WTO dispute settlement procedure - Essay Example

?Assessing the Success of the WTO Dispute Resolution System By The World Trade Organization’s dispute resolution system has been the subject of both self-praise and observer praise. Most of the praise revolves around its improvement of the previous dispute resolution system under the General Agreement on Trade and Tariffs.1 The World Trade Organization claims that the changes implemented by the World Trade Organization’s dispute settlement system strengthens the role that dispute resolution plays in success of the World Trade Organization’s multilateral trade regime.2 Much is made of the number of cases submitted to the dispute resolution process since its inception under the World Trade Organization. However, academics and non-government organizations, among others are not as convinced that the dispute settlement process is as successful as claimed and argue that the number of cases submitted for consultation does not represent a robust measure of success.3 This research study examines the World Trade Organization’s dispute resolution process and determines that the number of cases alone do not reflect the success of the dispute resolution process. However, an examination of the complainants lodging complaints and the number of cases abandoned point to inherent weaknesses. This research study will explain those weaknesses and how they might be avoided by an improvement in the dispute resolution process. Table of Contents Abstract………………………………………………………………………………………..2 Introduction……………………………………………………………………………………4 I. Overview: WTO Dispute Resolution Process…………………………………………5 II. Case Studies and Analysis……...……………………………………………...………8 Conclusion/Recommendations……………………………………………………………….15 Bibliography………………………………………………………………………………….21 Assessing the Success of the WTO Dispute Resolution System Introduction Director General of General Agreements on Tariffs and Trade (GATT), Peter Sutherland, maintains that the success of the World Trade Organization (WTO) is intimately tied to its dispute settlement system and its success. The idea is that the dispute settlement system ensures that WTO members are complying with their commitments under the WTO’s multilateral trade system.4 In 2009, the WTO had received more than 400 requests for consultation under its dispute resolution system.5 The success of the WTO’s dispute resolution system cannot be effectively measured by reference to the number of complaints lodged. It is necessary to determine the nature of the disputes, the member states lodging the disputes and the outcome of those disputes. For example, Schaffer and Melendez-Ortiz inform that a vast majority of the complaints are filed by developed countries and that while only 77 of the reported cases were filed by developing countries, the majority of those cases were filed by just two developing countries: Brazil and India. Moreover, to date, a number of African WTO members have never filed a complaint under the WTO’s dispute settlement system.6 The uneven representation in the WTO’s dispute resolution system immediately draws attention to an inherent weakness rather than the success of the system. There are a number of explanations for this uneven representation. It could mean that the dispute resolution system is not well understood by developing countries. Or perhaps they lack the resources to proceed. Regardless of the explanation, there appears to be a weakness in the WTO dispute resolution system that deters its use by developing countries. In evaluating the success or lack thereof of the WTO’s dispute settlement process, this paper will examine this disparity in complaints lodged. Other factors will be examined, such as the number of cases filed and subsequently abandoned. Therefore this paper will be divided into two sections. The first part of this paper will provide an overview of the WTO’s dispute resolution system and the second part will provide case studies and analysis. I. Overview: WTO Dispute Resolution System GATT included a dispute resolution process however, that process was revised and replaced by the current WTO dispute resolution process which was initiated by the Understanding on Dispute Settlement 1979.7 The 1979 Understanding was expanded on by the Dispute Settlement Procedure Improvements Agreement 1989 and subsequently by the Understanding on Rules and Procedures Governing the Settlement of Disputes 1994 (DSU). The DSU came into force in 1995 and represents the current procedure for the settlement of dispute within the framework of the WTO.8 The DSU merely expands on the dispute resolution system of GATT. The dispute resolution system is based on member-to-member dispute settlement where members seek to enforce the obligations to which all members are bound by virtue of the WTO’s multilateral framework.9 There are four stages of the WTO’s dispute resolution process under the DSU: mandatory consultation, panel hearing, appellate hearing and finally, compliance.10 Mandatory consultation takes place only after a complainant notifies the member state against whom the complaint is directed and each of the WTO members. The notification will be accompanied by the details of the complaint and the obligations allegedly contravened. Thereafter the parties will consult for two months with a view to resolving the dispute between them.11 In the parties are unable to arrive at a resolution between them, an ad hoc panel will be formed which is comprised of three panelists. The panel will hear the dispute and determine how best the dispute can be resolved and will make recommendations accordingly. If the panel is of the opinion that commitments to the WTO have been contravened, recommendations relative to compliance will be provided.12 An appeal can be lodged with the Appellate Body who is required to respond within three months. However, the Appellate body may only look at actual legal issues and revealed in the panel’s report and is only able to confirm or reverse the panel’s report. The Appellate Body may not exercise any additional discretionary powers.13 The panel’s report or the Appellate body’s report (if the matter is appealed) is adopted by the Dispute Settlement Body (DSB) unless there is a unanimous decision by the members not to do so. When the DSB adopts a report, the parties against whom the report is rendered should follow through with the recommendations made. The time for implementing the recommendations can be agreed to by the parties or fixed by the panel.14 If the recommendations are ignored, the complaining party may take retaliatory measures until the other party complies with the recommendations.15 The WTO therefore has a clear and decisive path toward the resolution of disputes and focuses first and foremost on consultations prior to taking the matter to a panel for resolution. The first problem of note is the inequality of bargaining position when one party is a developing or least developed nation and the other party is a developed nation. Inequality can be a crucial factor in the decision to file a complaint, pursue it to its outcome or may result in a matter being abandoned.16 The inequality arises out of the lack of legal resources and human and other capital.17 Although the WTO provides technical assistance to developing countries in terms of assistance with filing a complaint,18 the WTO is a neutral entity and therefore does have to take account of the interest of the opposing developed country as well. In other words, there is only so much value a developing country can derive from the WTO’s technical assistance. Article 27(2) of the DSU incorporates the mandate for providing technical assistance to developing countries on the part of the WTO’s secretariat.19 However, since assistance is only available once a dispute has been submitted, this assistance may not be entirely satisfactory. The main problem for the developing and least developed country is in having the resources to initiate the process and how to effectively prepare for arguing the case. By merely providing technical assistance after the case is filed or submitted to the WTO’s DSU, some countries with sparse resources may never have the opportunity or competence to initiate a claim. Even assuming that the WTO’s resources and the aid it is prepared to give developing countries matches the resources of the developed country, there is still the problem of loyalty and commitment. The WTO will not be as committed to the developing county’s case as the developed country will be to its case. Therefore technical assistance can only remove some inequities or perhaps only reduce those inequities. Despite the seemingly clear and stage-by-stage process within the WTO’s dispute resolution system, one weakness immediately stands out: the consultation phase which invariably brings together a complainant and a defendant of unequal negotiating resources. A closer look at case studies will reveal the extent to which the WTO’s DSU is successful, if at all. II. Case Studies and Analysis Lida examined the data relative to WTO disputes up to October 2003 and found that although over 300 cases were filed, the number of cases filed were “misleading”.20 It appears from the nature of the disputes filed up to October 2003, a number of countries filed complaints in respect of the “same trade measures of a particular country”.21 Discounting this coincidence and treating those complaints as one complaint, Lida’s count of the number of complaints filed up to October 2003, were only 248.22 Lida also found that for the cases filed up to 1998, a majority of the cases were marked as resolved or completed. At that point it was possible to conclude that WTO had been more successful than the dispute resolution process under GATT before it. However, as of 1998, the number of cases resolved were disproportionate to the previous years and there were an increasing number of pending cases.23 The number of resolved cases declined from 1998 onward and in 2003, there were no resolved cases and large number of cases pending consultation.24 There is definitely a decline in the number of cases presented to the WTO’s DSU for consultation. According to Lida, the WTO claims that 300 cases were filed for the period from inception of the DSU to 2003.25 The WTO claims, that since its inception over 400 cases were received for consultation.26 Drawing on these statistics, there were three times as many cases filed before the period 2003 than the number of cases filed between 2004 and 2009. This represents a very significant decline in the number of cases filed before the WTO’s DSU. Arguably, if the number of cases filed are meant to reflect the success of the WTO’s dispute resolution system, a decline in the number of cases filed demonstrates a lack of confidence in the DSU and therefore points to its lack of effectiveness. Moreover, the increasing number of pending and unresolved cases arguably points to a lack of confidence and therefore the weakness of the WTO’s dispute settlement process. Since the reason these cases are pending are not a matter of public record, one can only speculate. Reynolds suggests that the most likely reason is that these cases are filed but eventually either resolved on the basis of inequities between the parties. The suggestion is that the complaints are between a developed and a developing country. The developed country manages to obtain an agreement from the developing country. The number of pending cases can also be a result of the developing countries lack of confidence in its own capacity to successfully argue a case against a developed country. This might explain why so many cases are filed, but eventually abandoned.27 While another likely explanation is the fact that the parties may have simply resolved the matter between them, this does not appear to be the case. One a case is submitted for consultation, the parties have two months to arrive at a resolution and if they do resolve the case, they are required to notify the WTO. Since these cases are listed as pending and the consultation stage has long since expired, it is unlikely that the cases were resolved and that the WTO has been notified.28 An examination of cases presented for actual hearing before a panel shed some light on why the number of cases resolved have all but disappeared, the number of cases pending have increased and the number of cases presented generally have declined. Between 1995 and 2003, the US filed 75 complaints. The US succeeded in 19 of those cases but failed to obtain a favourable outcome in 6 of those cases. During the same time, the US was a defendant in 80 complaints and the plaintiffs succeeded in 8 of those cases and failed in 6.29 What can be gleaned from this data is that the US, a country with significant resources has been able to obtain a greater degree of success under the DSU. Therefore, while the number of cases presented before the WTO’s DSU, may be impressive, those numbers do not speak to the resources available to the disputants and how those resources may contribute to the success of the disputant. According to Choi, resources make a significant difference to outcomes. In Choi’s examination of the cases filed and completed before the DSU, developed countries are more certain to obtain a desired result while the poorer countries are not.30 The number of cases filed before the DSU or cases requesting consultation does not reflect the enforcement of DSU decisions. Implementation of panel decisions or recommendations is reportedly dismal. For example, since 2000, the US has failed to implement 11 of the 18 recommended implementations made by the DSU’s dispute settlement body.31 Van der Borght explains: In recent years there has been a growing problem of US non-compliance with adverse WTO decisions, with most of the pending cases of non-implementation falling within this category…the US Congress has been very slow to revise US Statutes when implementation requires such a change.32 This is unfortunate since the US, is in danger of setting a dangerous precedent. If other WTO members form the impression that the US is getting by with refusing or taking its time to implement adverse WTO DSU rulings, they can get by with the same conduct.33 Not only does the US’s ability to take its time or to refuse to implement WTO DSU adverse rulings speak to the weakness of the WTO dispute settlement process, it also reveals problems that may arise in the future. In this regard, the WTO’s DSU is unsuccessful or at the very least, ineffective with respect to enforcement of its rulings. The problems attending enforcement will not go away. The WTO does not investigate members’ conduct, although it may review trade policies of its members. There is in essence, “no central policing mechanism” with the result that “enforcement is carried out entirely as a result of member initiatives”. 34 Moreover, rulings handed down by the WTO’s DSU does not translate into automatic implementation. AS Lawrence explains: In practice, even if not technically in law, members have discretion as to whether they will comply; they may refuse even though this may mean breaking the agreement and perhaps facing retaliation against their exports.35 Retaliation as a remedy for non-compliance also contributes to the lack of perceived success of the WTO’s DSU. While retaliation is meant to “act as a safety valve”,36 it has no intrinsic value for a least developed or even developing country involved in a dispute with a developed country. As the World Bank puts it, smaller economies “cannot” realistically “threaten” retaliation: Because raising import barriers will have little impact on the target market while being costly in welfare terms.37 Therefore, when one takes account of the fact that countries, such as evidenced by the US’s conduct, can delay the implementation of a WTO dispute panel’s ruling, and retaliation is of no avail to the smaller economy, it is difficult to accept that the WTO dispute resolution process has been successful. It also helps to explain why so many cases are commenced and are abandoned or at the very least pending. Another problem is the fact that there is no compensatory damages for the plaintiff who obtains a favourable ruling during the “period of non-compliance”.38 While this can have the benefit of ensuring that the matter does not drag on in terms of involving additional disputes over the quantification of damages, it provides the losing party with a motivation to delay the dispute resolution process. This is particularly so when the losing party is a developed country and the winning party is a developing or least developed country. The winning party, knowing that there are no real consequences for non-compliance may take as long as it wants to implement the ruling. Retaliation, in such a case is hardly a threat to the developed country. Another shortcoming of the WTO dispute resolution system that goes against claims that it has been successful is the fact that private parties do not have a right to directly assess either of the panels in order to lodge complaints relative to a state’s contravention of its WTO obligations.39 In addition, private parties do not have a right to lodge complaints in local courts based on WTO law because the WTO legal regime does not apply directly to private parties.40 This is a significant shortcoming and speaks directly to the effectiveness and success of the WTO dispute resolution system. A private party conducting business in a foreign state which is a member of the WTO can be impacted by non-compliance with WTO regulations and commitments by the host country. Just as significantly, private parties will also be impacted by the host country’s failure to implement rulings or recommendations proffered by the DSB or the Appellate body. Therefore when private parties are not able to directly lodge complaints the legal standing or legitimacy of the WTO dispute settlement process is called into question. If the legal standing or legitimacy of the WTO’s dispute settlement system is called into question, its success as a conflict resolution process is challenged. It is entirely unfair that private parties are not in a position to take direct action against a WTO member state who fails to meet its WTO obligations and fails to implement rulings or recommendations proffered by the WTO’s DSB or Appellate body. The unfairness arises out of the fact that private parties or non-state actors typically incur the bulk of damages when member states fail to meet their WTO obligations or fail to implement WTO panel recommendations. Since private parties bear the bulk of damages, they ought to have direct access to the WTO’s dispute resolution system. The number of cases filed with the WTO’s DSU or submitted for consultations do not reveal very much about the success of the WTO’s dispute resolution system. However, the case studies reported in the literature reveal there are a number of weak points that speak to inherent weaknesses and difficulties not only in the present but for the future. Cumulatively, the case studies demonstrate that the legitimacy of the WTO’s dispute resolution system is called into question. Conclusion/Recommendations There are obvious inequities in terms of resources and negotiation problems between developed and developing countries. The WTO’s DSU system feeds into those inequities rather than resolve them. The mandatory consultation phase is futile when the weaker party does not match the bargaining capacity of the stronger party. Not is the mandatory consultation phase effective when the weaker party does not have the resources to investigate a claim against it and to prepare for countering any claim during the consultation stage. Likewise, the weaker party is similarly disadvantaged during the panel hearings process. The retaliation allowances are even less appealing to the weaker party. The lack of remedies and the fact that losing parties may delay or refuse implementation of DSU rulings, speak to pervasive problems relative to the effectiveness of the WTO’s dispute settlement process. It is hardly surprising that the number of cases submitted to the WTO for consultation have declined or stalled over the years since 2003. Therefore when case numbers are cited as a mark of success, it is necessary to go beyond the surface and examine the intrinsic value of those cases. It is necessary to examine the status of those cases and the nature of those cases. Since cases are increasingly abandoned or at least remain on the docket long after the expiration of the two months’ period set for resolution, it is reasonable to assume that there is a lack of confidence in the effectiveness of the WTO’s dispute resolution system. Therefore claims that the WTO’s dispute resolution process is successful cannot be supported by the mere number of cases submitted to the WTO. A number of changes are necessary to ensure that there is a level of confidence in the WTO’s dispute resolution process to bolster its success. The following recommendations for reformation of the WTO’s dispute resolution process can improve the process and generate greater confidence in its ability to provide equity between its disputants and effectiveness via enforcement of dispute panels’ decisions. Remedies: As it is, defendants have very little incentive to implement rulings against them as there are no compensatory damages covering the period of non-compliance. Developed countries have persistently refused to consider incorporating compensatory damages into the WTO’s dispute resolution process.41 Developing countries however, have been amenable to the introduction of compensatory damages during the period of non-compliance.42 In order to make the enforcement element of the WTO’s dispute resolution process effective and successful, it is perhaps time to take the compensatory damages suggestion more seriously. Another option would be for the WTO’s members to take a position where a trade block is formed. A trade block would involve a cessation of trade with the non-complying party during the period of non-compliance and in relation to the trade impacted by non-compliance. Regardless of which approach is taken, the offending party would be under some form of pressure to bring its trade practices, policies and/or laws into compliance with the WTO’s panels’ rulings as quickly as possible. Not only would this improve the enforcement effectiveness of the WTO’s dispute resolution process, but it would also foster confidence in the dispute resolution system and would likely facilitate resolution of disputes during the consultation phase more frequently. Retaliation: If compensatory damages are introduced it would automatically deal with the inequities attending retaliation by a developing country relative to a developed country. If a trade block is initiated, it would act as an effective method of retaliation. The current system permitting retaliation is hardly a satisfactory remedy to accord a weaker economy since retaliation is likely more harmful to the weaker economy than to the stronger economy. For the weaker economy to use retaliation, it must not only penalize the stronger economy, but it mast penalize its own economy in the process. Inequality of Bargaining Power: It may be necessary to introduce a fast track system for smaller claims. Nordstrom and Shaffer recommended a system for dealing with smaller claims under a process akin to arbitration in which damages are ordered and there are no appeals.43 This can be complimented by the appointment of a special body to investigate and pursue violations of WTO commitments impacting developing and least developed countries.44 As Hoekman notes any rulings would not be able to include retaliation as the claim would not be brought by a member state, it would put some degree of “moral pressure” on the non-complying country.45 Each of these recommendations (fast track and a special surveillance/prosecutorial body) would remove the need for legal resources on the part of the developing or least developed country. Private Parties Private parties should have direct access to the WTO’s dispute resolution system. As previously noted, private parties have a stake in conflict resolution systems as they are typically more likely to be adversely impacted by the failure of a host state to implement WTO panel recommendations and by the host state’s failure to satisfy its obligations to the WTO. Therefore private parties that can demonstrate damages or the likelihood of damages as a result of a member state’s failure to implement a WTO panel’s recommendations and/or the member state’s failure to comply with its WTO obligations. By permitting private parties the right to initiate action against member states, the WTO will improve the monitoring process. When private parties are permitted direct access to the WTO’s panels, the WTO will be in a unique position to investigate and resolve disputes that member states are not aware of. They may be any number of reasons why a member state may not bring an action based on a complaint by private parties. To begin with, private parties may not inform their host states of the issue. Secondly, member states may have political motivations for failing to pursue a complaint on behalf of a disenfranchised private party. The fact is, private parties are more likely to be unbiased or unaffected by political views. Their complaints will most likely be driven by WTO obligations and the impact that failure to comply with those obligations on their respective business operations abroad. In addition, the prospect of having to pay compensatory damages to private parties will likely compel member states to take their WTO obligations more seriously. The prospect of having to pay compensatory damages will also likely result in the member state implementing all recommendations made by the WTO’s panels, without delay. Summary It is suggested that the main problems confronting the WTO’s dispute resolution process and that will impact its future success is its current enforcement process. Married to this is the inequities between the members who are likely to lodge complaints. If enforcement is weak, weaker economies that are already disadvantaged in terms of matching the resources for negotiating and pursuing claims or counterclaims are not likely to have enough confidence in the dispute resolution process to seriously pursue it. Therefore non-compliance with the WTO’s multilateral trade system will continue to be a problem and will likely worsen in the years to come. It is also suggested that measuring the success of the WTO’s dispute resolution system purely by reference to its direct effect process is disingenuous. Assessing the WTO’s dispute resolution system by reference to its direct effect system does not take account of the fact that private parties are denied legal standing. With private parties unable to initiate claims against non-complying member states, the WTO’s dispute resolution system denies an important voice and more significantly, an important remedy. Private parties essentially have the most to lose and as such should have legal standing before the WTO’s dispute resolution system and should have direct access to the WTO’s legal regime via local courts. Bibliography Textbooks Busch, M. and Reinhardt, E. ‘Transatlantic Trade Conflicts and GATT/WTO Dispute Settlement.’ Cited in E. Petersmann and M. Pollack (eds) Transatlantic Economic Disputes: The EU, The US and the WTO. (Oxford: Oxford University Press 2003). Chorev, N. ‘Political and Institutional Manoeuvres in International Trade Negotiations: The United States and the Doha Development Round’. Cited in W. Blaas and J. Becker (Eds) Strategic Arena Switching in International Trade Negotiations. (New York, NY: Ashgate Publishing 2007). Hartigan, J. Trade Disputes and the Dispute Settlement Understanding of the WTO: An Interdisciplinary Assessment. (Bingley, UK: Emerald Group Publishing Limited, 2009). Morrison, F. and Hudec, R. ‘Judicial Protection of Individual Trade Rights in the US”. Cited in M. Hilf and E. Petersmann (Eds.) National Constitutions and International Economic Law. (London, UK: Kluwer Law International 1993). Shaffer, G. and Melendez-Ortiz, R. Dispute Settlement at the WTO: The Developing Country Experience. (Cambridge: Cambridge University Press 2010). van der Borght, K. WTO Obligations and Opportunities: Challenges of Implementation. (Cambridge: Cambridge University Press 2007). Wilson, S.B.‘The WTO Dispute Settlement System and Its Operation: A Brief Overview of the First Ten Years’. Cited in Y. Yerxa and S.B. Wilson (Eds) Key Issues in WTO Dispute Settlement: The First Ten Years. (Cambridge University Press 2001). WTO. From GATT to the WTO: The Multilateral Trading System in the New Millennium, (Wiltshire, UK: Kluwer Law International 2000). Zimmermann, T. Negotiating the Review of the WTO Dispute Settlement Understanding. (Cambridge: Cambridge University Press 2006). Official Reports World Trade Organization. ‘Annual Report 2010’. (2010) World Trade Organization, 1-155. Articles/Journals Antoniadis, A. ‘The European Union and WTO Law: A Nexus of Reactive , Coactive, and Proactive Approaches’. (2007) 6 World Trade Review, 47-87. Choi, W. ‘To Comply or Not to Comply? –Non-Implementation Problems in the WTO Dispute Resolution System’. (2007) 41(5) Journal of World Trade, 1043-1071. Hoekman, B. ‘Proposals for WTO Reform: A Synthesis and Assessment.’ (January 2011) The World Bank Policy Research Working Paper 5525, 1-26. Hoekman, B. and Mavroidis, P. ‘WTO Dispute Settlement, Transparency and Surveillance.’ (2000) 23 The World Economy, 527-542. Hudec, R. ‘The Adequacy of the WTO Settlement Remedies for Developing Country Complainants.’ Cited in B. Hoekman, A. Mattoo and P. English (Eds) Development, Trade and the WTO: A Handbook. (Washington, DC: The World Bank). Jackson, J. ‘The WTO Dispute Settlement – Misunderstanding on the Nature of Legal Obligations.’ (Jan. 1997) 91(1) The American Journal of International Law, 60-64. Lawrence, R. ‘The United States and the WTO Dispute Settlement System’. (March 2007) CRS No. 25, Council on Foreign Relations, 1-41. Lida, K. ‘IS WTO Dispute Settlement Effective?’ (2004) 10 Global Governance, 207-225. Moon, D. ‘The Changing Status of Developing Countries Under the World Trade Organization Dispute Settlement Mechanism’. (April 2010) 25(1) Pacific Focus, 136-160. Nordstrom, H. and Shaffer, G. ‘Access to Justice in the WTO: The Case for a Small Claims Procedures’, (2008) 7(4) World Trade Review, 587-640. Reynolds, K. ‘Why are so Many WTO Disputes Abandoned?’ Cited in Hatigan, J. (Ed) Trade Disputes and the Dispute Settlement Understanding of the WTO: An Interdisciplinary Assessment. (Bingley, UK: Emerald Group Publishing Limited, 2009). Trachtman, J. ‘The Domain of the WTO Dispute Resolution.’ (1999) 40 Harvard International Law Journal, 333-475. Table of Statutes Understanding on Rules and Procedures Governing the Settlement of Disputes 1994. Table of Cases Decision of 12 April 1989 on Improvements to the GATT Dispute Settlement Rules and Procedures (36S/61). Read More