PROCEDURE FOR DISPUTE SETTLEMENT IN WTO

In 1994, the WTO members agreed on the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). Dispute settlement is regarded by the WTO as the central pillar of the multilateral trading system, and as a “unique contribution to the stability of the global economy”. WTO members have agreed that, if they believe fellow-members are violating trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally.

Although the dispute settlement system is intended to uphold the rights of aggrieved Members and to clarify the scope of the rights and obligations, which gradually achieves higher levels of security and predictability, the primary objective of the system is not to make rulings or to develop jurisprudence. Rather, like other judicial systems, the priority is to settle disputes, preferably through a mutually agreed solution that is consistent with the WTO Agreement.

The WTO dispute settlement system has been in operation since 1995 and has, during this time, been the most productive of all international dispute settlement systems. During its first ten years, more disputes had been brought to the WTO for settlement than to its predecessor GATT, during its forty-seven years of existence from 1948 to 1995. The operation of the WTO dispute settlement process involves the DSB panels, the Appellate Body, the WTO Secretariat, arbitrators, independent experts and several specialized institutions. The WTO’s dispute settlement procedure underscores the rule of law, and it makes the trading system more secure and predictable. It is clearly structured, with strict timetables set for completing a case. First rulings are made by a Panel. Appeals based on points of law are possible. All final rulings or decisions are made by the WTO’s full membership.

DISPUTE SETTLEMENT:

When the WTO dispute settlement system has only been used since the first of January 1995, it was not a novel system. The system is based on almost fifty years of experience in trade dispute resolution from the GATT 1947. Disputes of today as well as disputes of past times can be solved in many different ways. Essentially there are two methods to reach a peaceful resolution of international disputes:

a)      Through diplomatic negotiations between the concerned parties, with varying interference and assistance by third parties; or

b)      Through adjudication by an independent entity, also called arbitration and judicial settlement.

A dispute arises when one member country adopts a trade policy measure or takes some action that one or more fellow members considers to a breach of WTO agreements or to be a failure to live up to obligations. By joining the WTO, member countries have agreed that if they believe fellow members are in violation of trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally — this entails abiding by agreed procedures (Dispute Settlement Understanding) and respecting judgments, primarily of the Dispute Settlement Body (DSB), the WTO organ responsible for adjudication of disputes^[1]. A former WTO Director-General characterized the WTO dispute settlement system as "the most active international adjudicative mechanism in the world today."

The General Council discharges its responsibilities under the DSU through the DSB^[2]. Like the General Council, the DSB is composed of representatives of all WTO Members. The DSB is responsible for administering the DSU, i.e. for overseeing the entire dispute settlement process. It also has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize the suspension of obligations under the covered agreements^[3]. The DSB meets as often as necessary to adhere to the timeframes provided in the DSU^[4].

PROCEDURE FOR DISPUTE SETTLEMENT IN WTO:

According to Article III.3 WTO agreement, dispute settlement is one of the key functions of the WTO. The rules for settlement are laid down in the Dispute Settlement Understanding (DSU). The procedure for the dispute settlement consists various stages or steps to reach the final implementation of judgment. In this project, the various stages or steps of WTO Dispute Settlement are described below in detail as:

1.      DISPUTE INITIATION STAGE:

The initiation stage of WTO dispute settlement is governed by national law. Although it is not part of the DSU, the question of dispute initiation is useful for the overall positioning and understanding of the procedure in a larger trade policy context. One feature of WTO dispute settlement is that only government has access to WTO dispute settlement in terms of dispute initiation. Private economic actors such as exporters, importers and consumers do not have the right to bring complaints. The initiation of a dispute under the DSU therefore still requires a government decision.[5]

2.      CONSULTATION STAGE:

Once the government of the complainant country has decided to bring a trade dispute to the WTO, the provisions of the Dispute Settlement Understanding (DSU; Annex 2 to the WTO Agreement) govern the proceedings. The first stage of any dispute settlement procedure consists of mandatory consultations between the complainant and the defendant. Complainant, who alleges that Defendant has violated WTO provisions, thereby nullifying or impairing complainants’ benefits under the agreements, has the right to ask defendant to enter into consultations in order to find a mutually acceptable solution to the problem.[6] Such consultation requests shall be made in writing. They shall contain the reasons for the request, and identify the measures and the legal basis for the complaint.[7] Consultation requests shall be notified to the Dispute Settlement Body.

Defendant is normally obliged to answer within 10 days after receipt of the consultation requests, and it shall enter into such consultations within 30 days.[8] The consultations are confidential. However, a third party which considers that it has a ‘substantial trade interest’ in the consultations may notify the consulting Members and the DSB of its interest. It shall be joined in the consultations if the other parties agree to the claim of substantial interest. If the third party is not allowed to join the consultations, it may request its own consultations.[9] Good offices, conciliation and mediation are procedures that are undertaken voluntarily if the parties to the dispute so agree.[10]

If a mutually acceptable solution for the dispute has been found, it shall be notified to the DSB.[11] The DSU has a clear preference for mutually acceptable solutions over the solution of disputes through panel procedures.[12] It prescribes, however, that such mutually agreed solutions shall be consistent with the multilateral trade agreements, and that they shall not nullify or impair the benefits accruing to any member under these agreements.[13] If Defendant refuses to enter into consultations, or if no mutually acceptable solution can be found within 60 days, Complainant has the right to ask the DSB to establish a panel.[14]

3.      PANEL STAGE:

 ·          Establishment of Panels:

If consultations fail to resolve the dispute within 60 days, complaining party may ask the DSB to establish a panel. If a developing country member is involved, 60 day period could be extended. In practice consultations continue even beyond 60 days and even during panel process. Panels do encourage the members to find a mutually agreed solution.[15]

Panel requests must be formulated in writing. They must contain details on whether consultations have been held, which measures are the subject of the complaint and which rules of the multilateral trade regime are concerned.[16] Following a request a panel is usually established at the second meeting of the DSB where the panel request appears on the DSB’s agenda, unless the DSB decides by consensus not to establish the panel.[17] In other words, the time between the first and the second DSB meeting with the request on the agenda may be used for further consultations. By the time of the second meeting, agenda control shifts to the complainant as the latter would have to consent not to establish a panel. The reverse consensus rule for the establishment of panels is a new feature of dispute settlement in the WTO, as has been pointed out in the preceding chapter.[18]

                                   ·          Composition of Panels:

Panels typically consist of three panelists, unless the parties agree to a panel composed of five panelists.[19] Panelists are usually governmental or non-governmental trade experts, including officials, diplomats or academics. They are appointed ad hoc, although the WTO maintains a roster from which panelists can be chosen.[20] Citizens of member countries whose governments are involved in a specific dispute shall not serve on that panel.[21] The secretariat shall propose nominations for the panel which shall be accepted by the parties. Such nominations shall not be opposed by Members, except for ‘compelling reasons’. If the parties cannot agree on the panelists, the Director General of the WTO is called upon to determine the composition of the panel.[22] When acting on a panel, panelists shall serve in their individual capacities and independent from instructions of their governments. Further rules for observance by panelists are contained in specific rules of conduct. In disputes involving developing countries, at least one panelist from a developing country shall be included if the developing country members so request.[23]

                                   ·          Terms of Reference of Panels:

Panels shall have the following terms of reference unless the parties to the dispute agree otherwise within 20 days from the establishment of the panel. The Appellate Body in case of Brazil — Desiccated Coconut[24] explained the importance of the terms of reference. “A panel’s terms of reference are important for two reasons. First, terms of reference fulfill an important due process objective — they give the parties and third parties sufficient information concerning the claims at issue in the dispute in order to allow them an opportunity to respond to the complainant’s case. Second, they establish the jurisdiction of the panel by defining the precise claims at issue in the dispute.”

In case of Australia — Apples,[25] the Panel observed that according to established jurisprudence, it is the panel’s terms of reference that “define the scope of a dispute”. The Panel also emphasized that a panel’s mandate or terms of reference are determined by the request for the establishment of the panel.

                                   ·          Functions of Panel:

The panel’s task is to assist the DSB in making rulings and recommendations under the covered agreements. In practice, this usually means the establishment of a report on whether or not a trade measure constitutes a violation of multilateral trade rules. To this purpose, a panel shall make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements.

                                   ·          Panel Procedures:

Panel procedures include written submissions of the parties to the disputes and panel hearings. Two so-called ‘substantive meetings’ normally take place before the interim report is issued, and another meeting takes place after the interim report is issued. If necessary, more meetings can be arranged. The panel enjoys a right to information and technical advice from anyone it deems appropriate. Panels may also request advisory reports from expert review groups. Parties’ submissions to the panel shall be treated as confidential but shall be made available to the parties to the dispute. Disputing parties have a right to disclose statements of their own to the public. Members may also ask disputing parties to provide a non-confidential summary of the information contained in written submissions which may be disclosed to the public. However, there is no time frame for the fulfillment of this obligation.

Even during the panel stage, both parties are encouraged to continue their search for a mutually acceptable solution. To this end, panels should also consult regularly with the parties to the dispute and give them adequate opportunity to develop a mutually satisfactory solution. Moreover, the panel has the authority to suspend its procedures for a maximum of months upon the complainant’s request in order to allow for further bilateral negotiations. If the work of a panel has been suspended for more than 12 months, its authority lapsed.

                                   ·          Panel Reports:

As during consultations, third party enjoys specific rights during the panel stage. Having notified their substantial interest in a matter to the DSB, they shall be heard by panel and their submissions shall be reflected in the panel report. They also receive the submissions of the disputing parties to the first meeting of the panel and they may request their own panel under the DSU. Specific rules apply for cases involving multiple complainants.

If no mutually acceptable solution can be agreed upon during the panel stage, the panel shall issue its final report within six or, under exceptional circumstances, within nine months. The deliberations of the panel are confidential, and the reports are drafted without the presence of the parties. Opinions expressed by individual panelists in the report are anonymous. Before the final report, the panel issues an interim report which is circulated to the parties to the dispute. If this interim report is not commented by the parties, it constitutes at the same time the final report to the DSB.

Where the panel has found a trade measure to be in violation of WTO law, it recommends that the party concerned bring its trade regime into conformity with its WTO obligations. The panel may also suggest possible ways of implementation. This, however, is rarely done. Panel findings and recommendations may not add to the rights and obligations of members. Where no party notifies its intention to appeal findings of the panel report, the DSB adopts the panel report, unless it decides by consensus i.e. with the vote of the prevailing party – not to adopt the report.

4.      APPELLATE REVIEW STAGE:

Both the complainant and the defendant have the right to appeal a panel report. Third parties do not have the right to appeal a report but they may make written submissions to and be heard by the Appellate Body in the course of an appeal if they had previously notified the DSB of their substantial interest during the panel stage.

The responsibility for the appeal lies with a permanent organ, the Appellate Body. It consists of seven persons, three of whom (i.e. a division) work on any case. Appellate Body members shall have demonstrated expertise in law, international trade and the subject matter of the multilateral trade agreements.[26] They are appointed for a four-year term which is renewable once. They shall be unaffiliated with any government. In contrast to the panel stage, there is nothing in the DSU which would prevent an Appellate Body member from serving on a case involving his home country. Further rules for observance by Appellate Body members are contained in the rules of conduct.

An appeal is limited to issues of law and legal interpretations in the panel report.[27] This stage of dispute settlement does not include another fact-finding process, nor does the DSU currently grant the Appellate Body the authority to remand an issue to the panel for further fact- finding. But if the findings involve application of a legal rule to facts then it has been ruled to be finding of law.[28]

Article 17.13 of DSU said that Appellate Body may uphold, modify or reverse the legal findings and conclusions of the panel.[29] In case of US - Wheat Gluten[30], Appellate Body stated that though panel found several deficiencies in the USITC report yet panel found that the report provided an adequate, reasoned and reasonable explanation with respect to ‘profits and losses’, but Appellate Body ruled that Panel did not make objective assessment of facts as required by Art.11 of DSU and reverse their finding.

When a case is reached to Appellate Body, he has two options; either to leave the dispute unresolved or go on a complete legal analysis. In Australia­­ - Salmon[31] and in few other cases, the Appellate Body has completed the ‘legal analysis’ to avoid a situation where the dispute between the parties remains unresolved.

In order to appeal a panel report, a country notifies its intention to appeal to the DSB before adoption of the panel report and submits a notice of appeal. It shall include, inter alia, a brief statement on the nature of the appeal including the alleged errors in the issues of law covered in the panel report and the legal interpretations adopted by the panel.[32] Within 10 days after filing the notice of appeal, the appellant has to file its appellant’s submission with more specific information.[33] Within 25 days after the notice of appeal has been filed, the appellee may present its submission.[34] Thirty days after the filing of the notice of appeal, an oral hearing shall take place.[35] Parties’ submissions to the Appellate Body shall be treated as confidential but shall be made available to the parties to the dispute. Disputing parties have a right to disclose statements of their own to the public. Members may also ask a disputing party to provide a non-confidential summary of the information contained in its written submission which may be disclosed to the public. However, there is no time-frame for the fulfillment of this obligation.[36] Further rules for appellate review are included in the Working Procedures for Appellate Review.

The Appellate Body has 60 days (following the appellant’s notification of its decision to appeal a panel report) to finish its report for the DSB.[37] In its report, the Appellate Body can uphold, modify or reverse the panel’s findings.[38] As is the case with panel reports, the deliberations of the Appellate Body shall be confidential and the reports shall be drafted without the presence of the parties.[39] Opinions expressed in the Appellate Body report shall be anonymous.[40] Appellate Body decisions shall be taken by consensus wherever possible; otherwise, decisions shall be made by majority votes.[41] Collegiality plays a vital role in the work of the Appellate Body.[42]

Once the report has been finished and circulated to the members, it shall be adopted by the DSB and unconditionally accepted by the parties within 30 days from the date of circulation unless the DSB decides by consensus (i.e. with the agreement of the prevailing party) not to adopt it.[43] Like panel reports, Appellate Body reports may not add to or diminish the rights and obligations of members.[44]

Overall, the total duration from the date of the establishment of the panel until the date when the Appellate Body report is considered for adoption shall not exceed nine months in cases where no appeal is made, or 12 months in cases with appeal.[45]

5.      IMPLEMENTATION STAGE:

Where a panel and/or the Appellate Body have reached the conclusion that a trade measure of a country is not compatible with its obligations under any of the multilateral trade agreements, it recommends that the member state shall bring its measure into conformity with the WTO agreement. Although the panel or Appellate Body is free to make suggestions on how this conformity can be reached[46], they have used this authority only rarely as they obviously do not wish to interfere in member governments’ policies.

The member whose trade measure has been found to be in violation of WTO obligations shall communicate to the DSB how it plans to implement the DSB recommendations. As a general rule, the recommendations and rulings should be implemented immediately, or within a ‘reasonable period of time’. If the parties to the dispute cannot agree on a reasonable period of time, it will be determined by binding arbitration within 90 days after the adoption of the recommendations and rulings. It should not exceed 15 months, but it can be adjusted upwards or downwards in exceptional circumstances.[47] The DSU requires that the DSB keeps the implementation of adopted recommendations under surveillance and that the implementation of rulings is placed on the DSB agenda after 6 months following the determination of the reasonable period of time, unless the DSB decides otherwise. The dispute remains on the agenda until it is resolved. During this time, the defendant party is required to submit written status reports to the DSB 10 days prior to each meeting with information on the progress in the implementation of the recommendations and rulings.[48]

6.      COMPENSATION AND SUSPENSION OF CONCESSIONS:

Where no implementation occurs, the DSU provides for compensation or for the suspension of concessions or other obligations as of temporary relief in case of non-compliance. However, neither compensation nor the suspension of concessions or other obligations is preferred to full implementation.[49] Upon request from the complainant, the defendant shall enter into negotiations with a view to developing mutually acceptable compensation. Where no satisfactory compensation has been agreed within 20 days after the date of expiry of the reasonable period of time, the complainant may request authorization from the DSB for the suspension of concessions or other obligations vis-à-vis the defendant.[50]

According to the rules on ‘cross-retaliation’ as laid down in Article 22.3 DSU, the general principle is that such suspension should occur in the same sector as that where the violation has occurred. If this is not deemed practicable or effective by the complainant, the complainant may seek redress in other sectors of the same agreement, or even under other agreements, provided that the circumstances are serious enough.

In case of EC - Banana III[51], US sought DSB authorization to suspend concessions in trade in goods. EC objected contending that authorization should have been requested to suspended concessions in the service sector alone as the Appellate Body ruling related to that. But Arbitrators rejected EC’s argument stated that US has the right to seek suspension of concessions in either or both, goods and services, sectors up to the overall level of nullification or impairment suffered.

The level of the suspension of concessions or other obligations shall be equivalent to the level of nullification or impairment suffered by the complainant. If the defendant objects to the level of suspension proposed, or if it claims that the rules on cross- retaliation have not been followed, the matter shall be referred to binding arbitration. This arbitration shall be completed within 60 days after the reasonable period of time has lapsed. Where available, the original panel shall act as arbitrator. Concessions may not be suspended while the arbitration is in course.

Findings of non-compliance with regard to implementation cannot be made unilaterally by the complainant. They must be made using the multilateral rules and procedures, as Article 23 DSU stresses. The objective of this provision is to avoid unilateral determinations of non- compliance which lead to unilateral trade measures by individual member countries and which would seriously undermine the credibility of the multilateral trade regime and its ‘monopoly of power’ with regard to determinations of compliance and non-compliance under the covered agreements.

7.      ARBITRATION STAGE:

If the member objects to the level of suspension proposed or claims that the principles and procedures set forth in Art. 22.3 have not been followed where a complaining party seeks authorization to suspend concessions or other obligations under Art. 22.3 (b) or (c), the matter is referred to arbitration by the original panel. Arbitrator does not examine the nature of the concessions or other obligations proposed to be suspended by the member. They fall outside the arbitrators’ jurisdiction. What they do have to determine is whether the overall proposed level of suspension is equivalent to the level of nullification and impairment.[52] The decision of the arbitrator is final and binding on the parties.

US - Gambling Case[53]: Antigua and Barbuda, a small independent commonwealth country, with few natural resources, relies on tourists and gambling revenues. But US passed law banning internet gambling.  Here panel and appellate body ruled in favor of Antigua and Barbuda that the US measures was inconsistent with its obligations under GATS. On 2007, Antigua sought to suspend concessions or related obligations under TRIPs Agreement amounting to an annual value of US$ 3.44 billion which it considers to “match the level of nullification or impairment of benefits.” But arbitrator determined the annual level of nullification or impairment of benefits accruing to Antigua to be US$ 21 million and allowed it to seek authorization from DSB, to suspend the obligations under TRIPs Agreement of the value of US$ 21 million annually.

CONCLUSION

This Project has set forth the steps regarding the procedure of the Dispute Settlement Body in solving the dispute. Having reviewed the dispute settlement procedure as it is laid down in the Dispute Settlement Understanding, it becomes clear that the dispute settlement rules of today combine both political and legal elements and that they constitute something of a ‘middle ground’ between political/diplomatic negotiations and third party adjudication also. The DSU thus combines both the rule-oriented and the diplomatic, negotiation-oriented traditions of its evolution. The scope of panel and Appellate Body recommendations has been clearly limited as they may not add to or diminish the rights and obligations of Members.

Besides the procedures laid down in Section 3.3, the DSU provides rules for alternative means of dispute settlement. These are good offices, conciliation and mediation (Article 5 DSU), or arbitration (Article 25 DSU). As they have neither been frequently used in DSU practice nor been among the central topics of the DSU review, we will abstain from offering a detailed account on these procedures.

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