Dispute Settlement (GATT & WTO)

This article has focused on the concept of Dispute Settlement Mechanism under WTO including its meaning, evolution, dispute resolution, DSU (Dispute Settlement Understanding) and DSB (Dispute Settlement Body); and stages for settlement of disputes

 

1. INTRODUCTION:

 

Among the current international tribunals and bodies, the institution of the WTO's dispute settlement mechanism has emerged as one of the most reliable and enforceable regimes. Its credibility is based on a number of enhancements that were made possible by the adoption of the Dispute Settlement Understanding (DSU), which improved the prior dispute resolution system established under the GATT.

 

2. EVOLUTION OF DISPUTE SETTLEMENT MECHANISM FROM GATT TO THE WTO

 

On January 1st, 1995, the WTO's dispute resolution process went into effect. Within the broad range of contemporary international tribunals and bodies, it is regarded as one of the most efficient and reliable systems of adjudication. The system's awards have a binding nature, which contributes to its enforceability. To claim that such a system only emerged in 1995, however, would be naive. The modern WTO dispute settlement system has assimilated fifty years of experience in resolving trade disputes under GATT, 1947. The modern system has introduced several modifications and improvements in the old model but owes its foundational existence to GATT 1947. In this context, Article 3.1 of the Dispute Settlement Understanding (DSU) becomes relevant. The provision states that: 

 

“Members affirm their adherence to the principles for the management of disputes heretofore applied under Articles XVII and XVIII of GATT, 1947, and the rules and procedures as further elaborated and modified herein.”

 

GATT 1947 wasn't intended to be a global trade organization. It naturally did not include a comprehensive dispute resolution system and only had two brief provisions - Articles XXII and XXIII, relating to dispute resolution. These provisions allowed GATT members to seek adjudication in relation to three sets of claims violations, non-violation complaints, and situation complaints.

 

· In order to qualify as a violation, a benefit must have been "nullified or impaired" as a result of "another [Member's] failure to carry out its obligations" as stated in GATT 1994.

 

· Non-violation complaint may be used to challenge any measure applied by another Member, even if it does not conflict with GATT 1994.

 

· Situation complaints cover any situation whatsoever, as long as it results in ‘nullification or impairment’. However, although a few such situation complaints have been raised under the old GATT, none of them has ever resulted in a panel report.

 

Even under the current WTO system, it has been determined that these complaints are admissible. Therefore, even though vast varieties of claims are admissible before the WTO dispute settlement body, in-order to be adjudicated, they must result in nullification or impairment (or possibly the impeded attainment of an objective). This protects the intention to maintain the negotiated balance of concessions and benefits between the WTO Members. It was GATT practice and it is now WTO law that a violation of a WTO provision triggers a rebuttal presumption of nullification or impairment of trade benefits (Article 3.8 of the DSU).

 

3. WTO DISPUTE RESOLUTION

 

The WTO’s Dispute Settlement Understanding evolved out of the ineffective means used under the GATT for setting disagreement among members. Under the GATT, procedures for setting disputes were ineffective and time consuming since a single nation whose action s 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 by far the process has met with relative success.

 

The WTO’s strengthened dispute resolution mechanism was designed to have the authority to sort out the “fine line between national prerogatives and unacceptable trade restrictions”. It is the central pilar of the multilateral trading system and the WTO’s unique contribution to the stability of the global economy. Without the means of settling disputes, the rules-based system would be less effective because the rules could not be enforced. The WTO’s procedure underscores the rule of law, and it makes the trading system more secure and predictable. The system is based on clearly-defined rules, with timetables for completing a case. First ruling are made by a penal and endorsed (or rejected) by the WTO’s full membership. Appeal based on points of law are possible. However, the point is not to pass judgement. Th priority is to settle disputes, through consultations if possible.

 

4. OVERVIEW OF THE DISPUTE SETTLEMENT UNDERSTANDING (DSU)

 

The Dispute Settlement Understanding (DSU), formally known as the Understanding on Rules and Procedures Governing the Settlement of Disputes, establishes rules and procedures that manage various arising under the Covered Agreement of the Final Act of the Uruguay Round. All WTO member nation-states are subject to it ad 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 procedure. It provides strict time frames for the dispute settlement process and establishes an appeals system to standardize the interpretation of specific clauses of the agreement. It also provides for the automatic establishment of a panel and automatic adoption of a penal report to prevent nations from stopping action by simply ignoring complains. Strengthen rules and procedures with strict time limits for the dispute settlement process aim at providing “security and predictability to the multilateral system” and achieving “a solution mutually acceptable to the parties to a dispute and consistent with the covered agreement”.

 

The basic stages of dispute resolution covered in the understanding including consultation, good offices, conciliation and mediation, a penal clause, Appellate Body Review and remedies.

 

5. STAGES FOR SETTLEMENT OF DISPUTE:

 

i) Consultation (up to 60 days)

 

Before taking any other actions the countries in dispute have to talk with each other to see if they can settle their differences by themselves. If that fails, they can also ask the WTO Director-General to mediate or try to help in any other way.

 

ii) Penal Phase

 

If consultation fails to settle the dispute, the complaining party may request the formation of penal. The Dispute Settlement Body shall form a penal, “unless at that meeting the Dispute Settlement Body decided by consensus not to establish a penal”. Penal shall be composed of well-qualified governmental and/or non-governmental individuals with a view to ensuring the independence of the members, and whose government are not the parties to the dispute, unless the parties to the dispute agree otherwise. Three panelists compose a penal unless the parties agree to have five panelists.

 

When multiple parties request the establishment of a penal with regard to the same manner, the DSU suggests a strong preference for a single penal to be established “to examine these complains taking into account the rights of all member concerned”. The DSU gives any member that has “a substantial interest in a matter before a penal” (and notifies “its interest to the Dispute Settlement Body”) and opportunity “to be heard by the penal and to make written submission to the penal”.

 

“The Penal shall submit it findings in the form of written report to the Dispute Settlement Body”. As a general rule, it shall not exceed six (6) months from the formation of the penal to submission of the report to the Dispute Settlement Body. In case of urgency, including those concerning perishable goods, the deadline line is shortened to the three (3) months.

 

iii) Appellate Body Review

 

The Dispute Settlement Body (DSB) establishes a standing Appellate Body that will hear the appeals from penal 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 recognised authority, with demonstrate expertise in law, international trade and the subject-matter of the Covered Agreements generally”. The Body shall consider only “issue of law covered in the penal report and legal interpretations developed by the penal”. Its proceeding shall be confidential and its reports anonymous. Decisions made by the Appellate Body “may uphold, modify, or reverse the legal findings and conclusions of the penal. The DSB and the parties shall accept report by the Appellate Body without amendments unless the DSB decides by consensus not to adopt the Appellate Body report within thirty (30) days following its circulation to the members.

 

iv) Good Offices, Conciliation and Mediation

 

Unlike the consultation in which ‘a complaint has the power to force a respondent to reply and consult or face a penal’, good offices, conciliation and mediation are undertaken voluntarily if the parties to the dispute agree. No requirement on form, time or procedure for them exist. Any party may initiate or terminate them any time. The complaining party may request the formation of penal if the parties to the dispute jointly consider that the good offices, conciliation or mediation has failed to settled the dispute.

 

v) 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 party must reach mutual agreement to arbitration and the procedure to be followed. Agreed arbitration must be notified to all the members prior to the arbitration process. Third parties may become party to the arbitration only upon the agreement of the parties have agreed to have recourse to arbitration. The parties to the proceedings must agree to abide by the arbitration award.

 

vi) Remedies

 

There are consequences for the member whose measure or trade practice is found to violation the Covered Agreement by a penal or Appellate Body. The dispute penal issues recommendation 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 complaint 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 authority from the DSB to suspend the application to the member concerned of concessions or other obligations under the Covered Agreement.

 

Retaliation shall be first limited to the same sectors. 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 penal, if members are available or an arbitrator appointed by the director-general my conduct arbitration.

 

6. WTO’S DISPUTE SETTLEMENT SYSTEM IN OPERATION

 

Now that the WTO dispute Settlement procedures have been in use, it is possible to make tentative analysis of the impact of this institutional evolution of the international trading system. A rich variety of cases have been addressed by the WTO dispute settlement procedures. These includes complains against countries with economics as small as Guatemala, and as large as the European Union.

 

Japan Alcohol Case

 

A U.S. complaint against Japan that resulted in a dispute settlement panel decision adopted in July of 1996 will require a 40 percent reduction of the Japanese tax on alcohol imports, which will add tens of millions of dollars in exports to U.S. producers. The panel agreed with U.S. claims that the Japanese Liquor Tax Law that provided for lower taxes on Japanese produced liquor called Shochu, versus a higher one on whisky, cognac and wine spirits, was a violation of the GATT Article III, Section 2, national treatment provisions. 

 

The Cotton Underwear Case

 

In the Cotton Underwear case, the panel found the U.S. measure inconsistent with trade agreements. However, the U.S. measure was allowed to expire a little over a month after the panel report, as amended by the Appellate Body, was adopted, bringing the United States automatically into compliance with the decision. This suggest that the U.S. Government was able to signal its willingness to abide by WTO panel rulings by choosing not to renew a regulation that was set to expire.  

  

United States - Section 301

 

This case, brought by the European Communities (EC) in 1997, challenged the United States' use of unilateral trade measures under Section 301 of its Trade Act of 1974. The dispute raised important questions about the compatibility of such measures with WTO rules, particularly regarding the consistency of unilateral trade actions with the WTO's dispute settlement procedures.

 

Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan

 

In this case, Japan challenged the anti-dumping measures imposed by the United States on certain steel products. The Appellate Body's ruling in 1999 clarified the requirements for demonstrating "injury" to the domestic industry and highlighted the need for a transparent and objective assessment in anti-dumping investigations.

 

European Communities - Measures Affecting Asbestos and Asbestos-Containing Products

 

Canada initiated this dispute in 2000, challenging the European Communities' ban on asbestos and asbestos-containing products. The case addressed various issues, including the use of scientific evidence in determining health risks, the application of the precautionary principle, and the scope of justifiable trade restrictions.

 

Continued Dumping and Subsidy Offset Act of 2000 (Byrd Amendment)

 

Several countries, including the EC, Japan, and Canada, challenged the United States' Continued Dumping and Subsidy Offset Act, also known as the Byrd Amendment. The dispute involved the distribution of anti-dumping and countervailing duties to affected domestic industries, which was deemed inconsistent with WTO rules.

 

Tobacco Plain Packaging

 

This case, initiated by several tobacco-producing countries (including Cuba, Honduras, Indonesia, and the Dominican Republic), challenged Australia's plain packaging measures for tobacco products. The dispute raised significant questions about the balance between public health objectives and intellectual property rights under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

 

7. CONCLUSION

 

At last, we can say that, the dispute settlement mechanism of the World Trade Organization (WTO) plays a crucial role in ensuring the effective functioning of the global trading system. The dispute settlement process under the WTO is vital for maintaining a rules-based global trading system, resolving conflicts, protecting market access, and promoting stability and predictability in international trade.