two percent of global trade, with an export base often characterised largely by non-contentious single unprocessed commodities, a complicated and expensive dispute settlement system, with a WTO case estimated to cost roughly US$500,000 if taken through Appellate Body, inadequate legal expertise and a less litigious approach are possible disputes particularly when major trading and donor partners are involved.

The sub-Saharan African country has been reluctant to use the Dispute Settlement Mechanism. Despite the design of the DSM to secure ‘rule of law’ within international trade and provide all members with opportunities to exercise their rights under multilateral trade agreements. The problems which the sub-Saharan African (SSA) countries face in using DSM are similar to those of many other developing countries, but their relatively lower level of development and integration in international trade means that these problems are more difficult to overcome. The majority of researchers working on DSM have their prime focus on the how it has been used, rather than on the fact as to why it has not been used. They do so from within the legal tradition and have been studied as a litigation process by analysing case law and rulings. They implicitly regard the system as a success in allowing countries to settle their disagreements. However, the DSM is also a political process, and cases have important economic impacts. “The main problem identified is that DSM (and the WTO) has become too technically complex and demanding for most developing countries to use effectively in the absence of adequate assistance. Underlying this is the observation that there is too much law and too little politics in the system”

This position links these observations to other concerned developing countries’ typically fragile trade policy infrastructures, their shortage of trained personnel, and their lack of knowledge about the system. This view is systematically elaborated into two stages- ‘upstream’, which is the part of the process prior to bringing the case officially before the DSM, and ‘downstream’ which is the part of the process after a case has been officially initiated. During the first stage, a country’s trade-policy infrastructure plays the central role. It is here that information is gathered, analysed and transferred to the government, which then decides whether to pursue the case or not. Shaffer has inferred that not only the existence but also the functioning of trade-policy infrastructures is critical for countries’ engagement in the system. His study of the infrastructures of US and EU finds that an institutional linkage between and the private companies and the officials is a key characteristic of major users of the system. While under existing WTO rules only member states may initiate a case. This generally occurs on the basis of persuasion from private companies. This is facilitated where local private companies are strong and where the established infrastructure gives private companies a voice and chance to lead their case informally through the initial stage.

In the EC-Bananas, the problem of developing countries is well illustrated by Ecuador. Contrary to the United States, which has also successfully challenged the Bananas regime, and which was authorised to impose retaliatory tariff increases on annual imports covering USD 191.4 millions of European goods, Ecuador did not see any realistic way to retaliate in the areas(GATT and GATS) where the WTO- violations of the EU were found to have taken place. There was simply not enough trade in non-essential goods and services between the EU and Ecuador. Ultimately, Ecuador was given the authority to cross-retaliate in the area of TRIPS. It could allow local wine producers to sell their red wine as ‘Bordeaux’, and it could permit local music pirates to sell unauthorised copies of some European hit recordings, though only for the Ecuadorian domestic market. Whereas such retaliation might have created annoyance amongst the French wine producers and certain European popular artists particularly popular in Ecuador, it was unlikely to result in much political pressure on EC. This case aptly illustrates that it may be hard for a country like Ecuador to effectively put in place retaliatory measures.

The sub-Saharan African countries which are yet to use the DSM as litigants were active in the early stages of negotiations both in submitting proposals and discussion. In the early stages of negotiations only one proposal was tabled by African countries i.e. by Kenya, one joint proposal, and three proposals with other countries, one of which bore the name of least developed (LDC) group. The African group’s proposal to make the panellist provision automatic is ‘more about building confidence of developing countries in the system than it is about conferring a legal benefit to them. These proposals were mainly drafted in Geneva and were inspired by the works of certain Geneva-based NGO’s, i.e. Agency for International Trade Information and Co-operation (AITIC) in case of LDC’s, the International Centre for Trade and Sustainable Development (ICTSD) and the South Centre in the case of African group. In general, the proposals focus on normative issues, and even in quite general terms, rather than suggesting specific wordings for how existing provisions could be revised.

They suggested that DSM should ‘provide assistance in the form of a pool of experts and lawyers in preparation and conduct of cases, the payment of fees and expenses entailed, [and] compilation by the WTO Secretariat of all applicable law including past decisions to be fully available to and usable by both the parties and the panels/Appellate Body in each individual case. The existing Special and Differential Treatment (SDT) provision do exist under the DSM. However, not all of them are mandatory or automatically applicable, which means that countries must actively ask for them. These SDT measures were divided into two categories i.e. first, those which modify a general provision when a case involves a developing country, for example providing for panelists from a developing country (DSU, Art. 8.10), or making it incumbent on panels to state how they have considered any SDT provision which has been raised by a developing country in a dispute (Art 12.11). Secondly, those provisions that refer exclusively to developing countries, for example those providing for developing countries to use alternative dispute settlement procedures (Art.3.12). While the first type of SDT has been applied on a number of cases, developing countries have not used the second type, since in legal proceedings they wish to face developed countries as equals and are therefore hesitant to invoke procedural privileges that their opponents do not enjoy. Moreover they also fear that the application of procedural provisions biased in their favour may detract from legitimacy of result of procedures and hence reduce the normative force of ruling they are seeking. This claim seems disingenuous, since it is not clear why developing countries should want to forgo this opportunity to exploit preference when they are otherwise quite quick to ask foe waivers.

In Brazil-Export Financing Programmes for Aircraft the Appellate Body confirmed the earlier Panel conclusion allowing for the Brazilian adjustment for inflation of its export subsidies, and added that in its view “to take no account of inflation in assessing the level of export subsidies granted by a developing country Member would render the special and differential treatment provisions of article 27 meaningless.”

United States-Import Prohibition of Certain Shrimp and Shrimp Product, the Panel stated the Preamble to the WTO Agreement and the record before it endorsed the fact that environmental policies must be designed taking into account the situation of each Member, in terms of its actual needs, its economic means, and in the light of local and regional conditions.

The other obstacle to participation, as identified by the African Group is the DSM’s weak, and in the African case irrelevant retaliatory system. The problem is that, as small countries with an insignificant share of international trade, most sub-Saharan African nations cannot meaningfully retaliate against their bigger trading partners since their resulting losses would exceed any possible gains. The extent to which ‘access without fear’ to DSM’s retaliation mechanism would be insignificant gain for African countries is questionable. The experience so far in the case of EC- Banana and US-Canada Lumber disputes which had reached to the retaliation stage shows that unless other rules are changed, countries can avoid being subjected to retaliation for a very long period. Many countries under this threat simply invoke the DSU provisions giving parties the option to ask for re-examination of the other party’s measures, without any time limit for how long this might take. Furthermore, it is not clear whether retaliation when it does occur, makes it more likely that the losing parties comply with the rulings. A third group of countries proposes that members should be able to auction their retaliation rights. The Arbitrator in EC-Bananas, noted that the costs of WTO litigation will frequently appear to dwarf the potential benefits. As a result, their access to the current system of WTO dispute settlement is not equal to that of developed countries, and in fact largely illusory.

The effect of retaliation by a developing member under WTO law is held to be against the interest of the developing member itself as stated by Bronckers and van den Broek “Trade retaliation is easily more counterproductive for


To export a reference to this article please select a referencing style below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Request Removal

If you are the original writer of this essay and no longer wish to have the essay published on the Law Teacher website then please click on the link below to request removal:



More from Law Teacher

Law Teacher can show you how to write great academic work with our 3.9 star rated services

Reviews.co.uk Logo
Place an order or Learn about our services