Critical appraisal of the dispute settlement procedure under the World Trade Organisation

Table of Contents

1 Introduction
1.1 Dispute Settlement Procedure of the World Trade Organisation
1.2 Purpose of the DSP of the WTO

2 Effectiveness of the DSP

3 Developing Countries at the Panel and Appellate Body Stage
3.1 Reform?

4 Compliance and Retaliation
4.1 Reform?

5 Conclusion

1 Introduction

The Dispute Settlement Procedure (DSP) embodied in the Dispute Settlement Understanding (DSU)^[1] of the World Trade Organisation (WTO) is a highly effective mechanism to ensure disputes are resolved in a reasonable period of time. However, it does not satisfactorily address the needs of developing countries to access the DSP.^[2] This could be reformed through financial and legal assistance for these countries.^[3] In addition, a more substantiated non-compliance clause could assist the timely resolution of disputes so as to not disrupt the free flow of international trade in goods and services,^[4] a key objective of the WTO system.^[5]

1.1 Dispute Settlement Procedure of the World Trade Organisation

The DSP of the WTO arose from the dispute settlement system articulated in Articles XXII and XXIII of the General Agreement on Tariffs and Trade 1947 (GATT).^[6] The system changed successfully from the GATT to the WTO DSP in three ways. Firstly, Members sought the elimination of the ability of any one country to unilaterally block an unfavourable vote.^[7] The WTO DSP achieved this through ‘negative consensus’^[8] whereby the rulings of the panel and the appellate body are adopted automatically unless there is consensus within the Dispute Settlement Body (DSB), an intergovernmental organ, to overturn them.^[9] Secondly, the DSP of the WTO initiated a rigid rule-based system to ensure the timely resolution of disputes.^[10] Thirdly, the introduction of the appellate process ensured countries could seek recourse if in disagreement with the Panel’s findings.^[11] These three major changes allowed for a process to be established that effectively addressed the concerns the WTO Members had with the previous GATT system.^[12] Generally, the current DSP outlined in the DSU of the WTO involves consultations from the States in dispute, a panel review and the potential to appeal, implementation and compliance reviews, and, the option for retaliation.^[13]

1.2 Purpose of the DSP of the WTO

Exacting the purpose of the DSP is a contentious issue amongst legal theorists, however, it is essential to identify to determine the effectiveness of the WTO DSP.^[14] Generally, theorists look to the text of the DSU article 3(2)^[15] which states that the DSP is to, ‘provide security and predictability to the multilateral trading system’.^[16] In addition, the DSP should preserve the rights and obligations of Members and if a Member is found to be in breach, to ‘bring the measure into conformity’^[17] with the relevant agreement promptly.^[18] This focus on compliance is an increasingly used measure to assess effectiveness.^[19] Palmeter and Mavroidis challenge that the purpose of the WTO DSP is rather, to promote the settlement of disputes rather than exact punishments that may threaten Member’s sovereignty.^[20] This is in agreement with Waincymer who cites that the core aims of any dispute settlement system is that it should be fair and efficient.^[21] The discussion that follows, analyses whether the DSP of the WTO has addressed the purpose of predictability promptly, the effective use of compliance, and whether it is a fair system accessible to all Members.

2 Effectiveness of the DSP

There are various measures of effectiveness that will assist in determining how satisfactorily the WTO DSP’s purpose is achieved through the DSP process.^[22] Some commentators contend that outcomes determine the effectiveness of the DSP, that is, satisfactory completion of a dispute and solutions implemented according to the WTO rulings.^[23] However, this measure negates the broader concerns of access and fairness that judicial legal spheres attain to.^[24]

Overall, the DSP is considered as one of the prominent achievements of the WTO Agreement.^[25] It has been described by McCrae as the ‘success story’ of the WTO.^[26] The sheer volume of cases that States have initiated in the WTO dispute settlement system is a strong indicator of the success of the DSP, as it reflects that states are using and want to use the WTO system to resolve their disputes.^[27] The DSP has already achieved a great deal and is providing some of the necessary attributes of ‘security and predictability’^[28] as enshrined in article 3 of the DSU to be the DSP’s major objective.^[29] This objective is achieved through ‘the power of precedence’.^[30] That is, although the reliance on prior cases will not always determine or be binding on subsequent panel cases, it nevertheless provides a degree of consistency which, in turn, enhances the predictability of the whole system.^[31] In addition, there does not exist a strong political incentive to reform the system.^[32]

However, McCrae, sees that these positive remarks for the effectiveness of the DSP are merely suggested from a western perspective.^[33] Sharmin would agree on the grounds that while LDCs form one fifth of the WTO membership, they constitute less than 1% of participation in the WTO DSP.^[34] A dispute settlement system to which a large number of WTO Members do not have any realistic access cannot claim to be an effective system.^[35] The participation of developing countries in the WTO DSP is vital for the credibility and acceptability of the system.^[36] The role of developing countries in each stage of the dispute settlement process is analysed below.

In addition, Yang asserts, the WTO DSP has a variety of shortcomings such as ineffective compliance, inadequate remedies and inequitable consequences of retaliation.^[37] If small reforms are made in these areas, it should increase access of developing countries to the DSP. Overall, while there are some grounds for criticism, and reform of the dispute settlement system, there exists much satisfaction with its processes and performance especially when compared to other international organisations or if proposals for reform became reality.^[38]

3 Developing Countries at the Panel and Appellate Body Stage

The panel and appellate process of the DSP is an effective means of dispute settlement; however, it does not satisfactorily address the needs of developing countries, in particular, least developed.^[39] The participation of developing countries is an issue that must be addressed to ensure the effectiveness of the DSP. Industrialised countries are by far the heaviest users of the dispute settlement system.^[40] They initiated more than 60% of the WTO disputes and acted as defendants in more than 70%.^[41] In contrast, less than 1% of the disputes were initiated by least developed countries, and LDCs never appear as defendants.^[42]

Cost considerations and lack of legal expertise restrict access for developing countries.^[43] In addition, cultural differences, the delay in getting a result, and the ineffectiveness of remedies if the offending member fails to comply can inhibit participation of developing countries in the DSP of the WTO.^[44] Developing countries do not reap the long-term benefits of participating in the WTO, which has seen ample rewards for the more regular players of the United States and the European Community (EC).^[45] Such advantages include economies of scale in legal work, familiarity of the legal forum, and the ability to reasonably anticipate the course and outcome of litigation.^[46] The WTO must satisfactorily secure the rights of developing nations to be effective as an international dispute settlement system.^[47]

[...]

^[1] Marrakesh Agreement Establishing the World Trade Organisation, opened for signature 15 April 1994, 1867 UNTS 3 (entered into force 1 January 1995) Annex 2 (‘ Dispute Settlement Understanding’).

^[2] Tania Sharmin, ‘Least Developed Countries in the WTO Dispute Settlement System’ (2013) 1 Netherlands International Law Review 375, 376.

^[3] Ibid.

^[4] Yoshinori Abe, ‘Implementation System of the WTO Dispute Settlement Body: A Comparative Approach’ (2013) 6 Journal of East Asia and International Law 79, 94.

^[5] Dispute Settlement Understanding article 3(3).

^[6] Marrakesh Agreement Establishing the World Trade Organisation, opened for signature 15 April 1994, 1867 UNTS 3 (entered into force 1 January 1995) annex 1A (‘ General Agreement on Tariffs and Trade 1994’, article XXII, XXIII).

^[7] Abbott, Kenneth & Snidal, ‘Why States Act through Formal International Organisations’ (1998) 42 Journal of Conflict Resolution 3, 32.

^[8] Dispute Settlement Understanding article 16.4 & 17.14.

^[9] Joost Pauwelyn, ‘Enforcement and Countermeasures in the WTO: Rules are Rules – Toward a More Collective Approach’ (2000) 94 American Journal of International Law 335, 337.

^[10] Busch, Marc & Rheinhardt, ‘Testing International Trade Law: Empirical Studies of GATT/WTO Dispute Settlement’ in Kennedy & Southwick (eds) The Political Economic of International Trade Law: Essays in Honour of Robert E. Hudec (Cambridge University Press, 2002) 457, 462.

^[11] Joseph Conti, ‘Learning to Dispute: Repeat Participation, Expertise, and Reputation at the World Trade Organisation’ (2010) 35 Law and Society Inquiry 625, 634.

^[12] Keisuke Lida, ‘Is WTO Dispute Settlement Effective?’ (2004) 10 Global Governance 207, 209.

^[13] Dispute Settlement Understanding articles 4-22.

^[14] Young & Levy, ‘The Effectiveness of International Environmental Regimes’ in Young (ed) The Effectiveness of International Environmental Regimes: Casual Connections and Behavioural Mechanisms (Cambridge University Press, 1999) 4, 5.

^[15] Donald McCrae, ‘Measuring the Effectiveness of the WTO Dispute Settlement System’ (2008) 3 Asian Journal WTO and Health Law and Policy 1, 2.

^[16] Dispute Settlement Understanding article 3(2)

^[17] Ibid art 19.1

^[18] Ibid art 3(3).

^[19] Donald McCrae, ‘Measuring the Effectiveness of the WTO Dispute Settlement System’ (2008) 3 Asian Journal WTO and Health Law and Policy 1, 4.

^[20] David Palmeter & Petros Mavroidis, ‘The WTO Legal System: Sources of Law’ 92 American Journal of International Law 398, 401.

^[21] Jeffrey Waincymer, ‘Transparency of Dispute Settlement within the World Trade Organisation’ (2000) 24 Melbourne University Law Review 797, 799.

^[22] Young & Levy, ‘The Effectiveness of International Environmental Regimes’ in Young (ed) The Effectiveness of International Environmental Regimes: Casual Connections and Behavioural Mechanisms (Cambridge University Press, 1999) 4, 5.

^[23] William Kohler, ‘The WTO Dispute Settlement Mechanism: Battlefield or Cooperation? A Commentary on Fritz Breuss’ (2004) Journal of Industry, Competition and Trade 517, 517.

^[24] Tania Sharmin, ‘Least Developed Countries in the WTO Dispute Settlement System’ (2013) 1 Netherlands International Law Review 375, 382.

^[25] Joseph Conti, ‘Learning to Dispute: Repeat Participation, Expertise, and Reputation at the World Trade Organisation’ (2010) 35 Law and Society Inquiry 625, 634.

^[26] Donald McCrae, ‘Measuring the Effectiveness of the WTO Dispute Settlement System’ (2008) 3 Asian Journal WTO and Health Law and Policy 1, 2.

^[27] Pei-Kan Yang, ‘Some Thoughts on a Feasible Operation of Monetary Compensation as an Alternative to Current Remedies in the WTO Dispute Settlement’ (2008) 3 Asian Journal WTO & International Health and Policy 432, 433.

^[28] Week 10 Reading – ‘Chapter VI: The WTO Dispute Settlement System’, found: http://ilearn.mq.edu.au/pluginfile.php/4231728/mod_resource/content/1/Week%2010%20WTO%20Dispute%20Settlement%20System.pdf p49

^[29] Dispute Settlement Procedure article 3.

^[30] Week 10 Reading – ‘Chapter VI: The WTO Dispute Settlement System’, found: http://ilearn.mq.edu.au/pluginfile.php/4231728/mod_resource/content/1/Week%2010%20WTO%20Dispute%20Settlement%20System.pdf p50.

^[31] Ibid.

^[32] Ibid p54.

^[33] Donald McCrae, ‘Measuring the Effectiveness of the WTO Dispute Settlement System’ (2008) 3 Asian Journal WTO and Health Law and Policy 1, 2.

^[34] Tania Sharmin, ‘Least Developed Countries in the WTO Dispute Settlement System’ (2013) 1 Netherlands International Law Review 375, 376.

^[35] Donald McCrae, ‘Measuring the Effectiveness of the WTO Dispute Settlement System’ (2008) 3 Asian Journal WTO and Health Law and Policy 1, 17.

^[36] J Lacarte-Muro & P Gappah, ‘Developing Countries and the WTO Legal and Dispute Settlement System: A View from the Bench’ (2000) 3 Journal of International Economic Law 395, 396.

^[37] Pei-Kan Yang, ‘Some Thoughts on a Feasible Operation of Monetary Compensation as an Alternative to Current Remedies in the WTO Dispute Settlement’ (2008) 3 Asian Journal WTO & International Health and Policy 432, 433.

^[38] Yoshinori Abe, ‘Implementation System of the WTO Dispute Settlement Body: A Comparative Approach’ (2013) 6 Journal of East Asia and International Law 79, 94.

^[39] Tania Sharmin, ‘Least Developed Countries in the WTO Dispute Settlement System’ (2013) 1 Netherlands International Law Review 375, 376.

^[40] Thomas Sattler & Thomas Bernauer, ‘Gravitation or Discrimination? Determinants of Litigation in the World Trade Organisation’ (2011) 50 European Journal of Political Research 143, 152.

^[41] Ibid.

^[42] Tania Sharmin, ‘Least Developed Countries in the WTO Dispute Settlement System’ (2013) 1 Netherlands International Law Review 375, 384.

^[43] Keisuke Lida, ‘Is WTO Dispute Settlement Effective?’ (2004) 10 Global Governance 207, 2011.

^[44] Donald McCrae, ‘Measuring the Effectiveness of the WTO Dispute Settlement System’ (2008) 3 Asian Journal WTO and Health Law and Policy 1, 12.

^[45] Busch, Marc, Rheinhardt, Schaffer, ‘Does Legal Capacity Matter? A Survey of WTO Members’ (2009) 8 World Trade Review 559, 572.

^[46] Davis & Bermeo, ‘Who Files? Developing Country Participation in GATT/WTO Adjudication’ (2009) 71 Journal of Politics 1033, 1039.

^[47] Donald McCrae, ‘Measuring the Effectiveness of the WTO Dispute Settlement System’ (2008) 3 Asian Journal WTO and Health Law and Policy 1, 17.