WTO: Dispute Settlement Understanding - Essay Example

WTO: Dispute Settlement Understanding Introduction: Uruguay Round Agreements established a ceremonial, structured dispute settlement arrangement to substitute the mainly ad hoc mechanism that had functioned under GATT. The establishment of DSU in fact strengthened the scope and mechanisms of dispute settlement in the WTO process. DSU makes it compulsory for Member nations who are having some disputes to utilise the WTO system and not to engage in imposing unilateral measures, as in the past, and to settle issue themselves. This research essay analyses the issues faced by DSU in making compulsory the compliance by member nations and how it find solutions to issues raised before it. 2. WTO –Dispute Settlement Understanding – An Analysis It is to be observed that consent –based approach is still applicable in the WTO process. However, a negative consensus approach will also be applicable to the WTO DSM. A consensus is required to stop the proceedings from advancing any stage of the formal dispute settlement procedures. This is remarkable advancement since the requirement to arrive at a consensus at every phase of the procedure was regarded to be a major obstruction in the use of the DSM especially for the developing countries. The possibility of arriving at a consensus against appointment of a panel, the acceptance of the report or the approval to suspend concessions will be de facto impossible in real scenarios and in a nutshell, thus no stalemate can hinder the DSM procedure. Thus, the possibility delaying the procedure was a chief nervousness for developing nations and was one of the major reasons why the developing countries lacked interest in the system. It is to be observed that this automation of procedure and adoption of the panels offers them increased weight in the negotiation process, even against rich and developed nations. The WTO DSU offers for precise and tight time limits at every phase of the procedure. Under WTO DSU, the entire procedure cannot prolong more than two and a half years which is being considered as a significant improvement in the DSU procedure. The DSM plays a significant role to ease the disequilibrium scenarios. Developing countries main concern was that developed countries should not infringe compliance procedures and they should exhibit improved compliance in agricultural trade and should redress the complaint about the damage to existing business interests from the EC common Agricultural Policy. [Hudec.R.E, 1999]. WTO DSU offers the privilege to the members who are having a sizeable interest in a dispute to demand their grievances to be heard by a panel. Thus, extending third parties rights to the DSM amount to promote transparency in the resolution of disputes and it also ensures that their rights are protected. Thus, involving third parties promotes multilateralism and thus results in judicialisation of the DSM structure. DSU also offers the chance to have remedies to arbitration as a substitute mode of dispute settlement provided as agreed by the parties which must be informed to the Contracting Parties. Arbitration process is regarded as a viable alternative as it minimises costs and time and the award also legally enforceable whereas there was still some apprehension on the legal validity of panel’s award in the DSM procedure. DSU provision states that developing nations concerns and interests should be given utmost priority. By invoking this provision, Chile complained against European Communities on the fact that its request for consultations with the European Communities had been turned down by the Communities and thus it has resulted in spoiling and not recognising the Chile’s interests. It is to be observed that under the WTO DSM, only governments have rights to request for dispute settlement and relevant affected industries must apply to their government if they want to raise their grievances. Hence, business has to be at the mercy of the government to defend their grievances. According to Kufuor “private participation encourages to dissuade protectionist policies and it also offers private industries with a privilege to bring claims before the WTO which would result in “depoliticise “for small business disputes”. The WTO DSU offers some dignified legal approach for the implementation of decision especially through the provisions of timeframes. WTO DSM mechanism offers for more adjudicative rules of implementation, especially through more predefined time frames and inspection. Though, the implementation stick to a judicial model, its implementation still based on the willingness of the opposite party (respondent nation) to cooperate and the WTO DSM fails to offer unquestionable safeguards to developing countries in this regard. AB [Appellate Body] has the power to suggest manner in which the losing party could implement the recommendations and legal significance of such suggestion is questionable. AB suggestions are compulsory only for violation complaints and seem to be a mere suggestion in non-violation and situation complaints. In case, the defendant observes silence after the decision by AB or panel and if after twenty days from the expiration of a reasonable period of time, if the parties have not reached an agreement on compensation, the plaintiff can petition the DSB to annul concessions. For instance, in EC bananas case, at the request of Ecuador, the panel was reconvened on the basis that the EC implementation was in contrary with the panel ruling. Ecuador requested the panel to advance explicit suggestions and recommendations as to how the EC could bring its system for importation of bananas into adherence. [Alban Freneau 2001] 1 Further, the question of preferential treatment was addressed in various cases which apparently dealt with the period of time to be granted to developing countries for the implementation of panels and AB rulings. In EC bananas case, four complainants viz. Ecuador, Guatemala, Mexico and Honduras along with U.S, had opted for arbitration so as to decide the ‘reasonable period of time “for the EU to comply with the panel ruling well ahead of its time frame. The question of special treatment as regards to the application of decision was also addressed in the case of Indonesia on certain measures involving the Automobile Industry. However, Indonesia appealed an additional nine months time frame for implementation of panel ruling. Arbitrator granted additional six months period for the implementation of panel ruling. Obtaining compensation for damages suffered is a significant advantage for the developing countries than developed countries under WTO DSM. The chance of obtaining damages is of a judicial nature as it touches upon WTO member state’s sovereignty. In case, if the respondent has not adhered to the AB or panel judgment within a reasonable time, the plaintiff may seek compensation. However, payment of compensation to the affected rests on the readiness of the respondent to negotiate. This has inherent defect as WTO DSU does not fully authorise panels to recommend compensation for damages already incurred. As far as compensation is concerned, WTO DSU mechanism is not satisfactory as it lacks involvement of panels due to its voluntariness character. Under WTO DSM, the respondent is at liberty to obstruct the procedure and put off implementations by undertaking unacceptable cosmetic changes as in the case of EC banana case Hence, there is a necessity to introduce a “light” dispute settlement mechanism, in disputes involving less than US $ 1 million of exports and this method involves only one panellist and would be awarding its finding within three months. [M.E. Footer, 2003]. According to South Centre, “the mighty industrialised nation can wield their considerable influence and try to initiate claims on frivolous grounds which can pose as a great danger for the developing economies. Reforming the existing provisions for compensation is felt necessary as at present, panels never impose compensation for losses already suffered. The involvement of developing countries is essential in the coming years since sub-Saharan African countries need longer transitional periods to fully implement the WTO agreement. In a nutshell, Dispute mechanism of WTO has achieved a certain degree of success but that special treatment has not produced any desired results. DSM has in fact has condensed the extent for unilateral actions as it offers important guarantee of fair trade for less powerful nations. Since China was admitted as the member of WTO in December 2001, under WTO’s DSM, China would no longer subject o unilateral actions threatened or to be imposed on many instances in trade-associated bilateral business negotiations where China discovered itself in a lower position especially when the subject matter of negotiations was initiated in the background of political issues. Now, China would feel relaxed subjecting itself to a rule –oriented system that can solve a dispute impartially despite of the power and strength of the disputing country like USA. On 26 March 2002, China presented to DSB a “Request for Consultation” against US government action in imposing some safeguard measures in the guise of increase of import duties on steels from China. China pleaded that US action was breach of its commitments under the “Agreement of Safeguards” and under GATT 1994 regulations. It is to be noted that WTO dispute mechanism not only helps China to address its issues but also other member nations to redress their grievances against China. For instance, the minority foreign shareholders in a joint venture in China in specific service sectors can now enforce their rights through a legal platform available under Chinese laws, measures and regulations. Further, an investor can appeal to his government to initiate action against China in WTO’s DSM to make sure that China implements all its commitments under GATS schedule. (Ching & Ching 2003 p.160). The Appellate Body may insist that a Member is required to give the evidence needed of it as in the case of Canada-Aircraft. Thus in the guise of confidential business information, the Member nation cannot have the right to withhold key information for arriving at a decision. Both Canada and Brazil requested the AB to process the case under the working procedures of “Rule 16(1) “ instead of Article 18.2 of the DSU. The AB turned down this request that confidentiality duties set out in Article 17.1 and 18.2 of the DSU will be applicable to all WTO Members. (Patrick et al 1310) In case of developing countries, Korea’s experience acts as a vista to other nations. In 1983, Korea witnessed several anti-dumping measures initiated against it by the U.S.A. It is to be remembered that WTO DSM mechanism is much easier and speedier than the earlier WTO-GATT. Korean issue demonstrates that benefits can outweigh the possible costs. If nation pay much attention for the preparation of the case, it can minimise both direct and indirect overheads substantially. However, a first case in WTO’s DSM should be looked as an investment for the future. In developing countries, globalisation often is construed as an impediment as it supposedly imposes the authority of the stronger and mighty nation on weaker nations. However, Korea’s use of WTO’s DSM disproves this perception. It is to be noted that measures which are conflicting with WTO agreements can be resolved successfully by weaker countries like Korea if they willing to use DSM platform. A successful employment of DSM platform could demonstrate that the WTO is not a biased mechanism of advanced nations but rather a neutral mechanism for resolving issues, which can build support for globalisation and trade. (Gallagher et al 316) There were many success stories in bringing action against unfair trade restrictions imposed by rich nations on developing or poor nations under WTO’s DSM tool. For instance, Costa Rica was victorious in confirmation of its rights under the Agreement on Textile and Clothing against safeguard actions initiated by U.S.A. The success story of Costa Rica demonstrates that if a country has done a proper ground work and if it has a meritorious case and this case act as an indicator to other developing nations that the DSM mechanism helps to safeguard the interest of poor nations who are the members of WTO. In late 1990’s, Pakistan was also successful in questioning US textile safeguards. Pakistan case demonstrates some of the practical issues involving of preparation of a case and the probably blurred success that earlier dispute adjudication can offer. For the first time, the Pakistan government was a party to the WTO dispute and it had to rely on external consultants and for funding resources, it had to rely on the Pakistan’s textile industry association. Pakistan first presented the case to the Textile Monitoring Body and then to the disputes panel and then appealed. Finally, Pakistan’s protest to the three-year US safeguard quota was held as an infringement. However, it took nearly 36 months and a lot of resources to win over the objectionable quota system imposed by U.S.A which was against the Pakistan’s interest. The Thailand case demonstrates how Thai government and fishing industry jointly challenged the proposed changes in EU tariff preferences in importing tuna from Thailand. Thailand case demonstrates the scheme of the conciliation procedures in WTO disputes, exploiting the good offices of the Director General of WTO. Thus, Thai case demonstrates that use of WTO’s DSM will involve less controversial procedures together with appreciably lower costs. In one another case, WTO’s DSM helped Argentina to resolve its issue when the regional agreement failed to find a solution to an issue. Argentina filed a case against Chilean variable import levies enforced on its vegetable oils as it had failed to successfully resolve the issue in the context of the Mercosur regional agreement. (Gallagher et al 2005 8) In one another case brought by South Korea in 1980 against anti-dumping measures inflicted by U.S.A on its colour television demonstrates the real genuineness of WTO’s DSM. This case demonstrates how close collaboration should exist between industry and government officials as it would have a positive effect on framing of domestic trade policy. India together with its fishing industry filed a complaint against anti-dumping measures initiated by U.S.A against exports of Indian shrimp to U.S.A. Canada made an unsuccessful defence of its discriminatory implementation of tariff benefits linked with its side of Canada-US Auto Pact. It is to be recalled that this case was agitated for the wrong grounds in an effort to defend a policy whose original aim had already been overlooked in the market place. Canada could have avoided uncertainty for its automobile industry, friction with its trading partner namely U.S.A, had the Canadian government had elected not to fight back their policies. (Gallagher et al 2005:8) Even genuine Agreement on Sanitary and Phyto –Sanitary Measures (SPS) can end in total restriction on imports so that impact will be very crucial for developing nation’s exporters with restricted finances to adhere compliances with rigorous food health requirements. Indonesia witnessed trade barriers implemented by EU on its shrimp exports which demonstrates how little scope is there for exercising in such cases and the vital significant of good flow of information between fishing industry and Indonesian government in finding a solution , within the resources of the export industry , to cater the market demands. (Gallagher et al 2005:8) Conclusion It is significant to observe that no WTO dispute is regarded to be controversial. No doubt, when a member country raises a dispute against a strong nation, definitely a lot of heat will be generated in the process. However, an impartial and amicable resolution of dispute is possible which serves as a positive pointer for all WTO member countries by assisting to promote the world trade and by explaining how countries trade regulations should function to give effect to the conditions of the WTO Agreements. One another salient feature is that the confidence building effect that a successful case can have, influencing the outlook of stakeholders and government towards global economic integration. References Ching Cheong & Ching Hung Yee, Handbook on China’s WTO accession and its impacts. (World Scientific Publishing, London 2003) 443-117 Patrick, F.J, Macrory, Appleton, Arthur Edmond & Plummer Michael G., World Trade Organisation: legal, economic and Political analysis. (Springer, London 2005) 3120 -1310. Gallagher Peter, Patrick Low and Stoler Andrew L, Managing the Challenges of WTO participation. (Cambridge University Press, Cambridge 2005) 652-8 Read More