Settlement of Trade Dispute

Dr. Mrs. Vijaya KattiProfessor & Chairperson, IIFTNew Delhi

Significance of WTO’s Dispute Settlement Understanding

DSU: Termed as WTO’s ‘Most Individual Contribution’

DSU procedure underscores the Rule of Law, makes the trading system more secure

Nature of Dispute: (a) Adoption of trade policy measure that violates a WTO Agreement; or (b) Not living up to obligation under a WTO Agreement

GATT - WTO DifferencesGATT No time frames. Rulings adopted

only by consensus. Single party could block.

No effective monitoring and enforcement of rulings.

WTO Clear Time Tables. Automatic adoption.

Rejection only by consensus.

DSB monitors how rulings are adopted.

Nullification or Impairment Art.XXIII, GATT: States may bring

complaints if they consider that benefits accruing to them under GATT are nullified or impaired

Breach of rules leads to presumption of an adverse impact. Can be rebutted by a defending party.

Non-Violation Complaints Art.XXIII(1)(b): If any benefit to a State is

nullified or impaired by application of any measure by another State, whether or not it conflicts with any WTO Agreement.

In most cases under this provision, the claimed benefit has been legitimate expectations of improved market access opportunities arising out of relevant tariff concessions.

Third Party

Members having ‘substantial interest’ in a matter can be a ‘third party’, and have a right to be heard by the Panel & make written submissions to the Panel.

Amicus Curiae Art.13: Panel has right to seek information

& technical advice from individual or body. AB rulings: Any individual or body can

make submissions to the Panel. Panel has discretion whether or not to consider these.

Concerns: Interest groups from developed world will have greater resources & access & prejudice developing country interests.

Stages of Dispute SettlementI Consultation Stage: Upto 60 Days.

To see if dispute can be avoidedII Appt of Panel: Upto 45 days + 6

mths for Panel to concludeIIIAppeals from Panel to Appellate Body. To

be decided within 60 days; max 90 days IV DSB to accept AB report within 30

days. Rejection possible only by consensus

After DSB Adoption Losing Party to bring its policy in line with

the decision. ‘Prompt compliance’ reqd. Party to tell DSB its intention of compliance within 30 days. If immediate compliance impractical, DSB will give Member ‘reasonable time period’ to do so.

If dispute whether measures adopted comply with DSB ruling, a ‘Compliance Panel’ will hear the matter & rule within 90 days.

After DSB Adoption (Cont’d) Failure to act Adequate Compensation to

Complaining party/parties Amount of Compensation through

negotiations If no satisfactory agreement, complaining side

may seek DSB’s permission for ltd trade sanctions

Trade sanctions: Suspension of concessions or obligations. In principle, in the same sector as the dispute. If this is not ‘effective’ or ‘practical’, action under another agreement.

Suspension of Concessions Level of suspension of concessions

shall be equivalent to the level of nullification or impairment

If party objects to level determined, matter shall be referred to ‘arbitration’ by the original panel.

Flowchart of Dispute Settlement Art 1 if DSU states that all the ‘Covered

Agreements’ included in Annex I of the Marrakesh Agreement would be subject to dispute settlement.

Art 2 establishes the Dispute Settlement Body (DSB) to administer the rules and procedures except those otherwise provided in the covered agreement

Art 3 states that Members shall affirm adherence to the principles for the management of disputes heretofore applied under Articles XXII and XXIII of GATT’47 and the rules and procedures as further elaborated and modified.

Clause (3) of Art 3 - prompt settlement of situation sin which a Member considers that any benefits accruing to it, directly or indirectly, under the covered agreement are impaired by measures taken by another member is essential to the effective functioning of the WTO. (it may be recalled here that GATT dispute settlements took inordinately long time to be settled.

In clauses (4) and (5) mutual consultations prior to registering a dispute are also provided for. Clause (7) of Art 3 is more categorical stating that a “Member shall exercise its judgement as to whether action under these procedures would be fruitful”

Art 4 provides for consultation. Clause (1) of Art 4 states that Members affirm their resolve to strengthen and improve effectiveness of consultation procedures employed by members.

Clause (7) of Art 4 further states that if the consultations fail to settle a dispute within 60 days after the date of receipt of request for consultation the complaining party may request the establishment of a panel.

The complaining party may request for a panel during the 60-day period if the consulting parties jointly consider that consultations have failed to settle the dispute.

Clause 8 of Art 4 of significance to developing countries. It provides for cases of urgency including those of perishable products. Members are expected to enter into consultations within a period of no more than 10 days after the date of receipt of the request. If the consultation fails to settle the dispute within a period of 20 days after the date of receipt of the request, the complaining party may request the establishment of panel. Clause 9 of this Art stipulates that the panels and the Appellate Body shall make the necessary effort to accelerate the proceedings.

Art 5 envisages good offices conciliation and mediation for procedures that are undertaken voluntarily if the parties to the dispute so agree. Such proceedings shall be confidential. The complaining party must allow 60 days after the date of request for consultation before requesting for establishment of a panel. The complaining party may seek establishment of a panel if the parties to the dispute jointly find that the good offices conciliation on mediation process have failed.

Art 6 provides for the establishment of panels if a complaining party requests. This request shall be made in writing.

Art 7 stipulates the terms of reference of the panels. Art 8 provides for the composition of the panels. They are to be composed of well qualified governmental and/or non-governmental individuals.

Art 9 provides that a single panel may be established when more than one Member request the establishment of a panel. This single panel shall organise its examination and present its findings to the DSB in such a manner that the rights which the parties to the dispute would have enjoyed had separate panels examined the complaints are in no way impaired.

Art 10 takes care of the interests of the parties to a dispute and those of other members under covered agreement. All issues in the dispute shall be fully taken into account.

Art 11 stipulates the functions of the panels. Broadly, the function of the panel is to assist the DSB in discharging its responsibilities under this Understanding and the covered agreement.

Art 12 spells out the detailed procesure. Clause 8 of this Art gives the time table for the panels’ working. The general rule is that an issue taken up by a panel should not exceed six months of its consideration. In cases of urgency including those relating to perishable goods the panel shall aim to issue its report within a period of three months.

Clause 10 of Art 12 provides for giving sufficient time for a developing country member to prepare and present its argumentation.

Clause 11 of the same Article stipulates that when a developing country or developing countries are a party to a dispute the panel has to explicitly indicate the form in which account has been taken of the relevant provisions on special and differential treatment to the developing country Member that forms part of the covered agreements which have been raised by the developing country member in the course of the dispute settlement procedure.

Art 13 provides for right to seek information from any member or individual and Art 14 emphasises the need for confidentiality. Art 15 states the stages of interim review by the panel.

Art 16 gives 20 days to the Members before the panel reports are adopted by the DSB. Significantly, it provides Members atleast 10 days for their objections to the panel reports before the DSB considers them. Clause 4 of Art 16 expects that the panel reports should be adopted within 60 days.

Art 19 states that when a panel or the Appellate Body conclude that a measure is inconsistent with the covered agreement, it shall recommend that the Member concerned bring the measure in conformity with the agreement.

Art 20 spells out the time period. Adoption of the panel or Appellate Body report is not expected to exceed nine months when there is no appeal or 12 months when the report is under appeal.

Art 21 details out the procedures for surveillance of implementation of the recommendations and rulings.

The most controversial Article is Article 22 which embodies the principle of cross retaliation. This has legitimised and universalised Section 301 of the U.S. Trade and Competitiveness Act.

Art 22, Clause (1) emphasizes the importance of full implementation of a recommendation to bring measures in Conformity with covered agreement. Compensation and suspension of concessions is not preferred. Compensation is voluntary and if granted shall be consistent with covered agreements.

The emphasis has been on reasonable period of time. “If no satisfactory compensation has been agreed within 20 days after the date of expiry of the reasonable period of time, any party having invoked the dispute settlement procedures may request authorisation from the DSB to suspend the application of the Member concerned or concessions or other obligations under covered agreements”.

Clause 3 of Art 22 gives the principles to be observed by the complaining party while suspending concessions:

(a) General principle is that the complaining party should first seek to suspend concession or other obligations with respect to the same sector (s) as the panel or Appellate Body has found a violation or other nulification or impairment.

(b) If that party considers that it is not practicable or effective to suspend concessions of other obligations with respect to same sector(s) it may seek to suspend concessions or other obligations in other sectors under the same agreement, and that if circumstances are serious enough if may seek to suspend concessions or other obligations under another covered agreement.

(c) In applying the above principles, that party shall take into account the trade in the sector or under the agreement which the panel or Appellate body has found a violation or other nullification or impairment and the importance of such trade to the party; (ii) broader economic consequence of suspension of concession or other obligation.

Art 24 provides for special procedures involving the least developed country members. Clause 1 of the Article emphasises that particular consideration shall be given to the special situation of the least developed country members. It exhorts members to exercise due restraint in raising matters under the procedures involving such a country. Further, it also exhorts Members to exercise due constraint in asking for compensation if nullification or impairment is found to result from a measure taken by a least developed country member.

Clause 2 of Art 24 provides for good offices of the Director-General or the Chairman of DSB if a request is made by a least developed country Member when consultations between the contending parties do not come up with a satisfactory solution.

The WTO dispute settlement mechanism recognises the role of arbitration as an alternative means of settlement. Art 25 states the WTO’s approach to arbitration. Clause 2 of the Article states that resorting to arbitration shall be subject to mutual agreement of the parties which shall agree on the procedure to be followed.

THANK YOU