Dispute Settlement Machanism of Wto

DISPUTE SETTLEMENT MACHANISM OF WTO


SUBMITTED TO : MS. TITASHA BANERJEE

SUBMITTED BY: SHIKHA GUPTA

10LLB019

BY : SHIKHA GUPTA 10LLB00191


CONTENTS

TOPICS PAGE NUMBER

INTRODUCTON O3

PRINCIPLES: EQUITABLE, FAST, EFFECTIVE, MUTUALLY ACCEPTABLE

04

DISPUTE SETTLEMENT IN THE WORLD TRADE ORGANIZATION

07

SUMMARY OF TIME PERIODS WITHIN THE DISPUTE SETTLEMENT MECHANISM

12

THE CASE HAS BEEN DECIDED: WHAT NEXT?

13

CONCLUSION14



INTRODUCTON

The dispute settlement procedure of the World Trade Organization (WTO) is

governed by the Understanding on Rules and Procedures Governing the Settlement of

Disputes (DSU). With certain exceptions, the DSU is uniformly applicable to

differences that arise in the context of all WTO agreements. In some cases, the

“Special or Additional Rules and Procedures Contained in the Covered Agreements”

apply (article 1.2 and appendix 2 of the DSU).

WTO demands that all its Members respect the rules in the interests of a safer and

more reliable multilateral trade system. In this sense, WTO Members have agreed

that, when they judge that other Members have broken trade rules, they shall refer the

matter to the dispute settlement mechanism rather than adopting unilateral measures.

This involves complying with the agreed procedures and respecting the decisions

reached by the dispute settlement bodies set up for that purpose.

Forum / Jurisdiction

The WTO dispute settlement system has jurisdiction over any difference that may

arise between Member countries, above and beyond the provisions of any of the

“Covered Agreements” provided for in appendix 1 of the DSU. That is to say, a

dispute based on the violation of WTO rules can only be dealt with by the multilateral

forum, rather than by regional dispute settlement mechanisms.

Bodies

WTO bodies include the political institution known as the Dispute Settlement Body

(DSB) and

- Comprises a chairman (head of the permanent mission of one of the Member

countries appointed by consensus among the Members of WTO) and representatives

of all WTO Members (government representatives, usually diplomats who belong to

ministries of trade or foreign affairs). In their capacity as government officials, the

representatives receive instructions from their governments on the positions they must

adopt and the statements they must make within the DSB, hence the latter is

considered a political body.



- The DSB is responsible for the application of the DSU, in other words it oversees

the entire dispute settlement procedure. It has the authority to set up panels, adopt

panel and Appellate Body reports, monitor the application of recommendations and

authorize retaliatory measures when a Member fails to comply with rulings.

- The DSB usually meets once a month, and the Director-General may convene

extraordinary meetings at the request of Members. The staff of the WTO Secretariat

provide administrative support to the DSB.

- As a general rule, the DSB makes decisions by consensus. However, when the DSB

sets up panels, adopts reports or authorizes retaliation, the decision is automatically

considered to be adopted, unless there is a consensus to the contrary (a negative

consensus).

The full WTO dispute settlement process involves parties and third parties, the

Dispute Settlement Body, Panels, the Appellate Body, WTO Secretariat, arbitrators,

independent experts and various specialized agencies.

Principles: equitable, fast, effective, mutually acceptable

Disputes in the WTO are essentially about broken promises. 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. That

means abiding by the agreed procedures, and respecting judgments.

A dispute arises when one country adopts a trade policy measure or takes some action

that one or more fellow-WTO members considers to be breaking the WTO

agreements, or to be a failure to live up to obligations. A third group of countries can

declare that they have an interest in the case and enjoy some rights.1

A procedure for settling disputes existed under the old GATT, but it had no fixed

timetables, rulings were easier to block, and many cases dragged on for a long time

inconclusively. The Uruguay Round agreement introduced a more structured process

with more clearly defined stages in the procedure. It introduced greater discipline for

the length of time a case should take to be settled, with flexible deadlines set in

various stages of the procedure. The agreement emphasizes that prompt settlement is

essential if the WTO is to function effectively. It sets out in considerable detail the

procedures and the timetable to be followed in resolving disputes. If a case runs its

full course to a first ruling, it should not normally take more than about one year —

15 months if the case is appealed. The agreed time limits are flexible, and if the case

is considered urgent (e.g. if perishable goods are involved), it is accelerated as much

as possible.

The Uruguay Round agreement also made it impossible for the country losing a case

to block the adoption of the ruling. Under the previous GATT procedure, rulings

could only be adopted by consensus, meaning that a single objection could block the

ruling. Now, rulings are automatically adopted unless there is a consensus to reject a

ruling — any country wanting to block a ruling has to persuade all other WTO

members (including its adversary in the case) to share its view.

Although much of the procedure does resemble a court or tribunal, the preferred

solution is for the countries concerned to discuss their problems and settle the dispute

by themselves. The first stage is therefore consultations between the governments

concerned, and even when the case has progressed to other stages, consultation and

mediation are still always possible.

1 https://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm



DISPUTE SETTLEMENT IN THE WORLD TRADE

ORGANIZATION

independent and quasi-judicial institutions that are the Panels, the Appellate Body and

Arbitrators:



I – Dispute Settlement Body (DSB) - article 2 of the DSU 2

II – Director-General and Secretariat of WTO

- The Director-General of WTO participates in the Dispute Settlement Body (DSB) in

the following ways: The Director-General may, acting in an ex officio capacity, offer

good offices, conciliation or mediation with the view to assisting Members to settle a

dispute (article 5.6 of the Understanding on Rules and Procedures Governing the

Settlement of Disputes (DSU)), especially in cases involving a less developed

country;

DISPUTE SETTLEMENT IN THE WORLD TRADE ORGANIZATION

independent and quasi-judicial institutions that are the Panels, the Appellate Body and

Arbitrators:

I – Dispute Settlement Body (DSB) - article 2 of the DSU 3

II – Director-General and Secretariat of WTO

- The Director-General of WTO participates in the Dispute Settlement Body (DSB) in

the following ways: The Director-General may, acting in an ex officio capacity, offer

good offices, conciliation or mediation with the view to assisting Members to settle a

dispute (article 5.6 of the Understanding on Rules and Procedures Governing the

Settlement of Disputes (DSU)), especially in cases involving a less developed

country; if there is no agreement on the panelists, at the request of either party, the

Director-General, in consultation with the Chairman of the DSB and the Chairman of

the relevant Council or Committee, shall convene DSB meetings and determine the

2 This information comes from the official WTO website:

http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm#intro.

3 This information comes from the official WTO website:

http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm#intro.



composition of the panel (article 8.7);

The Director-General appoints an Arbitrator to determine a reasonable period of time

if the parties are unable to agree on a period of time or the appointment of an

Arbitrator (article 21.3 c);

The Director-General shall examine proposed retaliatory measures in cases of non-

implementation (article 22.6).

Within the Dispute Settlement Body (DSB), the Secretariat can act in the following

ways (article 27): Reports to the Director-General; provides assistance in respect of

dispute settlement to Members at their request; organizes special training courses and

provides additional legal advice and assistance to developing country Members;

provides assistance to parties in the formation of panels; and helps established panels

and provides administrative support to the DSB.

III - Panels - articles 6, 7 and 8 of the DSU

- Panels are quasi-judicial bodies responsible for settling differences between

Members in the first instance.

- They comprise three, and in exceptional cases five, experts specially selected for

each case (there is no permanent panel, but rather a different one is set up for each

case). WTO Members regularly put forward names to be included in the list kept by

the Secretariat. People appointed to a panel provide their services independently, in an

individual capacity, and not as a representative of any government or organization.

IV – Appellate Body - article 17 of the DSU

- Unlike the panels, the Appellate Body is a standing body made up of seven members

appointed by the DSB by consensus and for a period of four years, with a maximum

of two terms. The Appellate Body examines the legal aspects of panel reports (rather

than studying evidence or facts), and represents the second and final instance of the

legal process.

V - Arbitrators - article 25 of the DSU



- Arbitration is an alternative means of dispute settlement to panels and the Appellate

Body. Arbitrators can thus be called on to resolve certain issues at various stages of

the dispute settlement process (when there is no agreement on determining the

reasonable period of time or on the level of retaliation). Arbitral awards are not

subject to appeal and may be enforced by the DSB.

VI - Experts - article 13 and appendix 4 of the DSU

- Panels may seek the opinions of experts in dealing with technical or scientific issues,

such as when the case relates to the Agreement on the Application of Sanitary and

Phytosanitary Measures, Agreement on Technical Barriers to Trade, or the Agreement

on Subsidies and Countervailing Measures.

- Groups of experts act under the authority of the panel, and provide the latter with

their opinion. These groups carry out a purely consultative role. The final decision on

legal issues and fact-finding, based on expert opinion, remains with the panel.

The dispute settlement procedure in full

Pre-litigation stage

Consultations: A filing of a “Request for Consultations” is the official beginning of

the dispute within WTO and brings the Understanding on Rules and Procedures

Governing the Settlement of Disputes (DSU) into play. Consultations provide parties

with the opportunity to debate the issue and find a satisfactory solution without

resorting to litigation. The party complained against must reply to the request within

10 days after the date of its receipt and shall enter into consultations in good faith

within a period of no more than 30 days after the date of receipt of the request. If the

Member does not comply with this time frame, then the Member that requested the

holding of consultations may proceed directly to the litigation stage and request the

establishment of a panel. If the consultations fail to settle a dispute within 60 days

after the date of receipt of the request for consultations, the complaining party may

request the establishment of a panel (article 4.7). However, governments are in

permanent contact, and agreement may be reached at any stage of the process (article

4). Along with good offices, conciliation and mediation, consultations are the main

non-judicial or diplomatic instrument in the WTO dispute settlement system.



Litigation stage

1st stage (panel): If the consultations fail to settle a dispute, the complaining party

may request establishment of a panel by the Dispute Settlement Body (DSB). The

panel must be established within 45 days of the request. Once established, the panel

must produce a report for the DSB within six to nine months. This report must include

an objective assessment of the facts of the case and an examination of the measures in

dispute, using the relevant provisions of the appropriate legal instruments.

2nd stage (optional recourse to the Appellate Body): The Appellate Body examines

the legal aspects of the challenge and may uphold, modify or reverse the legal

findings and conclusions of the panel (article 17.13).

According to the Understanding on Rules and Procedures Governing the Settlement

of Disputes (DSU), parties may adopt three positions in relation to reports:

Implementation: it is insisted that the party failing to fulfil its obligations comply

with the recommendations of the panel or Appellate Body. When it is impossible to

do so immediately, the DSB may establish a reasonable period of time for

implementation.

Payment of compensation: when the offending party exceeds the reasonable period

of time without implementing the recommendations or determinations, the

complainant may ask for compensation. The offending party may also offer

compensation.

Retaliatory measures: when the offending party fails to comply with

recommendations and refuses to offer compensation, the affected party may request

DSB authorization to introduce retaliatory measures against the offending country. In

principle, these measures must be applicable in the same sectors in which the panel

has established the existence of an offence. Only if this were considered impossible

would could the application of retaliatory measures in other sectors of the same

agreement be authorized.



In any event, the above-mentioned measures (compensation or retaliation) are

considered temporary measures, as the offending country is expected to fully adopt

the recommendations or determinations formulated by the panel or Appellate Body.

Summary of time periods within the dispute settlement mechanism

Time scale Actions

Consultations, mediation, etc.



60 days

45 days Establishment of panel and appointment of members

6 months Panel presents its final report to parties

3 weeks Panel presents its final report to WTO Members

60 days Dispute Settlement Body (DSB) adopts report (in the absence of an appeal)

total = 1 yearIf no appeal

60 to 90 days Appellate review report

30 days DSB adopts the Appellate review

total = 1 year and 3

If a party appeals

4

Specificities of the system

In terms of developing country Members of WTO, the Understanding on Rules and

Procedures Governing the Settlement of Disputes (DSU) takes into account their

particular situation. Within the dispute settlement system, the special and

differentiated treatment they receive consists in additional or privileged procedures

such as longer time periods

4 Source: Understanding the WTO: settling disputes (http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm).



The case has been decided: what next?

Go directly to jail. Do not pass Go, do not collect … . Well, not exactly. But the

sentiments apply. If a country has done something wrong, it should swiftly correct its

fault. And if it continues to break an agreement, it should offer compensation or face a

suitable response that has some bite — although this is not actually a punishment: it’s

a “remedy”, the ultimate goal being for the country to comply with the ruling.

The priority is for the losing “defendant” to bring its policy into line with the ruling or

recommendations, and it is given time to do this. The dispute settlement agreement

stresses that “prompt compliance with recommendations or rulings of the DSB



[Dispute Settlement Body] is essential in order to ensure effective resolution of

disputes to the benefit of all Members”.

If the country that is the target of the complaint loses, it must follow the

recommendations of the panel report or the appeals report. It must state its intention to

do so at a Dispute Settlement Body meeting held within 30 days of the report’s

adoption. If complying with the recommendation immediately proves impractical, the

member will be given a “reasonable period of time” to do so. If it fails to act within

this period, it has to enter into negotiations with the complaining country (or

countries) in order to determine mutually-acceptable compensation — for instance,

tariff reductions in areas of particular interest to the complaining side.

If after 20 days, no satisfactory compensation is agreed, the complaining side may ask

the Dispute Settlement Body for permission to retaliate (to “suspend concessions or

other obligations”). This is intended to be temporary, to encourage the other country

to comply. It could for example take the form of blocking imports by raising import

duties on products from the other country above agreed limits to levels so high that

the imports are too expensive to sell — within certain limits. The Dispute Settlement

Body must authorize this within 30 days after the “reasonable period of time” expires

unless there is a consensus against the request.

In principle, the retaliation should be in the same sector as the dispute. If this is not

practical or if it would not be effective, it can be in a different sector of the same

agreement. In turn, if this is not effective or practicable and if the circumstances are

serious enough, the action can be taken under another agreement. The objective is to

minimize the chances of actions spilling over into unrelated sectors while at the same

time allowing the actions to be effective.

In any case, the Dispute Settlement Body monitors how adopted rulings are

implemented. Any outstanding case remains on its agenda until the issue is resolved.





CONCLUSION

The WTO DSU was negotiated as part of the Uruguay Round to create a new rules-

based procedure for dispute settlement. Its structure and scope addressed the principal

shortcomings of the GATT system as well as embodying the diverse objectives of

many Member states. In the years since its inception, the DSU has demonstrated a

sharper cutting edge in enforcing the international trade rules and greater

effectiveness in resolving trade disputes between WTO Members. As it currently

stands, the DSU therefore represents a significant improvement upon the previous

GATT dispute settlement systems.

The WTO DSU has, nevertheless, faced a number of criticisms, most of which

concern the pattern and structure of incentives for its use. Initial studies of the

performance of the new dispute settlement system suggest that it is subject to

institutional bias that favours leading trading nations over most developing countries.

The effectiveness of the DSU has been greatly enhanced by the negative consensus

rule but this also means however, that the WTO system can impose external policies

on Member countries without a democratic mandate. It is this lack of democratic

accountability on the part of the WTO that is, in

part, responsible for its current crisis of credibility. Some form of middle way is

needed to strike a better balance between the demands of national sovereignty and the

effective resolution of international trade disputes. The unchallenged dominance of

either is to the detriment of the other and will undermine the credibility of both the

WTO and the DSU.


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Dispute Settlement Machanism of Wto