The Changes in the Sphere of Global Trade - Essay Example

? What reforms, if any, should be made to the WTO dispute settlement system? Introduction The recent changes in the sphere of global trade have provided a glimpse of the future for all nationals: increased and almost unrestrained free trade. The increased and speedy interaction between countries has resulted to a more integrated global trade. Many countries exchange goods and services irrelevant of the distance, monetary form, local laws, and even international laws. In fact, many individuals now conduct their own international exchanges without going through necessary legal procedures that used to restrict inter-trade between countries. Despite the perceived freedom of global grade, there are still a lot of laws that needs to be complied with. These, of course, are governmental in proportion. These meant bulks of products that pass through territorial boundaries as well as impact on fuel consumption, transported delivery, as well as mass distribution and consumption of goods. The integration of economies also led for the need to streamline laws and regulations in international manner. The attempt to improve the international trade system for the last century was the establishment of the General Agreement on Tariffs and Trade or GATT. For without a governing body, conflicts will surely arise. The GATT, however, was seen to be problematic. It is why a new body was established, which was the World Trade Organization, and with it, a dispute settlement and resolution systems that established as well as oversee issues and challenges brought forth between aggrieved and respondent countries as well as their trading partners where inequality was perceived. This paper will try to discuss extensively the need for reform, if any that should be made on the WTO dispute settlement system. The World Trade Organization (WTO) The World Trade Organization or the WTO describes itself as “the only global international organization dealing with the rules of trade between nations,” through agreements, negotiated and signed by the world’s trading nations and ratified in their parliaments. The main objective of the organization is to protect producers of goods and services, exporters, and importers as they do about their business. Its headquarter is in Geneva, Switzerland and it was established on January 1, 19951. The functions of WTO includes administration of trade agreements, serve as a forum for trade negotiations, handle trade disputes, monitor national trade policies, assist and train developing countries, and cooperate with other international organizations2. It claims to have “helped to create a strong and prosperous international trading system, thereby contributing to unprecedented global economic growth,”3. Today, there are 153 country members and 117 of these are developing countries. It has a Secretariat with about 700 staff led by the WTO Director-General. The Director General stated that “decisions in the WTO are generally taken by consensus of the entire membership” although it has its own institutional body - the Ministerial Conference and the General Council which is the WTO’s highest-level decision-making body 4. By doing its work, the WTO proposed that national markets opened to “international trade, with justifiable exceptions or with adequate flexibilities, will encourage and contribute to sustainable development, raise people's welfare, reduce poverty, and foster peace and stability. At the same time, such market opening must be accompanied by sound domestic and international policies that contribute to economic growth and development according to each member's needs and aspirations”5. Dispute Settlement The WTO resolves trade misunderstanding under the Dispute Settlement Understanding. The DSU facilitates smooth trade flows and member countries bring their cases to WTO once their rights under the agreements were violated. While decisions were made by so-called independent experts, these experts were appointed and their judgment is usually based on interpretations of the agreements and commitments of the party countries. The Dispute Settlement Body (DSB) provides decision on the recommendation of experts6. “The WTO’s procedure underscores the rule of law, and it makes the trading system more secure and predictable. The system is based on clearly-defined rules, with timetables for completing a case. First rulings are made by a panel and endorsed (or rejected) by the WTO’s full membership. Appeals based on points of law are possible,”7. The goal is to have parties come up with an agreement that will benefit the conflicting or opposing countries and if necessary, through consultations. The WTO reported that out of the 369 cases filed since 1995, only about 136 reached the full panel process by 2008. Many of these cases are either settled or remained under prolonged consultation8. The consultation applies equitability, speed, effectiveness, and acceptability by majority. Many of the disputes arise from broken promises and multilateral system is used to determine once a dispute has been placed9. The process of settling disputes extends in its full course to a first ruling takes about one year or up to 15 months when case is appealed. Time limits, however, depends on agreement between the parties and can be flexible. Where urgency is required such as cases for perishable goods, consultation is accelerated10. One perceived political nature of the ruling per case is the need for a country which objects a ruling to convince others to share its view11. Otherwise, dispute resolution is left on conflicting parties by themselves to resolve. One outstanding feature is authorization for retaliation on the part of the aggrieved party where the party may find the decision against itself. This is however a last resort12. The WTO estimates the length of settling dispute as: 60 days Consultations, mediation, etc 45 days Panel set up and panellists appointed 6 months Final panel report to parties 3 weeks Final panel report to WTO members 60 days Dispute Settlement Body adopts report (if no appeal) Total = 1 year (without appeal) 60-90 days Appeals report 30 days Dispute Settlement Body adopts appeals report Total = 1y 3m (with appeal) The DSU Existence and Performance It has been noted that many, if not all member countries laud the Dispute Settlement Understanding as well as the Dispute Settlement Body of the World Trade Organization. One conclusion that was made in its entire existence has been that not a single member or delegation has ever suggested for the abolition of the DSU and the DSB13. “Early informal consultations conducted by the Chairman of the DSB revealed that no delegation favoured the termination of the DSU, that almost all delegations were of the view that the DSU was working effectively, and that a careful approach to the review was warranted,”14. An evaluation of the WTO Dispute Settlement resulted in some positive outcomes f=during its first ten years. The system has been used frequently more than anticipated by developed and developing countries through initiation of cases and appealing outcomes; treaty interpretation has been driven by a common methodology based on the customary principles of public international law such as Article 31 of the Vienna Convention on the Law of Treaties; coherent body of WTO procedural and substantive law leading to a distinct WTO legal system; high rate of compliance with the rulings of which countries “withdraw measures, change their laws and adapt to the rulings of a panel or the Appellate Body,”15. Conflicts and Weaknesses There are however, conflicts that have arisen to the interpretation of the Appellate Body decisions: there are those who think that the Appellate Body has ignored the text and that its decisions are based on its own view the opposite believes that the approach was rigid and undermining the intent of negotiators the Appellate Body made decisions without the competence and expertise on the paeticular area of law; or that the interpretative parties of the dispute settlement process have exceeded their role and mandate16. One of the weaknesses pointed out earlier about the DSB is its lack of strength in restraining countries from committing actions outside the system rules, thus, the possibility of creating more conflict17. The United States created the Trade Act of 1974 with Section 301 protects “U.S. rights or benefits under international trade agreements were at risk or when foreign nations engaged in unjustifiable, unreasonable, or discriminatory conduct. Section 301 focused primarily on the activities of foreign governments, not foreign businesses. It has been used primarily to open up foreign markets to U.S. exports and investments and to protect intellectual property rights,”18. This has been used by the US to “retaliate” or sanction countries in its watchlist despite the lack of any dispute recommendation by the DSU in violation of the WTO’s Article 23 stating that countries “shall not make any unilateral determinations that treaty violations have occurred and are barred from imposing sanctions unless they are approved by the DSB,”19. The US has since then been party to many disputes as either respondent or complainant (American Business, 2011). Related to this, it was observed that “adopted WTO dispute settlement decisions have only a limited, indirect influence on the subsequent behavior of losing respondents, and sometimes are not implemented promptly or at all,” (Magnus, 2005, 21) Additional loophole of the DSU is that recommendations of the DSB were not properly implemented20. Kessie commented that “the fact that it may take a panel six to nine months after its establishment to render a decision is of no great importance, if he decision would not be implemented after two or three years,”21. Reforms on shortening timeframe for the resolution and improving the effectiveness of remedies under the system were sought22. In addition, delayed relief was also seen as “illusory” in some cases23. Another reform that needs to be considered is the lack of formal standing by private sectors or firms who have remained dissatisfied with the dispute mechanism24. NAFTA or the North American Free Trade Area was cited as a preferable model since the private sector has access in specific issue areas25. This proposal has been rejected by environment, labor and consumer NGOs although they insisted that they themselves be given a standing in DSU26. The former highlights the need to address social interests in the multilateral trade institution although this was seen as improbable27. WTO was also perceived to lack resources of manpower and budget as it was burdened with too many disputes raised and the need to establish panels28. Aside from this, the costs for high level legal experts and exorbitant cost for both bringing and defending cases before the DSU has constrained many countries29. Another weakness seen by McRae was that WTO agreements not clarified during negotiations could make the DSU “a surrogate for negotiations. Members may use dispute settlement both as a means to gain further clarification of the provisions of the covered agreements and as a means to try to expand the scope of existing obligations to encompass matters on which no negotiating progress has been made,”30. Suggested Reforms Yerxa and Wilson cited many possible amendments for the WTO DSU. Among these include the service of professional panelists in order to review loopholes in the implementation of decisions as well as non-participation or enforced action of aggravation. Such can be said about the case of Pakistan in a case filed by the US against Pakistan. It was resolved without litigation requiring the latter to enforce the mailbox mechanism for patent applications31. This also requires ransparency in panel procedures in order to determine impartiality. Others proposed by Yerxa and Wilson include acceptance of amicus submissions, remand, enhancing third party rights, and special and differential treatment proposals including the establishment of an Advisory Center on WTO Law, enhancing the capacity of the Secretariat to assist developing countries, increasing timeframes in cases involving developing countries, and introducing a levy on the use of the DSU by developed countries,”32. The proposed reforms would address issues such as that of the restriction of US for Pakistan import of some 5.26 million kilograms on combed cotton yarn starting 1999 until 2001 of which all disputes filed to the DSB upheld the complainant Pakistan’s stand. The US delayed if not avoided compliance33. Another case that would benefit from the reform for assistance towards developing countries involve the US in a case against complainants India, Malaysia, Pakistan and Thailand about shrimp import restriction from these countries. It was found that the US “violated the basic GATT principle of not imposing restrictions on imports as set out in Article XI: 1 of the GATT 1994, and could not be justified by the exemptions provided for in Article XX of the GATT 1994,”34. Another case that has been highlighted was the EC-Bananas III case. The problem area has been the implementation and enforcement of Articles 21.5 and 22 of the DSU of which there was import tax for every tonne of “third country bananas” for $75 where originating country is not a member of the European Union, its European Community member states, and the 12 African Caribbean and Pacific (ACP) countries which were traditional suppliers of EC35. Violation has started during the GATT years but was upheld during the GATT years due to the principle of consensus. When WTO was formed with its DSB, the case was revived in 199536. Appendix A illustrates the layers of issues about the case37. The EC replied that the practice was in fulfillment of previous commitments, “under the Lome Convention concluded by the EC with almost 80 ACP developing countries,”38. Jackson also cited grouping for the cases that are problematic in their implementation: substantively new issues procedural or arguably interstitial or fine-tuning issues for the organization39. Among the list mentioned above, the Advisory Center on WTO Law has been adopted and existing40. All the suggested reforms were proposed as solution and improvement of the necessary dispute resolution system that the WTO has successfully introduced. In addition, these were based on the cases as well as issues that the WTO DSB need to address as already discussed under conflicts, weaknesses, and cases criticized above. These are as important in order to provide a progression as well as attain the goals specified by the WTO. Efforts from the DSB Already, there are steps undertaken by both disputing countries and the DSB when it comes to procedural conflicts: “procedures regarding decision-making, waivers, and new accessions are being scrutinized and that various suggestions for improvement have been put on the table. With respect to dispute settlement, the treaty text itself called for a new review during 1998, which was not accomplished,”41. The challenges towards negotiating new text or making decisions based on the WTO charter has been seen as quite constrained as efforts were already made to balance as well as limit intrusion to national sovereignty42. There were also limits as to what WTO membership can do in pursuit of single agreement in contrast to GATT’s “side agreements”43. Charter interpretations imposed very stringent voting requirement of three-fourths of total membership but this has been problematic due to the fourth of the WTO membership were not present in key meetings44. Consideration has been seen on the decisions of the Appellate Body, which Jackson observed that, “The emerging attitudes of the Appellate Body reports seem to reinforce a policy of considerable deference to national government decision-making, whether it arises from judicial restraint, the explicit language of the DSU’s Article 3, or the sentiments of countries that fear excessive intrusion on national sovereignty,”45. While in pursuit of improving the dispute settlement system, Jackson proposed that “The dispute settlement system cannot and should not bear the weight of formulating new rules either by filling gaps in the existing agreements or by setting forth norms that carry the organization into totally new territory such as competition policy or labor standards,”46. Conclusion The efforts undertaken by the World Trade Organization towards meeting all the equitable expectations of member countries provides a positive glimpse towards a better performing Dispute Resolution system and body. While the goals and aims were noble and perceived as ideal by many if not all members, there remain problematic issues that the Organization and not only the DSB needs to address. First of this is the strict implementation of decisions by the panel and the DSB as well as the Appellate Body. Timely is only one part of the implementation. Proper implementation is the other half. The retaliatory system allows governments to respond to any abuse or inequality that were done on them. This way, less powerful countries may employ strategic retaliation schemes that should start the violating country thinking. This could also be adopted as a means to address untimely as well as improperly implemented decisions of the DSB. However, a proposed solution might open up new problems and issues that pertain to interpretation of DSB resolutions. Already, there were seen problems as discussed above. Another reform that has already been proposed was the adoption of a levy system on the use of the DSU by developed countries. This will help solve the lack of funding for the organization. In connection to this proposal, a waiver system for developing countries should also be adopted where fees of litigation are concerned. Developing countries were already historically seen to be disadvantaged with the “legal” system that developed countries have evolved into sophistication beyond the financial means of poor countries. The system should automatically provide less expenditures or fees for the poor country or the poorer one when it comes to dispute filing whereas the more privileged one should be levied appropriately to cover costs to lessen the burden of the Body as well as the poor country. As mentioned by Yerxa and Wilson, there are a lot more improvements and reforms that the WTO DSB may adopt. Restraints about per every proposal but there should be an effort among members to help attain the proposed reforms for the good of the majority. Once these proposals were achieved, there will definitely be an improved global trading system as well as global legal system. However, WTO should sustain its goal for liberalized trade. As shifts of economies due to differing costs of labors, resources, and skills dictate trends as well create vulnerabilities, more challenges are coming their way. New problems shall emerge but for the meantime, it would be for the benefit of all to adopt a few changes and reforms. 3056 words Reference: American Business. Section 301, Special 301, Super 301. Accessed from http://american-business.org/740-section-301-special-301-super-301.html Breus, F., S Griller and E Vranes (eds). 2003. The Banana Dispute: An Economic and Legal Analysis (Springer Vienna). Griller, S. and E. Vranes. 2009. EC Banana Case. Max Planck Encyclopedia of Public International Law. January. Accessed from http://www.mpepil.com/sample_article?id=/epil/entries/law-9780199231690-e1689&recno=8& Hoekman, Bernard M. and Michel M.Kostechi (2001) The Political Economy of the World Trading System: The WTO and Beyond, 2nd edn. New York: Oxford University Press. Jackson, John. 2000. The role and effectiveness of the WTO Dispute Settlement Mechanism. Brookings Trade Forum, 2000, pp. 179-219. Kessie, Edwini (2000) ‘Enhancing Security and Predictability for Private Business Operators Under the Dispute Settlement System of the WTO’, Journal of World Trade 34(6): Latif, Muhammad Ijaz. 2007. The WTO Dispute Settlement System: Its Analysis and Implications for Pakistan. Journal of Asian and African Studies 42: 447 Magnus, John. 2005. Compliance with WTO dispute settlement decisions: is there a crisis? From YerZa, R. & B. Wilson (eds). Key issues in WTO dispute settlement: the first ten years. Cambridge University Press. Mahmood, Zafar (1998) ‘WTO and Pakistan: Opportunities and Policy Challenges’, The Pakistan Development Review 32(4) (Part II,Winter) McRae, Donald. 2004. What is the future of WTO Dispute Settlement?” Journal of International Economic Law 7 (1), 3-21. Oxford University Press. Schott, Jeffrey J. (ed.) (2000) The WTO After Seattle. Washington, DC: Institute for International Economics. Sell, Susan K. (2000) ‘Big Business and the New Trade Agreements: The Future of the WTO?’, in Richard Stubbs and Geoffrey R.D. Underhill (eds) Political Economy and the Changing Global Order, 2nd ed. Canada: Oxford University Press. World Trade Organization. 1996–7. Pakistan-Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS/36/1, WT/DS/36/2, WT/DS/36/3, WT/DS/36/4, From the Request for Consultations by the United States, Dated 30 April 1996, to Notification of a Mutually Agreed Solution, Dated 7 March 1997. World Trade Organization (1998) United States-Import Prohibition of Certain Shrimp and Shrimp Products, Report of the Panel (WT/DS58/R, 15 May 1998), and Report of the Appellate Body (WT/DS58/AB/R, 12 October 1998) World Trade Organization. 2011. Dispute Settlement. Accessed from http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm Yerxa, Rufus and Bruce Wilson. 2005. “Key issues in WTO dispute settlement: the first ten years. Cambridge University Press Appendix: A: EC Banana Import Regime – Outline. Source: Breuss et al, 2003, 11 Read More