Effectiveness of WTOs Dispute Settlement Procedure - Research Paper Example

Effectiveness of WTO’s Dispute Settlement Procedure Introduction The World Trade Organization (WTO) was incepted as a consequence of the reforms brought in by the Uruguay Round of GATT (General Agreement on Tariffs and Trade) which lasted for eight years, from 1986-1994. WTO replaced the GATT as an international body on January 15, 1995. Since, the end of the Second World War (1948), GATT was the main international organization presiding over the rules and regulations of international trade and commerce (The Uruguay Round, n.d.; The GATT years: from Havana to Marrakesh, n.d.). The GATT chiefly handled issues related to goods trading whereas, the WTO and its agreements deal with additional subjects like trade in services and intellectual properties like new innovations in trade, their conception and design (What is the World Trade Organization, n.d.). Nevertheless the effectiveness of the dispute settlement procedure of the WTO gives rise to controversies related to its verdicts and operating techniques. About WTO WTO is presently the apex body for managing and regulating international trade practices and rules. Apart from its regulatory and negotiating activities, the World Trade Organization plays an important role in settling trade related disputes among the member countries. Trade relations have to do with a lot of conflicting interests. Agreements that evolve in the WTO system often require interpreting. To settle these disputes, a harmonious and agreeable body is required which would follow an unbiased process to give its verdict. Hence, an organization founded on an approved legal foundation is necessary and this is the reason for setting up a dispute settlement procedure in the WTO system (What is the World Trade Organization, n.d). Most of WTOs current tasks come from the negotiations of the Uruguay Round and also a part comes from the previous negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO presently deals with new negotiations under the Doha Development Agenda initiated in 2001 (Ministerial Declaration, 2001). The Dispute Settlement Procedure – effectiveness and legitimacy The two principal functions of the WTO are the legislative function and the judicial function. The legislative function denotes the work of the WTO as a round-table by means of which trade agreements are arrived at. The judicial function is executed by the dispute settlement system. Dispute settlement is the fundamental function of the multilateral trading system as well as the World Trade Organization’s exclusive contribution to the harmony of the world economy. With no method of settling disputes, the rules-based organization would become less effective since the rules cannot be enforced (Busch and Reinhardt, n.d., p. 1-2). The WTO’s procedure underlines the rules and regulations of law, and also gives rise to a more secure and foreseeable the trading system. The system is built upon on distinct and thoroughly defined rules with schedules for carrying out a case. The first rulings are conducted by a panel and approved (or rejected) by the WTO’s entire membership panel. A dispute crops up when a nation takes a move towards its trade policy or adopts some measures, which the fellow-WTO member(s) think to be infringing the WTO agreements, or are not binding to the obligations. Again, a third group of nations can announce that they possess an interest in the situation and have the benefit of some rights (A unique contribution, n.d.). Although the WTO has been successful in settling trade related discrepancies among countries, the question of its effectiveness has been raised particularly after the immense protests in Seattle, USA in November 1999. This paper deals with the extent of the effectiveness of WTO’s dispute settlement procedure in the practical sense. To examine its effectiveness, the dispute settlement procedure is studied first. The WTO dispute settlement system was built upon on the basis of the GATT dispute settlement procedures, which has been an apparatus inherently faulty to a certain extent since the reason behind the formation of GATT was as a subsidiary of an International Trade Organization (ITO) which never came into existence (Jackson, 2000, p. 180). The dispute settlement procedure is carried out by the by the Dispute Settlement Body (that is, the General Council in a different semblance) consisting of all the members of the WTO (Dispute Settlement Summary, n.d.). The singular authority to set up panels of experts to deal with a case is bestowed to the Dispute Settlement Body. It also has the authority to endorse or discard the panels’ decisions or the outcomes of an appeal. If appealed, the dispute is moved to an appellate panel. It monitors the execution of the decisions and recommendations, and possesses the power to sanction retaliation when a nation does not abide by with a judgment (A unique contribution, n.d.; Appellate Body, n.d.). The Dispute Settlement Understanding (DSU) was implemented at the Uruguay Round to improve the dispute settlement procedures by creating an integrated dispute settlement system for all the fields of the WTO system, consisting of the new matters on intellectual property and trade in services, endorsing and explicating the entitlement of a complaining government to have a panel process started and, launching a unique new appellate procedure which would substitute for a few of the ex- procedures governing Council authorization of a panel report (Jackson, 2000, p. 185-186; Zimmermann, 2006, p.21). The first stage in dispute settlement is a discussion between the complaining party (s) and the respond party (s). This consultation is framed so as to explore the characteristics of the complaint and is at times utilized by the respondents to establish the particulars of the grievance or used by the complainants to find out the respondent potential defenses. If the parties hare unsuccessful in settling the dispute b the end of the 60th day, the complaining party then might request the Dispute Settlement Body to set up a dispute panel. Any member of the World Trade organization can be a part of the DSB, and its membership is basically similar to that of the General Council. The General Council is the overall managing body of the WTO and performs between the biannual and ministerial conferences. According to the new procedures of the Dispute Settlement Understanding, the DSB is required to automatically approve the appeal for a panel procedure, though there are certain provisions for short-term holdups to that approval. When the DSB agrees upon the founding of the panel, which is generally made up of three members, the secretariat starts the process of designating the panelists for the particular procedure (which sometimes becomes lengthened), preferably by means of agreement between the parties. If the parties are not able to agree within twenty days, the subject is passed on to the WTO’s director-general, who possesses the authority to enforce a panel on those parties. Resorting to the director-general’s judgment has become more and more necessary and it has proved to be problematical to find experts who are suitable and willing to perform as panelists. The panel works under certain terms of reference that are subject to negotiation. If the negotiation becomes unsuccessful then standard terms of reference are put into use. After that the panel obtains oral and written opinions from the parties involved in the dispute and also from third parties. Any member of the WTO can turn out to be a third party in a dispute by simply demonstrating that it has some kind of interest in the issue. The parties need to file their submittals within the stipulated time as set by the panel. Oral arguments are put forward in hearings, which are not disclosed to the public and, also to the WTO members who are not involved with the case as complaining party (s), responding party, or third parties. The initial hearing and submittal is followed by a reply hearing and submittal. After the reply session, a confidential interim report is drafted by the panel, which is handed over to each of the parties. After that, the panel decides whether to revise the report or carry out further proceedings. When the report does not go for further proceedings, the panel concludes a final report and sends it to the DSB for adoption (Jackson, 2000, pp.184-188; Croley and Jackson, 1996). The WTO Dispute Settlement Procedure has been quite a success and that is clearly reflected in the huge number of cases that has been filed. The adoption of the reports of panels and the Appellate Body by the Dispute Settlement Body (DSB), with a low incidence critical comment (with a few exceptional cases) clearly shows that the procedure is satisfying its systemic role. Also, the high rate of compliance is an evident mark of its achievement (McRae, 2008; Dispute Settlement, 2003, pp. 3-5). The objectives of the dispute settlement framework are defined in Article 3(2) of the Dispute Settlement Understanding (DSU). It offers to give security and predictability to the multilateral trading system. The dispute settlement system operates to protect the rights and obligations of member countries under the covered agreements and to make clear the available provisions of those agreements. Again, promptness in deciding disputes is considered as an additional goal of the dispute settlement system. The rest of the DSU deals fundamentally with process and how the dispute settlement framework should go about doing its functions and other things it is supposed to do (McRae, 2008). Generally the cases handled by the WTO in the early period have been related with the GATT. Some of them were carryovers from the GATT regime. In the recent years, the cases handled by the WTO relates to the Intellectual Property and few on trade in services. It ha also taken up cases on anti-dumping issues and subsidy-countervailing Duty issues. The execution of dispute settlement decisions of the WTO confronted a considerable challenge throughout the second half of 1998, especially the instance of the Banana case. Before that phase, agreement and implementation was seen to be on the right track and majority of the countries abided by the Dispute Settlement Understanding rules including the trading superpowers, that is, the United States, the European Community and Japan. Each of the countries had agreed to comply with the outcomes of the dispute settlement method, and in most of the instances the nations have either completely obeyed or are in the process of obeying (Jackson, 2000, pp.190-191). Further insights into effectiveness There have been instances, which reveal inconsistency in the dispute settlement procedure of the WTO. The EU bananas regime is still one of the most controversial issues of the WTO dispute settlement program (Hird, 2000). The Banana Case was a defensive case where the United States dared the European Community in a number of auxiliary procedures, in an attempt to resolve the conflicting perspectives on implementation. The procedures revealed a considerable inconsistency between two provisions of the Dispute Settlement Understanding, which are Articles 21.5, and 22. The difference in the viewpoints in interpreting the meaning of those articles gave an end result in something of a stalemate, and several suggestions have been proposed to rearticulate those clauses so as to work out on the apparent inconsistency. Also, in the mean time, the parties to a number of subsequent disputes have completed bilateral agreements governing the functioning of Articles 21.5 and 22 to that dispute, in an effort to resolve that specific dispute (Jackson, 2000, pp.190-191). Following the extensive negotiations between the Latin American banana suppliers (Ecuador, Honduras and Columbia) and European Union, a settlement setting the precursors for the ultimate resolution of awaiting disputes on the European Union import system on bananas was initialed on 15 December 2010. Colombia, Ecuador and Honduras are among the Latin American sellers to have initialed the agreement. Hence, the absolute settlement of this case must take place upon official recognition of the new EU tariff agenda on bananas indicating tariff-cutting commitment included in the agreement. Also, in the interim, Latin American banana exporters have decided not to file any suit on pending disputes given that that the EU acts in accordance with with its commitments under the agreement mentioned in the truce clause (Directorate-General for Trade, 2009, p.11). There have been other problems, which cropped up during the implementation period. These mainly include the issues of formulating suitable remedies as in the case of refund of anti-dumping taxes and the problems arising from tackling situations like the FSC (Foreign Sales Corporation) case against the United States, which incur huge compensatory measures that would disrupt the global trade. In reality, the entire conception of trade retaliation to a great extent damages some of the elementary doctrines of the liberal trading system. The DSU and the WTO are also deficient in stipulations for provisional measures in circumstances where the time needed for the usual procedures under the dispute settlement procedure generates considerable ongoing damage and harm to the complaining party. Compensatory measures can be taken if the defeated party does not put into effect a proper implementation of the report. For instance, the United States has on a number of occasions employed compensatory measures against the European Union. The explicit requirements of the Dispute Settlement Understanding about the implementation of reports have brought up considerable controversy almost from the establishment of the WTO dispute settlement arrangement. An issue that often crops up is whether the truce obligations of the DSU necessitate the losing WTO member to act upon the obligations as laid down in the final dispute report or whether the nation concerned has the full juridical freedom to select between performing and giving compensation or agreeing upon retaliatory measures. However, the treaty text enforces an international law obligation to act upon and does not provide for a free choice to choose compensatory measures. Besides, policy considerations, hint that performance is a more equitable requirement. This is because a system under which affluent nations are able to buy their way out of duties and obligations, mainly those with regard to small or less powerful nations, gives rise to a significant asymmetry that could destabilize the credibility of the total dispute settlement procedure. It also leads to the creation of an environment of uncertainty for a vast number of independent entrepreneurs and traders, whose activities depend upon the rule framework as devised by the treaty text. Since retaliation is likely to destabilize liberalizing trade policies, other alternatives like warrant consideration and the concept of payment compensation schemes are used to avoid retaliation (Jackson, 2000, pp.192-194). Political Influence Political lobbying has always been an important power to delineate trade policy and is equally significant to the understanding of disputes (Grossman and Helpman, 1995, 2002). Private lobbying also seems to taking place in the highly procedural area of WTO adjudication (Hansen and Drope, 2004;Shaffer, 2003). When it comes to the effectiveness of WTO, the first question that comes in mind is whether the dispute settlement procedure has been able to meet its target, that is, facilitate dispute resolution. Till October 2003, over three hundred complaints have been recorded at the WTO. This vast number of caseload is similar to that of GATT in it’s almost fifty years regime. However, this figure is to some extent misleading. A number of countries frequently complain about the same trade policy of a particular nation. The WTO treats every single complaint as a distinct one, provided that the matter of the complaints is the same and given that the same panel deals with them. Once a case has been filed, the mere solving of the dispute is not the real solution to the problem. The major issue related to a verdict is whether the outcome is satisfactory or not. Satisfaction regarding the outcome can be analyzed from two perspectives- whether the parties have put into practice the WTO’s decisions, and whether the parties have straightened out the dispute among themselves, with or without any mediation by the WTO. Although the former is comparatively easy to track, the second category is not. The third type of satisfactory outcome consists of one where the WTO did not any misconduct on the part of the defendants, and therefore it did not call for any sort of action. At least from the legal perspective, this could be thought of as a successful or effective dispute outcome. All of these are registered under the category of resolved cases. The performance of WTO’s dispute settlement procedure has always been better compared to that of GATT’s. However, since 1998, the performance has shrunk and fallen below the efficiency level of GATT. Even though a large amount and nature of disputes have been filed to the WTO, yet the efficiency of WTO’s procedures have come under question particularly with respect to GATT. A probable explanation behind the decrease in the effectiveness of the WTO dispute scheme since 1998 lies in the complication of relationship between the United States and the European Union. The WTO discarded on two of the most complicated cases in 1997, one the banana case (discussed above) and beef hormones case. The beef hormone case relates to the dispute arising from the prohibition of beef imports from the US by the EU because of the alleged harmful effects of the growth hormones used to breed cows (Paulson, 1999). The discovery that the European Unions compliance is insufficient in the banana dispute and absent in the beef dispute, the United States routed to sanctions in 1999 in both the cases. This made the U.S.-European Union relations significantly bitter. Again, the succeeding case filed by the European Union against the United States regarding foreign sales corporations, for instance, has been extensively reputed to be a retaliatory suit. Further, according to the negotiators in Geneva, political haggling is mostly terminated during the panel and Appellate Body (AB proceedings), with bargaining restarting only after all the legal procedures have been exhausted. This brings in inefficiency since it is not an efficient utilization of time and it brings in considerable delays. Trade Wars A related question with reference to the measure of effectiveness is whether or not the WTO has been able to restrain the outburst of trade wars. The answer in fact depends on the way one labels trade wars and interprets the consequences of not having the WTO to settle it. As mentioned before, the United States has resorted to permits in two disputes against the European Union (bananas and beef hormones) up to now (World trade wars, 1999). In the first case, Ecuador also participated in the retaliation, and in the second case, Canada joined. If one these cases are comprehended as trade wars, then the WTO has definitely not stopped trade wars. Though, in each of these cases, the WTO assigned an arbitrator to decide on the size of counter measures. This has had put a restrain on the parties behavior. Unilateralism Another reason for which the WTO dispute settlement procedure was constructed was to ward off unilateralism. There are a number of ways to resolve trade disputes. In the 1980s, the United States especially turned more and more towards independent procedures authorized under Section 301 of the U.S. Trade Act of 1974 (Bayard and Elliot, 1994). While the United States government sought after a more powerful dispute settlement system during the Uruguay Round negotiations, the Europeans and Japanese sought after the withdrawal of Section 301 in exchange. For that reason, an important question that arises is whether the WTO has deactivated Section 301 (Chakravarthi, 1995; Bhagwati and Patrick, 1990). The most important factor with respect to this is the perception of the firms. If the firms think that they can achieve their targets of market opening overseas via Section 301 more successfully instead of going through the WTO, they will go on with filing complaints. In contrast they might discover that the probability to sort out the disputes by the WTO is in their favor. The U.S. government may be quite disinclined to entertain their complaints under Section 301, or they might see that the WTO disputes are less expensive than using Section 301. In such cases they will progressively route more and more of their complaints through their governments to the WTO. One of the desired things for the firms is the tendency of their government to route to the WTO rather than to unilateral measures. Another factor that shows that the WTO has controlled U.S. unilateralism is that the majority of the current invocations of Section 301 have been self-led cases with regard to WTO proceedings (Fehrs, 2005). The effectiveness of the dispute settlement procedure with respect to discrepancies involving the developing country is uneven. For instance, if a firm in a developing nation has a justifiable grievance regarding the trade practices of a powerful and developed nation it will counter a number of obstacles while filing a complaint to the WTO. There are a number of negative factors that dictate the process in case of developing countries. The foremost factor is the costliness of pursuing a case at the WTO. Generally a small firm or the government in a developing nation does not have enough resources to find the proceedings of a case and hence, would like to keep numb on that subject (Busch, M. and Reinhardt, E., 2003; Reinhardt, 2003). This would leave a number of such cases hidden from third parties. In these circumstances, the best alternative would be to settle these problems bilaterally (Davey, 2005). However, given that the government as well as the firm makes out that the complainant cannot meet the expense of filing a WTO dispute; there is much less incentive to give in. Conclusion These considerations lead to the questioning of the effectiveness of WTO and its impartial stature. On the basis of effectiveness, the performance of the WTO dispute settlement was as good as, or even better than the success rate of the GATT system in the first few years, but the rate has been below that of GATT since 1998. Although the number and feature of disputes filed vary from case to case and that there is no complete comparable analysis, yet a big question arises on the conventional impression on the effectiveness of the WTO’s dispute settlement procedure, particularly in relation to GATT. A probable explanation behind the decrease in the effectiveness of the WTO dispute scheme since 1998 lies in the complication of relationship between the United States and the European Union. The fact is that the poor developing countries will remain to be underrepresented in the WTO dispute settlement process (as claimants), and the valid grievances that they might have will not come to notice by the WTO. Although the developing nations get special consideration from the WTO, however it does not suggest that developing nations are protected from disputes as defendants (Iida, 2004). In fact, the WTO is accused of concentrating wealth in the hands of the few developed countries at the cost of the majority of poor countries. Again, with regard to the functioning of the WTO system, the rules and measures are inequitable, non-transparent, and non-liable and have functioned to marginalize most of the worlds population (The Battle of Seattle, n.d.). References 1. 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