Dispute Settlement in the World Trade Organization

Introduction

The purpose of this report is to discuss the dispute settlement process of the World Trade Organization (WTO), dispute settlement before the Uruguay Round, the position of developing countries under WTO dispute settlement, the current settlement process, and specific cases that take a long time to resolve under WTO dispute settlement. However, Crowley (2) argued that developed countries indented to establish some institutes to recover their economic position after the Second World War; therefore, they formed GATT¹ in 1948 to ensure the open opportunity of free-market entry, to represent a framework for negotiating and formalizing trade agreements, and to give dispute resolution procedures for the member states (Crowley 2).

In addition, Crowley (2) stated that the Uruguay Round of GATT in 1994 urged to form WTO and WTO established in 1995 as a new global organization by replacing GATT with the US support to control and liberalize international trade, set the rules for international trade and reduce trade barriers between the states. All members of WTO had signed the agreement and member states would enjoy the facilities of a free-market economy, but members are bound to follow the provisions of the terms and conditions of this organization, tariff policy, market access commitments with others, and so on; otherwise, affected nation for such breach can take legal action under WTO dispute settlement process.

The Pre-Uruguay Round Dispute Settlement

USDA (2) reported that the GATT dispute settlement process had depended totally on GATT Art. XXIII, under which members of this organization could seek advantages, for instance, members were able to complain about the serious breach of an agreement to investigate the issues to mitigate the situation by giving a solution. At the same time, USDA (3) further pointed out that the conflicting parties had not expected to settle the dispute before a meeting of all GATT contracting parties though the above-mentioned article broadly discussed the entire process and incorporated vast provisions to settle dilemmas by negotiations of an ITO².

On the other hand, USDA (3) also identified that Article XXIII had included further steps of litigation if the conflicting parties failed to resolve the conflict at the negotiation stage, but it should need to address that GATT required long-time to deal with the particular case due to large stake quantity of unsettled disputes and to the clumsy character of an adjudicative system. In this circumstance, GATT introduced a method of arbitration by panels of judges; however, the conflicting parties had the opportunity to select three judges, which facilitated them to settle the case and GATT was able to hear the case and give rulings to solve many cases under the aforementioned article, for example, the first official decision came into force in 1966 (USDA 3). This system gave temporarily relieved to the parties because this approach had some fundamental problems, for example –

• GATT had not included the traditional procedure of adversarial adjudication (USDA 3);
• In addition, GATT concentrated more on the diplomatic notions of the necessity of consultation between contracting parties;
• Furthermore, GATT negotiations had concentrated far more on obtaining tariff concessions than on developing long-term trading regulations;
• Traditionally, the US has been the most litigious member and pre-Uruguay round dispute settlement frustrated this developed country, for instance, the provision of “block” panel formation was not accepted to the US.

WTO Dispute Settlement Process

Read (8) pointed out that before the negotiation of the Uruguay Round, there was rising demand from the GAAT signing parties to reform and mineralize the dispute resolution process for international trade and to reduce US unilateral action allowed by the federal law that safeguarded the US interest to dominate all the settlement process.

The conciliation of the Uruguay Round in 1986 provided the ‘dispute settlement understanding’ of WTO as an adjustment and perfection of GATT dispute resolution process, but US-independent accomplishment remained unchanged along with its allies, under the new provision made it mandatory to amend national trade law complying with WTO requirements. Iida (1) added that the WTO has turned into the most controversial institute not to perform free, fair, and impartial dispute resolution, although it was assumed that the organization would demonstrate the highest effectiveness and neutral role without any liking and disliking to any of the conflicting parties.

WTO (2) pointed out that the DSB³ is the authorized body of the WTO that acts to resolute any trade conflict or disputes and this body is organized with every member state’s representation. DSB enjoys exclusive rights to sort out the panels” of experts to deal with any particular case and also empowered to allow or disallow the resolution of a panel and even the verdict of an appeal that it considers unfavorable or unjust. At the same time, DSB keeps its close observation on the execution of any ruling as well as a recommendation while DSB is also authorized to take any restrictive measures against any country that does not act per the ruling. The following figure demonstrates the entire dispute settlement process of WTO at a glance –

The explanation of the different steps of the dispute settlement process has given as below –

First Step: Consultation

Before going for any action, It is stated in the consultation stage that the conflicting countries would try to negotiate themselves to find any reasonable solution for the dispute, if they do not succeed, any of the conflicting parties could request the director-general of WTO to mitigate the dispute any way other than arbitration providing 60 days deadline;

Second Step: The Panel

While the consultation fails to succeed to bring any reasonable settlement, any of the conflicting countries could ask the DSB of WTO to organize a panel, the panel would be appointed within 45 days and keep active for six months and would continue smooth working there is no complaint against any panel member. Legitimately, the panel would assist the DSB to generate rulings and recommendations, but DSB has the exclusive rights to admit or decline the report of the panel, although it is complex to upset the panel findings as the panel works through the direction of the agreement. The final report of the panel would be submitted to the conflicting parties within six months, for perishable goods the deadline for final recommendations would be lesser than three months. According to the agreement the panel would pursue the following major phases:

• Pre-Hearing Phase: At this phase, both of the conflicting parties would produce their claims in writing to the appointed panel;
• The First Hearing: The plaintiff country and the responding country including other parties who have interest in the dispute would make their case at the first hearing of the panel;
• Rebuttals: The conflicting countries would present their logic of rejecting the opponent’s demand in black and white; moreover, they would take part in an oral crossing with their argument at the second meeting of the panel;
• Requirement of Experts: If the dispute settlement involved technical or scientific issues that the panel is not comfortable with, the panel would appoint experts in the relevant field to assist the panel and to produce the final report;
• The First Draft: The panel would produce an explanatory report that would organize the entire accurate features along with the argument that both the parties have produced in front of the panel and this explanatory report has been named as the first draft that would be provided to both parties for their comment with two weeks deadline;
• The Interim Report: Having the comment from both parties, the panel would prepare the interim report that incorporates overall findings as well as conclusions and send it to the parties asking for their reviews within two weeks;
• Reviews of Both Parties: The parties of the dispute would provide their reviews within two weeks after having that reviews, the panel would arrange another additional convention with both sides;
• The Final Report: The panel would prepare the final report within three weeks and this final report would be given to both parties, at the same time copies of the final report would be distributed among all WTO member countries, if there were any violations of WTO agreement, the panel would recommend how it should be settled;
• The Ruling: If the DSB agree with the findings, the final report of the panel would turn into the ruling of DSB within 60 days of the final report publication, then both parties would get the opportunity to appeal on the report,
• Appeals on Final Report: The appeal may not allow raise any further new issues or reinvestigate the existing evidence, but the appeal would provide scope for the legal interpretation with the concerned law and regulation on which the entire process of arbitration is based on, the deadline fixed for the ruling has granted minimum 60 to maximum 90 days. The Appellate Body would be organized by DSB with any of the three members from seven permanent members of WTO; the Appellate Body would be selected for the term of four years and each member has to adequate knowledge and standard on international law without any affiliation to any government and has rights to modify the final report.

WTO Dispute Settlement of Developing Countries

Mavroidis (1) pointed out that the dispute settlement scheme of WTO in the post-Uruguay round has also failed to demonstrate any further effectiveness to deal with the cases of developing countries; rather than equal treatment to the poor counties, it has plotted huge evidence of a discrepancy in context of legal and economic aspects. The developing countries also suffer from different crises to go to the WTO for dispute resolution, complexity, discrepancy and biased treatment of the DSB and AB has made the developing countries keep themselves away from the settlement process.

It is evidenced that the attitude and treatment of the institute WTO look like a stepmother to the developing countries and it is the perception already developed that deprived countries that the policy of WTO is just to exploit the poor countries and oiling to the reach. Reinhardt (1) explored his views that the role of WTO seems that it ties up the hands and legs of the leaders of developing countries and thrown the in into the ocean to swim, trade liberalization, and legislation amendment may not enough for the WTO to provide equal justice to the developing countries.

The major challenges that the developing countries have to encounter with the dispute settlement procedure of WTO have pointed out as bellow –

Length of Dispute Settlement

It has been demonstrated from the dispute settlement process described in the previous section that the formation of the DSB its function, performance, and limit of power dealing is just autocratic rather than democratic. Staring from the consultation and end to the appeal the time frame required almost one year and three months, the process also incorporated at least twelve face-to-face meetings, discussions, and arguments for negotiation which is intolerable for developing countries (Busch and Reinhardt 7).

Power and Political Feasibility

Shaffer (6) explored that if a poor country would like to get a dispute settlement from the WTO process against a developed country, then the poor country has to suffer from at least three problems such as – scarcity of WTO lawyers, insufficiency of financial resources, and threats of political and economic suppression from EU and US by any autocratic decision. The economic and political suppression and autocracy of EU and US governments through WTO has gained an esteemed stage where the governments of the developing countries are always helpless to their unexpected interference, so the governments are always keeping them away from the WTO dispute settlement.

This is time to unite the people of developing countries against WTO along with other few organizations like World Bank and IMF, the collective action the people against WTO can contribute to providing fair treatment for all disputed parties with any disciplinary among the developed or developing countries.

Cost of the Settlement Process

Freneau (34) pointed out that the associated cost of the dispute settlement process of WTO has strongly accorded with the essential financial resources for which the developing countries are always under challenge, where WTO may provide technical assistance to show an expert or a lawyer with an extremely higher payment, and it may difficult for the poor countries to carry on. The associated cost is too high that developing countries could not effort it for a long time and the time spent for the process has designed to bring them out of their patient and they would some time-bound to leave the settlement process.

Local Legislative Reform

Every nation has its own impeding of national development outlook with their custom and long tradition that always safeguarded by its legislation, for instance, every nationalist government always protect the national industries from the aggression of foreign multinationals, but to be a member of WTO, the government have to open their weak economy to the multinationals. Allowing multination in the own market, the developing countries are not getting equal treatment from WTO, thus, it requires collective protest from the third world.

Specific Cases under WTO Dispute Settlement

EC — Bananas III (DS27)

Normally, it should require about one year to settle a dispute without appeal and need three months more to resolve the disagreement between the parties, but unfortunately, there are many examples where WTO has taken a long time for the proceedings, for instance, the case of Bananas had requested for consultations in1996 and panel reported in 2008.

According to the above-mentioned figure, five countries complained against the European Communities for the importation, distribution, and sale of bananas; however, the following figure and table give more information about this case –

Figure 4: Detailed of EC — Bananas III.

In 2005, Honduras, Nicaragua, and Panama jointly requested consultations with the EC and in 2006, Ecuador asked WTO dispute settlement consultations on the EC import regime for bananas; however, all parties requested to establish a panel to produce a report to find out the facts, including –

• The EC provided trade facilities or preferential treatment to ACP states, which is not consistent with the Art I of the GATT;
• Other countries claimed to protect the EU member states to follow EC Council Regulation 1964/2005, which had introduced a new EC bananas import regime because it was inconsistent with Doha Waiver (Pelzman 24);

However, both parties failed to reach an agreement through consultation and invoked to establish a panel for dispute settlement –

• Panelists had prepared a report for DSB and ruled against EC for failure to reach an agreement on bananas in 2008 (Europa 25; and Pelzman 27);
• However, it is a loophole of the process that there is no provision to punish the party, which breaches the articles of the general assembly; therefore, EC decided to appeal against rulings considering its dissatisfaction with the recommendations of the final report.

However, the Appellate Body upheld the Panel’s finding, for instance –

• It was inconsistent with Art XIII(1) that the allotment of country-tariff quota shares to some specific states not having considerable interest in supplying bananas, but not to others;
• The Lomé Waiver would not use to breach of this provision;
• Bias between African and Latin American countries in terms of application of license allocation would not be consistent with Article 1(1) of GATT;
• According to the report of WTO (8), the EC actions and requirements for the distribution of licenses to import bananas from non-traditional ACP suppliers were inconsistent with Article III(4);
• However, Ecuador has signed Geneva Agreement on Trade in Bananas (GATB); so, settlement of the dispute would largely depend on the certification of the new EU tariff schedule on bananas reflecting tariff reduction commitments, which also bound the Latin American countries not to take any further action until EU is complying the agreement.

DS 396/403 – Discriminatory taxation of spirits

According to the report of Europa (25) and Isip (1), the Philippines had adopted discriminatory taxation policy for the alcoholic beverages products of other countries, which was a complete breach of the provisions of WTO as well as Art 3(2) of GATT 1994; therefore, at the initial stage, EC asked to mitigate this issue by consultations and it took place in Geneva. However, consultations took place in 2009, but no fruitful result was found; in that position, the parties of this allegation had no option to get remedy from this breach, which influenced EC to for further action and requested to form WTO panel in 2010 (Europa 25; and Isip 1). However, the panelists had handled two disputes simultaneously for the convenience (to save time, cost, and efforts of the parties in similar cases) and they prepared final reports and it identified that the Philippines performed inconsistently with its obligations under Art 3(2) (Europa 25; and Isip 1).

However, Isip (1) reported in the Business Insight Malaya that the Philippines (the respondent here) has appealed within the required deadline as this country had not satisfied with the decision of the final report. Finally, Europa (25) mentioned that Appellate Body upheld the decision of the panel because the tariff policy taken by the Philippines was not consistent with the provision of WTO and a complete breach of other related regulations.

DS 376 – Information Technology Agreement

This case has also been carried out for a long time since the dispute started in 2008 and the parties of this case still waiting for the final decision though the parties have already obtained a clear idea (regarding the result) from a different stage of the proceedings. Here, Japan and the United States had applied for WTO consultations with the European Union for the breach of tariff provisions of three specific goods with different features, for instance, modems, LCD monitors, and multifunctional printers; however, China subsequently joined with the claimants in 2008 and asked the same action because above-mentioned goods should categorize under tariff lines. In addition, to discuss this case, Europa (25) stated that the EU should ensure duty-free provision for these goods because the EU had commitments according to their IT agreement and subsequent treaty provisions; however, the EU adopted classified rule and breached Art X(1) and X(2) of GATT1994.

At the consultations with Japan in 2008, Japan requested to dispute settlement body to form a panel along with the other two claimants, but the EU applied its right to oppose the formation; however, the panel was established and panelists tried to resolve the problem, but the parties failed to bring any positive result. However, the panel prepared a report and all parties received it accordingly where it was included that the EU has violated its WTO commitments under art -2 and art-10 though there are some other similar products like multifunction copy machines, television set-top boxes would not essentially fall under this decision (Europa 23).

At the same time, both parties appreciated recommendations of the report as none of the parties to the case appealed against the decision; in addition, the EU had taken all necessary measures to comply with the ruling of DSB, for instance –

• It has considered the time-frame;
• Commission Implementing Regulation (EU) No. 620/2011;
• Statement adopted by the Customs Code Committee in 2011

Conclusion

WTO dispute settlement system is effective and less time-consuming than the provisions of the pre-Uruguay round settlement process. From the above discussion, it can be argued that in most of the cases, the EC complied with the recommendation of the panelists or the decision of the Appellate Body or introduced new regulations to mitigate the dispute. However, the Banana Case demonstrated that developing countries had to face lots of problems while the new procedure took a long-time for settling a dispute.

Works Cited

Busch, Marc & Reinhardt, Eric. “Developing Countries and General Agreement on Tariffs and Trade/World Trade Organization Dispute Settlement.” Journal of World Trade 37.4(2003): 719–735. Web.

Crowley, Meredith 2003, An introduction to the WTO and GATT. Web.

Europa 2012, General Overview of Active WTO Dispute Settlement Cases Involving the EU as Complainant or Defendant and of Active Cases under the Trade Barriers Regulation. Web.

Freneau, Alban. WTO Dispute Settlement System and Implementation of Decisions: A Developing Country Perspective. 2002. Web.

Iida, Keisuke 2004, Is WTO Dispute Settlement Effective? Web.

Isip, Irma. WTO forms panel to hear RP dispute on distilled spirits. 2009. Web.

Mavroidis, Petros 2012, Remedies in the WTO Legal System: Between a Rock and a Hard Place. Web.

Pelzman, Joseph 1999, The WTO Dispute Settlement Mechanism: The Case of Bananas. Web.

Read, Robert 2005, Trade dispute settlement mechanisms: the WTO dispute settlement understanding in the wake of the GATT. Web.

Reinhardt, Eric 2001, Tying Hands Without a Rope: Rational Domestic Response to International Institutional Constraints. Web.

Shaffer, Gregory 2003, How to Make the WTO Dispute Settlement System Work for Developing Countries. Web.

USDA 1998, Improvements in WTO Dispute Settlement. Web.

WTO 2002, Settling Disputes. Web.

Footnotes

1. The General Agreement on Tariffs and Trade.
2. International Trade Organization.
3. Dispute Settlement Body.