WTO-GATT Dispute Resolution - Assignment Example

WTO/GATT Dispute Resolution Abstract Putting into consideration the fact that sovereign states have entered into bilateral, regional and multilateral trade blocks, there emergences the need for a well laid platform through which disputes arising from the trading process can be settled. The WTO has taken a front role in adjudicating matters concerning disputes among member states. This paper looks into the effectiveness that has been displayed by WTO/GATT in resolving of disputes that arise from trading process. The paper also focuses on the mechanisms that WTO/GATT apply as a tool that enables it to resolve these disputes in a transparent and diplomatic manner. The legal system that WTO/GATT has put in place has been shown to be effective in resolving disputes both in terms of dispute duration and policy adjustment. (Jackson, 1969) Introduction The rising trend in globalization of trade policies and the increased enrollment of nations into trade blocks has helped in globalization of many economies whereby nations are seen to benefit mutually from each other. However, it is important to point out here that this process has not only led to mutually economic gains to countries but has on the other hand caused mayhem in many of the member countries belonging to certain trade blocks. Such disputes usually arise from instances where countries want to protect certain industries which they regard sensitive in line with the production process. In other instances, disputes have occurred when some countries demand for market access when they feel they have been left outside some regional or global trade blocks (Jackson, 1969). These increased trade disputes eventually led o the creation of the World Trade Organization that oversees resolution to these disputes through a set of pulled off multilateral rules and a defined dispute settlement protocols. According to Kavenock and Thursby (1992) GATT/WTO accentuates the role of settlement of disputes if sustaining multilateral trade is anything to go by. They argue that an effective dispute management system lays the foundation for liberalization and prevents against trade wars. Martin and Simmons (2001) postulates that problems of selection bias and endogeneity are significant challenge to the challenge of evaluation of institutional effectiveness. The effectiveness of WTO cannot be compromised as since its formation in 1995, it has effectively resolved over three hundred trade disagreements. The GATT Dispute Settlement System Jackson (1969) explains that the proposed International Trade Organization’s (ITO) Havana Charter of 1948 contained a detailed and dilated dispute settlement system. Upon failure of ITO and consequent realization of the General Agreement on Tariffs and Trade (GATT), there was only a limited array of measures that were derived from the Havana Charter. The two articles in GATT that relates to dispute settlements include: XXII: Consultation XXIII: Nullification Article XXII: Consultation This article is mainly concerned with the process of consultation regarding disputes among respective parties over the application of laws set up by GATT. Under this article, chapter one relates that ‘Each contracting party shall accord sympathetic consideration to, and shall afford adequate opportunity for consultation regarding, such representations as may be made by another contracting party with respect to any matter affecting the operation of this Agreement’. (WTO, 1999). According to this paragraph, GATT requires conflicting countries to take a first step and try to consult each other in trying to resolve arising differences. Paragraph two of this Article states that ‘The CONTRACTING PARTIES may, at the request of a contracting party, consult with any contracting party or parties in respect of any matter for which it has not been possible to find a satisfactory solution through consultation under paragraph 1’ (WTO, 1999). This article explains further the obligation that contracting parties have in as far as consultation as an important factor of consideration in dispute settlement is concerned. This Article also explains the necessity of a third party which can act as a mediator in settling the differences between two or more conflicting parties. If in any case the differences are not resolved under the provisions of this article that is, through consultation including the possibility of mediations prompted by a third party or GATT Secretariat, the contracting parties, the complaint may find refuge under the provisions of Article XXIII (WTO, 1999). Article XXIII: Nullification or Impairment This article functions as the powerhouse of GATT dispute resettlement center. It defines the conditions that rule the violations of GATT and the process through which the contracting parties may seek redress. Paragraph 1 provides that: If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of: a) the failure of another contracting party to carry out its obligations under this Agreement, or b) the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, or c) the existence of any other situation. the contracting party may, with a view to the satisfactory adjustment of the matter, make written representations or proposals to the other contracting party or parties which it considers to be concerned. Any contracting party thus approached shall give sympathetic consideration to the representations or proposals made to it’. (WTO, 1999) As portrayed in the above provisions, there are three conditions at which GATT provisions can be violated. Subparagraph (b) of paragraph 1 includes non-violation nullification whereby no specific violation has been made by the contracting parties. Subparagraph (c) includes all the violation that can be made in relation to the provisions of GATT (WTO, 1999). If the benefits of a contracting party are nullified according to these provisions, paragraph 2 of this article looks into the means through which redress is attained. The paragraph states that: If no satisfactory adjustment is effected between the contracting parties concerned within a reasonable time … the matter may be referred to the CONTRACTING PARTIES. [They] shall promptly investigate any matter so referred to them and shall make appropriate recommendations … which they consider to be concerned, or give a ruling on the matter as appropriate … If the CONTRACTING PARTIES consider that the circumstances are serious enough to justify such action, they may authorize a contracting party or parties to suspend the application to any other contracting party or parties of such concessions or other obligations under this Agreement as they determine to be appropriate in the circumstances. If the application to any contracting party of any concessions or other obligation is in fact suspended, that contracting party shall then be free, not later than sixty days after such action is taken, to give written notice to the Director-General to the Contracting parties of its intention to withdraw from this Agreement. (WTO, 1999) According to Jackson (1998), the main provisions or this article are: The dispute settlement system can be invoked on the grounds of nullification or impairment of benefits expected under the Agreement and does not depend upon any actual breach of legal obligation. The power of the GATT is established, not only to investigate and recommend action but also, to rule on the matter. The GATT is empowered to authorize contracting parties to suspend GATT obligations to other contracting parties. Application of the GATT Dispute Settlement System Apparently, the legal framework of dispute settlement by GATT was achieved through a consensus between the GATT contracting parties. Initially, it was not conceptualized that GATT would be laid such a burden with increased disagreement arising from different regional trade blocs and organizations. Initially there were no schematic procedures that had been put in place in the GATT provisions that aimed at resolving of trade disputes. In those early times especially during its first years upon formation, it emphasized on diplomatic procedures and negotiations among conflicting parties. This however had little profound positive outcomes which definitely saw the need to place more elaborate judicial procedures under its provisions that would oversee the overall process of dispute settlement in an arbitrary manner (Jackson, 1998). Introduction of the GATT panel in 1995 was a major innovation. The panel constituted a more elaborate judicial process which evinced a shift away from the less applicable negotiated dispute resolution system (Jackson, 1998). The panel were given the task of coming up with reports which were presented to GATT Council for the ratification process. A panel report was considered a binding to the parties if it was accepted through a consensus. At this point however, it is important to consider the fact that the parties were given the right to veto the ratification procedure. This process would protect such parties from being obliged to bestow their trade policy into GATT compliance. This right was later held as being liable for the failure of GATT Dispute Settlement System (Jackson, 1998). Performance of GATT Dispute Settlement As an international trade dispute resettlement system, GATT evolved as a rule-oriented judicial system (Jackson, 1998). Several factors have however intimidated the performance of its duties. As stated earlier the power to veto the ratification process happened to be a major factor that delimited the performance of GATT. The power and will shown by the parties to maintain GATT is what saw the survival of the dispute resettlement system (WTO, 2004). Other factors that failed the dispute resettlement system include the briefness of the relevant Articles. Such Articles failed to clearly and identify specific objectives and procedures. This fact resulted to the system relying on creation of ad hoc procedures. In addition, there existed so much ambiguity in the role of consensus. Such ambiguity led to the omission of critical decisions that would be vital in dispute resettlement (Jackson, 1998). The process of dispute settlement apparently took unnecessarily long given that there was no right to a panel. Delays as well as non-compliance with panel findings by the involved parties had a negative impact in the functioning of the dispute settlement system. Hudec et al. (1993) identifies that despite all these defects in the dispute settlement system, GATT had the most comprehensive performance between 1948 and 1989 where it is estimated that it successfully managed to resolve 88 per cent of all valid complaints submitted. Ineffectuality of GATT dates in the beginning of 1980s. As said earlier the crude system that had been formulated could not hold the pressure that was put on it by the elevated volume and complexity of trade disputes especially after 1980. The weakness of this system was evidenced during its failed attempt to resolve the dispute between the US and the EU. According to Davey (2000), GATT cannot be doomed as a failure considering the other options that were there to resolve trade disputes. In fact, it served well in its initial stages and hence it was used to place forth the foundations of the World Trade Organization (WTO) Dispute Settlement Understanding (DSU) (Jackson, 1998). The WTO Dispute Settlement Understanding The failing attempt to resolve bilateral trade disputes by the GATT led to the creation of DSU and consequent takeover in matters regarding bilateral trade issues on January 1st 1995. The DSU is regarded as a major achievement of the Uruguay Round negotiations (Hudec et al., 1993). The increasing failure of GATT had previously resulted to a general consensus among nations for the improvement or rather an outlined reform of the provisions of the GATT. This was clearly stated in the Punte del Este Declaration that: To assure prompt and effective resolution of disputes to the benefit of all contracting parties, negotiations shall aim to improve and strengthen the rules and procedures of the dispute settlement process, while recognizing the contribution that would be made by more effective and enforceable GATT rules and disciplines. Negotiations shall include the development of adequate arrangements for overseeing and monitoring of the procedures that would facilitate compliance with adopted recommendations. (GATT, 1986) By then, the US under its federal laws was enforced to a domineering unilateral action. Developing countries as well as Japan, EU and Canada had a primary objective of limiting this power of the US. On the other hand, the US aimed at enforcing the adoption of an automated dispute settlement system with a clearly indicative timeline of dispute settlement and an agreement on possible cross-retaliation procedure (Stoler, 2003). WTO DSU came as a relief in line with the expectations of many contracting states and it satisfied most of the shortcomings of GATT, just to mention a few, it successfully saw the restrain of unilateral action by the US and several other states as stated under its provisions in Article XVI.4. It as well looked into the interest of creating an automaticity process in dispute settlement (Stoler, 2003). This appeared to be a pivotal pillar in its objectives and it became interestingly relevant in its consequent tasks in international trade dispute settlement (Stoler, 2003). A strict timeline of dispute settlement was developed as provided under Article 20 and the cross-retaliation process which was however limited to protect the interested of parties involved was provide under Article 22 (3) (WTO, 2004). WTO DSU Articles Article 1: Coverage and Application This Article generally looks into the agreement, which include WTO Agreements, multilateral trade agreements, General Agreement on Trade in Services (GATS), DSU, and Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). The Article also includes plurilateral trade agreements relating to such issues as bovine and dairy meat, government procurements and civil aircraft (WTO, 2004). Article 2: Administration Under this Article, the functions of Dispute Settlement Body which runs the DSU are illustrated (WTO, 2004). Article 3: General Provisions This article outlines the provisions of DSU. It is important to mention the relevancy of Article 3 (1) in which it has recognized the foundation s of GATT Articles XXII and XXIII (WTO, 2004). Article 4: Consultations Under this article are provisions that oversee the process of consultations within a specified timeline between conflicting states. Each state in a dispute situation is allowed to request as a pre-condition, for consultation process in an attempt to resolve the dispute (WTO, 2004). Article 5: Good Offices, Conciliation and Mediation Just as GATT allowed the involvement of a third party in mediating conflicting states as an approach to resolve a dispute, DSU also allows the same under its provisions as stated under this Article (WTO, 2004). Articles 6, 7 and 8: Terms of Composition and Panel composition Panels can be established to look into the details of a particular dispute and to later present the report to the DSB in which course action will be taken. These Articles provides the basis in which such Panels will be established (WTO, 2004). Article 9: Procedures for Multiple Complains The Article provides the establishment basis of a single panel to look into respective complains and issue separate reports regarding the same as may be required by the DSB (WTO, 2004). Article 10: Third Parties In any dispute settlement, the importance of a third party cannot be overestimated. The interests of a third party in settlement of dispute or rather in the mediation process are protected under the provisions of this Article. They have the right to be heard as well as to circulate written submissions to each of the states that are in conflict (WTO, 2004). Articles 11, 12, 13 and 14: Panel As stated under Articles 6, 7 and 8, a panel may be established to look into the matters pertaining to a dispute. These Articles takes into account the process of Panel establishment, the functions to be carried out by the panel and their exclusive rights that will help them into developing an autonomous report to be presented to the DSB (WTO, 2004). Articles 15 and 16: Panel Report Interim Review and Adoption Upon exclusive review of the dispute by the Panel, they will present this report together with the parties comment and their recommendations to the DSB. The Article also rules that a party has a period of 60 days in which a formal appeal against the findings of the Panel can be lodged (WTO, 2004). Article 17: Appellate Body This article rules that only dispute parties can present an appeal as per Article 16 and that such an appeal should be limited within 60 days from the notification of this appeal. It also provides that an appellate body can be realized but only by the DSB and dispute parties through a consensus (WTO, 2004). Article 18: Communications Except by means of confidential written submissions, this Article provides that there cannot be any form of ex parte communication with neither the Panel nor the Appellate Body (WTO, 2004). Article 19: Recommendations The Appellate Body or the Panel can issue recommendations to the DSB in which they will recommend a certain measure of accordance (WTO, 2004). Article 20: Timeframe Upon establishment of a Panel, this Article requires that the submission or a report to the DSB should be made within nine months or twelve months in absence of an appeal or in presence of an appeal respectively (WTO, 2004). Article 21: Recommendation implementation Members have 30 days to present their intended course of action before the empowerment of the jurisdiction of the DSB as recommended by the Panel (WTO, 2004). Article 22: Compensation Upon implementation of the Panel’s recommendation, the process of compensation will also be effected. A party that fails to honor the compensation recommendations is liable to suspension of its WTO concessions (WTO, 2004). Article 23: Multilateral System Strengthening The Article requires members to use DSU in trade conflicts and should abide to these provisions (WTO, 2004). Article 24: Least developed Member States The described countries have special considerations and are also entitled to consultation with the Director General or the Chair of the DSB (WTO, 2004). Article 26: Non-violation Complaints Non-violation complaints covered under Article XXIII of the GATT provisions are reflected in this Article (WTO, 2004). Article 27: Secretariat Obligations Apart from the technical support that the Secretariat should provide to the WTO, it also assists the Panels with procedural matters relating to legal and Historical aspect to aid in establishing a very transparent report (WTO, 2004). DSU represented a wider scope whereby it represented sophisticated mechanistic procedures which were a great significant in helping it realize its objectives in a more or less elevated platform. White (2003) agrees that the WTO Dispute Settlement system is a remarkable achievement. He says that it has contributed towards creating a compulsory dispute settlement unit and has continually provided an enforcement system that members are to abide with. He agrees that there has not been any other legal system concerning international law where a platform that is inclusive of all these characteristics has been established. The chief achievement of the WTO Dispute Settlement Understanding as summarized by Jackson (1998) are: It established a unified dispute settlement system covering all of the WTO Agreements. It enshrines the precedent of plaintiff governments to initiate a panel process and prevents defendants from blocking the process. It established a new appellate procedure, including a negative consensus requirement for the acceptance of an appellate ruling. Despite these outstanding achievements of the WTO, there have been several detrimental aspects that have been attributed the process of articulation of jurisdiction by the DSB. The constituting principles of both GATT and WTO have been transparency, non-discrimination and reciprocity in delivering states from dispute situation and administration of justice. This has however been not the case, as it has been said that WTO DSU has biased jurisdiction in favor of such states like the EU and the US due to the nature of their prominent economic stature (Bown, 2003). According to Holmes et al. (2003) the EU and the US created and joined the DSU in order to protect their trade objectives. This comes in line due to the fact that these two states enjoy almost limitless resource distribution and have great political and economic leverage in international trade which allows them to fight any such case that may be presented by weaker states to the WTO. However, findings using regression suggest that trade share is proportional to the number of disputes that are likely to occur and that the increased number of disputed presented by the EU and the US is due to their market share resulting from their huge economies (Holmes et al., 2003). Other WTO members with little trade shares have equal opportunities in the DSU but their little economies restrict the amount usage of their share of DSU in spite of their trade tariff being affected because of the nature of incentives in the system (Bown, 2003). As discussed by Holmes et al. (2003), WTO focused its work in resolving two kinds of conflicts that is, domestic regulation and trade defense. Apparently, these two forms of disputes accounted for 44 per cent as domestic regulation disputes and 31 percent as trade defense disputes between 1995 and 2002. Recent years saw a significant decline in the number of cases involving domestic regulation but with a substantial rise in the number of cases regarding trade defense particularly those that takes the forms of anti-dumping, safeguard actions and countervailing. The increasing number of trade defense can be attributed to the fact that developing countries with their apparent industrialization are trying to protect their trade markets against the US and other newly developing countries (NICs) (Holmes et al., 2003) Regarding the Panels and Appellate Bodies, there have been claims that these entities lack transparency and as a result delimit the automaticity of WTO. There is no means of revealing the Panel findings, as the Report remains confidential until it is publicized. This means that transparency is unlikely to have effects to the jurisdiction process (Davey, 2000). There has been fear that WTO aims to imposing externally imposed rules t sovereign states and many of developed and developing states feel insecure with this system. In regard to this matter, former secretary general to the UN Koffi Annan dismissed these fears and stated that states should not find a scapegoat for their domestic policy failures. He strengthened that WTO is in the line of realizing its vital task of extending the benefits of free trade to the developing world (Annan, 1999). In the same regard, the success of WTO in undertaking its vital task, it will be important to point out its success in the EU- US disputes regarding Hormones, Harbor Maintenance and Bananas. Hudec (1993) defines the process in which the EC successfully blocked the US panel request in the 1987Animal Hormones Directive complaint. In retaliation, the US was able to block EC’s request for a panel to against US retaliation regarding unilateral action. EU has been unable to block its policy’s legal condemnation. EU has also disputed the US in matters regarding harbor maintenance in 1992 for harbor maintenance fee and in 1998 for harbor maintenance tax. WTO was unable to pass necessary legislation concerning this matter (Wethington, 2000) Conclusion Matters regarding international, or regional trade are sensitive and their require jurisdiction that in unbiased. This is because such cases can easily upset international cohesion leading to major conflicts across the globe. From this perspective, it has been very necessary for a platform through which grievances regarding matters of trade among states can be listened and judged in a very democratic and transparent manner. The realization of GATT was a major boast to international trade as it came in and ruled over issues regarding disagreements in trade terms or policies. However, this comfort was not for long s the rapidly increasing cases in trade disputes became too heavy a burden to bear for the simply formulated provisions of the GATT (Jackson, 1998) The need for a more outstanding platform in provisions and agreement terms was overwhelming and consequently led to a consensus that saw the realization of the WTO. The role that has been played by the WTO DSU cannot be overemphasized. It has significantly led to the development of free trade in developing and developed countries. It has as well promoted international cohesion driven by its principal pillars to uphold transparency, reciprocity and non-discrimination f ay form in matters regarding dispute resolution (Wethington, 2000). This paper has conclusively looked into the mechanism that has been applied by GATT/WTO in resolving conflicts and has as well looked into the provisions that has been put in place in jurisdiction and the process through which the same is achieved. In addition, the paper has tried to show numerical evidences regarding the failures of the two organizations and the success they have achieved in their line of duty. References Annan, K. (1999). New York Times, p. 28, 29 November. Bown, C. (2003). Participation in WTO Dispute Settlement: Complainants, Interested Parties and Free Riders. Brandeis University. Mimeo. Davey,W.J. (2000). The WTO dispute settlement system. Journal of International Economic Law, 3(1) GATT. (1986). Ministerial Declaration. Punta del Este. Geneva: GATT. Hudec, R., Kennedy, D., and Sgarbossa, M. (1993). A Statistical Profile of GATT Dispute Settlement Cases, 1948–1989. Minnesota Journal of Global Trade, 2(1), 1- 25. Jackson, J.H. (1998). The World Trade Organization: Constitution and Jurisprudence. London: Royal Institute of International Affairs/Pinter. Jackson, J.H. (1969). World Trade and the Law of GATT. Indianapolis: Bobbs-Merrill. Kovenock, D. &Thursby, M. (1992). GATT, Dispute Settlement and Cooperation. Economics and Politics 4, 2 Martin, L. & Simmons, B. (2001). Theories and empirical studies of international institutions. In International Institutions: An International Organization Reader. The MIT Press. Cambridge. Stoler, A.L. (2003). The WTO dispute settlement system: did we get what the negotiators wanted? Paper presented at the International Bar Association Conference. Future Directions in WTO Dispute Settlement. Geneva: Mimeo. Wethington, O. L. (2000). Commentary on the Consultation Mechanism under the WTO Dispute Understanding during Its First Five Years. Law & Policy in International Business 31, 583-590 WTO. (2004). A Handbook on the WTO Dispute Settlement System. Cambridge: Cambridge University Press. WTO. (1999). The Legal Texts: the Results of the Uruguay Round of Multilateral Trade Negotiations. Cambridge: Cambridge University Press. Read More