The World Trade Organization (WTO) is an intergovernmental organization which regulates international trade. The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.[5] The WTO deals with regulation of trade between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which are signed by representatives of member governments[6]:fol.9–10 and ratified by their parliaments.[7] Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).

Among the various functions of the WTO, these are regarded by analysts as the most important:

It oversees the implementation, administration and operation of the covered agreements.[38][39]

It provides a forum for negotiations and for settling disputes

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."(54) Those parties must reach mutual agreement to arbitration and the procedures to be followed. Agreed arbitration must be notified to all members prior to the beginning of the arbitration process. Third parties may become party to the arbitration "only upon the agreement of the parties that have agreed to have recourse to arbitration."(55) The parties to the proceeding must agree to abide by the arbitration award. "Arbitration awards shall be notified to the DSB and the Council or Committee of any relevant agreement where any member may raise any point relating thereto."

As an alternative to adjudication by panels and the Appellate Body, the parties to a dispute can resort to arbitration (Article 25.1 of the DSU). The parties must agree on the arbitration as well as the procedures to be

followed (Article 25.2 of the DSU). The parties to the dispute are thus free to depart from the standard procedures of the DSU and to agree on the rules and procedures they deem appropriate for the arbitration, including the selection of the arbitrators. The parties must also clearly define the issues in dispute.

Before the beginning of the arbitration, the parties must notify their agreement to resort to arbitration to all (WTO) Members. Other Members may become party to an arbitration only with the agreement of the parties engaged in the arbitration. The parties to the arbitration must agree to abide by the arbitration award, which, once issued, must be notified to the DSB and the relevant Councils and Committees overseeing the agreement(s) in question (Articles 25.2 and 25.3 of the DSU). The provisions of Articles 21 and 22 of the DSU on remedies and on the surveillance of implementation of a decision apply to the arbitration award (Article 25.4 of the DSU).

To date, in only one dispute, have the parties resorted to arbitration under Article 25 of the DSU. The procedure was not used as an alternative to the panel and Appellate Body procedure, but at the stage of implementation, when the panel report had already been adopted. The parties asked the arbitrators to determine the level of nullification or impairment of benefits caused by the violation established in the panel report. Under the standard procedures of the DSU, parties can obtain a binding determination of the level of nullification or impairment by recourse to arbitration under Article 22.6 of the DSU. A prerequisite for such arbitration is that the complainant has requested the DSB’s authorization for the suspension of obligations and that the respondent disagrees with the proposed level of retaliation. In the case where the parties resorted to arbitration under Article 25 of the DSU, they agreed that the award of the arbitrators would be final. Recourse to Articles 21 and 22 of the DSU is available to implement and enforce the conclusions of these arbitration awards.

Arbitrations under Article 21.3(c) of the DSU

Article 21.3 of the DSU provides that a Member found to be in violation of its WTO obligations must comply with the rulings and recommendations of the Dispute Settlement Body (DSB) immediately. When immediate compliance is impracticable, however, the Member shall have a “reasonable period of time” to implement the DSB's rulings and recommendations. The “reasonable period of time” may be “the period of time proposed by the Member concerned, provided that such period is approved by the DSB” or “a period of time mutually agreed by the parties to the dispute”. If neither of these two options is possible, Article 21.3(c) provides that the “reasonable period of time” shall be “a period of time determined through binding arbitration”. Arbitrators are selected by the parties to the arbitration or, if they cannot agree on an arbitrator, the Director-General appoints the arbitrator. Thus far, every arbitration under Article 21.3(c) has been conducted by an Appellate Body Member acting in his individual capacity.

The Dispute Settlement Body (DSB) of the World Trade Organization (WTO) makes decisions on trade disputes between governments that are adjudicated by the Organization. Its decisions generally match those of the Dispute Panel.

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Parties often prefer arbitration to traditional court proceedings for a variety of reasons. Arbitration is frequently viewed as quicker, less expensive, and less disruptive. The discreet nature of arbitration is highly valued, especially by corporations who often wish to protect themselves from bad publicity or the dissemination of trade secrets. International arbitration, while benefiting from all the above-listed characteristics, is favored over court proceedings primarily for an entirely unrelated reason. Various issues regarding jurisdiction, neutrality and enforcement give international arbitration a virtual monopoly in transnational dispute resolution.1

While each party likely would prefer to settle disputes in its own court system, both would prefer neutral arbitration to settling the dispute in the opposing party’s court system.

In the World Trade Organization (“WTO”), under the GATT/WTO agreements, all disputes are international by default. There is no private right of action.

Only national governments have standing to bring claims under the GATT/WTO agreements — and actions may only be brought against other national governments.6

Furthermore the Dispute Settlement Understanding (“DSU”) embraces arbitration of disputes to various degrees.8

But in spite of the necessarily transnational character of arbitration under the WTO, it is not international arbitration. Dispute settlement in the WTO is a process that might best be described as a tribunal that combines a strange form of arbitration with an institutional judicial review.

Decisions and recommendations of the WTO Dispute Settlement Body (“DSB”) are not enforceable by national courts. Considering the phenomenal success of the New York Convention, it seems natural that WTO member states would make use of that treaty to give structure and force to its dispute settlement mechanism. Why reinvent the wheel when a highly effective international dispute settlement structure is already in place? But, on the contrary, arbitration within the WTO is designed to be international arbitration that is decidedly not international arbitration. The NY Convention does not apply to arbitral decisions rendered under WTO agreements.

The WTO and the Dispute Settlement Understanding

The Uruguay Round was launched in 1986.52 The volume of commitments being negotiated was staggering, and it quickly became clear that the existing dispute settlement regime would be inadequate.53 A new, more robust system was implemented with the advent of the WTO (which incorporates the GATT 1947 agreement in whole) and DSU in 1994.

The DSU — A to Z

Dispute resolution under the WTO typically divides into three stages, 1)consultation, 2) panel and Appellate Body proceedings, and 3) if an inconsistency with a covered agreement was found, implementation of the report by the losing party.54 Failure to abide by the panel/Appellate Body recommendations can trigger a 4th stage — consultation between parties

and possible arbitration to determine appropriately responsive suspension of concession measures.

This mechanism resembles international arbitration in many ways, but is in many ways very different. Panels are established by parties in much the same way as tribunals in many arbitrations.56 Panel members are chosen by parties with an eye toward professional, technically competent panelists.57 If agreement on panelists cannot be had between the parties, the WTO Director General will fill any vacancies.58 On the other hand, unlike arbitration, which is triggered automatically when a dispute arises under a contract with an arbitration clause, WTO dispute settlement panels must be preceded by consultation and good-faith attempts of conciliation.59 In traditional arbitration, if no exhaustion-of-other-available-remedies provisions are specified within the arbitration agreement itself, no such prerequisite will bar bringing a claim to arbitration.

Panels then examine the claim and there is an interim review stage in which parties are allowed to comment.60 The panel issues a report which can be appealed to the Appellate Body.61 The final report is then adopted by the Dispute Settlement Body (which consists of WTO Members)62 unless there is consensus not to adopt the report.63

Unchallenged panel decisions, and all Appellate Body decisions, are legally binding.64

Finally, in cases of non-implementation—where a losing party fails to bring its practices and laws into compliance with GATT obligations—there is a possibility of arbitration on the narrow issue of how much, if any, retaliation (suspension of tradebarrier concessions) is appropriate.65 Compensation to the complaining party is also possible, but only upon agreement by both parties.66 Note that retaliatory measures are meant to be temporary. Their purpose is to put domestic pressure on the offending nation to bring its practices into compliance with its WTO obligations.

Arbitration Under the DSU

The typical dispute settlement measures outlined in the DSU share some similarities with arbitration, e.g., the selection of panels. But the DSU also contains several explicit provisions for the use of arbitration to various extents.

In 1989 the Contracting Parties agreed to "The 1989 Improvements" to the GATT Dispute Settlement rules. The 1989 Improvements explicitly added arbitration as an alternate form of dispute settlement in certain circumstances.82 Importantly, under this agreement, arbitration awards were to be "consistent with the General Agreement," and could not "nullify or impair benefits accruing to any contracting party."83

Between 1989 and April 1994 (when the GATT 1994 and the accompanying DSU went into effect), resort to arbitration under the 1989 Improvements was uncommon.

First, the 1989 Improvements did not function like a binding arbitration clause in a contract. So the first attempt at employing arbitration under these rules failed. In 1988 and 1989, when the European Community proposed arbitration with the United States, the proposal was quashed when the United States simply rejected it. Over the next few years arbitration was used or proposed in only a few instances.

Although member states showed a distinct reluctance to resort to arbitration to resolve trade disputes, arbitration still found its way into Article 25 of the DSU, largely unchanged from the 1989 Improvements.84 Like arbitration under the 1989 Improvements, arbitration awards under the DSU must be consistent with the GATT— they must not nullify or impair benefits accruing to any Contracting Party, or impede the attainment of any objective of the GATT.85 Additionally, Article 25.3 requires notification of awards "to the DSB and the Council or Committee of any relevant agreement where any Member may raise any point relating thereto."

If resort to Arbitration under the 1989 Improvements was sparse, use of Arbitration for dispute resolution under the DSU has been positively scant. Since the end of the Uruguay rounds, when the DSU was adopted in 1994 there has been only one arbitration under Article 25, United States — Section 110(5) of the US Copyright Act.

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While Article 25 of the DSU offers a more or less complete (if rarely used) alternative to the typical dispute settlement procedures in the WTO, there

are some other, more limited (and more successful) references to arbitration in the agreement. Article 21.3(c) of the DSU provides for mandatory, binding arbitration of the reasonable period of time for compliance with DSB recommendations and rulings. Arbitration under Article 21.3 is not subject to mutual agreement between the parties—it is automatic upon the failure to agree on a reasonable period of time for compliance.