Dispute Settlement Understanding - Essay Example

Examine the effect in the practice of Article 4, 6 and 23 of the Dispute Settlement Understanding (DSU). What is their combined effect on the object(s) and purpose Introduction: The World Trade Organisation or WTO has over 140 members including all of the major trading countries and trade disputes are likely among these members as WTO agreements may be interpreted or applied differently by different WTO members1 . Considering the possibilities and of trade disputes, the Dispute Settlement Understanding has been used by the WTO as a legal and administrative tool to settle disputes between trading members. Yet the actual numbers of disputes have been found to be much less than the anticipated number of disputes considering the fact that worldwide trade value exceeds USD$6 trillion. The DSU helps in providing stability and predictability of the international trading system. The members of the WTO are aware of the clear and well established legal procedures available for smooth trading and enforce the relevant rules to settle disputes among themselves. These rules are contained in the understanding on Rules and Procedures Governing the Settlement of Disputes (through Dispute Settlement Understanding or DSU)2 . The strict legal and policy framework of the DSU helps in promoting adherence to rules which are negotiated by WTO Members and since the rule of law rather than the rule of power is applicable and important, the DSU rules are beneficial for small and medium sized countries engage in worldwide trade so that there is very little scope for unilateral trade actions by large countries3. There are automatic establishments of panels to review complaints and disputes by WTO members and specific timelines are also established throughout the process so that all disputes are resolved quickly and efficiently. If the disputes are addressed in favour of a particular member, there are also provisions for a right to appeal against panel decision to a permanent Appellate Body on issues of law and automatic adoption of panel reports4. The WTO Members are encouraged to resolve disputes through consultations and for most disputes, reaching to the state of panel decision may also not be necessary5. If panel decisions are taken, the panel report and the Appellate Body report are adopted by WTO members and at a meeting of the Dispute Settlement Body, it becomes a WTO ruling. The members who are found to violate obligations are given a period of time to comply with the ruling in whatever manner possible. The member is given a time period within which it has to comply with the ruling. If the member fails to comply with the ruling, within the prescribed time limits, then it has to offer compensation to the complaining member during the time of pending compliance with the ruling. When there is disagreement on compensation, then the complaining member may be authorised to retaliate and take action until the other member has actually complied with the ruling. A rule based system seems to provide for a framework that helps to manage international trade relations and the trade disputes. The best method of resolving trade disputes have been considered as consultations and negotiations and when the consultations fail, then the dispute settlement provisions are utilised and panel decision may be sought.6 When even panel decisions fail, appeals are made to the Appellate Body and the legal provisions are identified and implemented. The DSU facilitates smoother trade transactions and exports between countries and also helps individual member countries to defend measures which may be challenged by the other trading partners7. In this assignment we will discuss the effects of Article 4, 6 and 23 of the DSU or Dispute Settlement Understanding to examine the combined effects of these legal provisions. Legal Provisions in Dispute Settlement Understanding In this section, we discuss the legal provisions available for trading members considering Articles 4, 6 and 23 of the Dispute Settlement Understanding. Article 4 deals with consultations following disputes and disagreements. This article states that members should resolve to strengthen the effectiveness of consultation procedures and each member is expected to provide sympathetic consideration to afford adequate opportunity for consultations regarding representations made by another member. Members are required to respond to consultation needs of the other member within 10 days and are also required to respond to consultations within 30 days after the date of the receipt of the request to enter into consultations8. All requests for consultations are to be notified to relevant Councils and Committees and should be submitted in writing and all reasons for the request should be provided including the measures at issue and the legal basis of complaints. Consultations should be in accordance with the provisions of a legal agreement and members should attempt a satisfactory adjustment of the matter. Consultations are also meant to be confidential without prejudice of rights of any Member. The dispute should be settled within 60 days of consultation, the failure of which the complaining party can request the establishment of a panel if the consulting parties jointly consider that the consultations have failed to settle the dispute. Article 4 also states that 'In cases of urgency, including those which concern perishable goods, the parties to the dispute, panels and the Appellate Body shall make every effort to accelerate the proceedings to the greatest extent possible'9. The consultations process should give special attention to the problems and interests of developing country members. Article 6 is on the establishment of panels and a panel is established when the complaining party requests at the latest DSB (Dispute settlement body) meeting and is established unless the DSB decides not to establish the panel. The establishment of panel is done when requests are made in writing. The writing indicates whether consultations are held and identifies the specific measures at issue also providing a summary of the legal basis of the complaint to present the problem clearly. The Article further states that in case, 'applicant requests the establishment of a panel with other than standard terms of reference, the written request shall include the proposed text of special terms of reference'10. Article 24 states on strengthening of the multilateral system considering the rules and procedures of the DSU. The Article states that, 'When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding'11. When there has been a violation of obligations of the trade regulations, Members are legally stopped from making a determination to the effect that a violation has occurred or that benefits are nullified or impaired or that attainment of objectives of covered agreements has been impeded. They can however recourse to dispute settlement in accordance with rules and procedures of the Understanding. Any determination could be made consistent with the findings either by the panel or the Appellate Body report under the guidance and directives of the Understanding12. The members are also asked to follow certain procedures to determine the reasonable period of time for a concerned Member to implement recommendations and the WTO rulings13. In case of disputes, the members of the WTO are also required to follow certain legal procedures to determine the level of suspension of concessions or other obligations and also obtain the DSB authorization in accordance with these procedures. This is to be done before suspending concessions or other obligations under covered agreements if a member concerned fails to implement recommendations and rulings within the period of time. Kohler (2004) writes that EU-US trade disputes highlight the lasting non-compliance and WTO authorised retaliation. In case of the few disputes, Breuss (2004) has argued that the outcome in most cases has resulted in economic damage on both sides and Kohler argues that this may just testify to a general weakness or failure of the WTO Dispute Settlement Mechanism (DSM). Kohler uses the Bagwell and Staiger (2002) theory of the GATT/WTO to explain why the DSM might lead to mutually harmful non-compliance cum sanctions although this does not necessarily prove any failure of the Dispute Settlement Understanding and process. The DSU is considered as a political cooperation device as the framework allows for identifying conditions under which the outcome is efficient in terms of poltical economy, although ineffective trade dispute settlements can lead to economic harm for the complaining party and the other Member. The framework shows the general weaknesses and flaws of the dispute settlement mechanism that seems to be inherent within the Dispute Settlement Understanding or DSU. Princen (2004) discusses the interplay of international law and domestic politics in producing compliance with GATT/WTO law. Princen analyses whether the strengthening of the GATT dispute settlement under the WTO has led to greater compliance on the part of the European community. Trade restrictive regulatory process standards are identified and an in-depth analysis is done on the standards adopted by EC. The change from GATT to WTO has led to greater awareness for international trade laws although compliance with WTO regulations is conditional and two factors are responsible for understanding compliance. Princen states these factors determining WTO compliance 1. "First, resorting to the WTO is most effective as a threat before the trade-restrictive standards are implemented; once these standards are implemented, it becomes progressively more difficult to have them withdrawn. 2. Second, the role of European trade officials is crucial in producing compliance; although the role of trade officials within the EC has become stronger since the creation of the WTO, their influence on a decision to comply depends crucially on their capacity to exclude other interests from the decision-making process" 14. The role of the dispute settlement understanding or DSU is important although WTO regulations are most effective before certain standards are implemented. The role of trade officials is crucial in compliance of WTO regulations and in the decision making process and the DSU is applicable only in case of disputes. Narayanan (2003) has indicated that Dispute Settlement Understanding has helped to effectively strengthen the multilateral trading system. The introduction and implementation of the DSU has been highly satisfactory in the last eight years and while there have been no fundamental flaws within the DSU, several WTO members have felt the need for changes and adjustments in the procedures. The DSU has already introduced new features in the pre-existing GATT 1947 system that reinforces the quasi-judicial character of the mechanism and these include explicit time frames for settlement of disputes, right to establishment of a panel when a request has been filed by a complaining party and the automatic adoption of panel reports. Dispute settlement is the foundation and support for multilateral trading system and the WTO's contribution for a stabilized global economy15. The WTO's procedure highlights the rule of law using DSU and makes trading more secure and predictable and trading parties more accountable. The system of rules is clearly laid out with time period for completing dispute cases. The rulings are made by a panel and endorsed or rejected by the WTO's membership or Appellate body. The WTO documents that about 130 of 332 cases had reached the full panel process by 2005. Most of the other cases has been notified as settled out of court or remained in a consultation phase. Disputes in the WTO are about broken promises and failing to keep up to the trade regulations specified by the WTO. It has been agreed by WTO members that if fellow members violate trade rules, they will use multilateral system of settling disputes instead of taking unilateral action which indicates that they will be abiding by agreed procedures and respecting judgments made by the frameworks established by WTO. A trade dispute arises when a member country adopts a trade policy measure or takes action that other WTO members consider as breaking agreements or failure to live up to trade rules and obligations. Some of the trade dispute cases could be discussed in this context. I. Dispute Settlement Case DS33216 - The complainant was the European communities EC and the respondent was Brazil and the request for consultations was received in June 2005. The complaint was made by the European Communities on 20June2005. The European Communities requested consultations with Brazil following the fact that Brazil had imposed certain measures that adversely affected exports of re-treaded tyres from the EC to the Brazilian market. The EC addressed the following measures and issues17: Brazil's imposition of an import ban on retreaded tyres; Brazil's adoption of a set of measures banning the importation of used tyres, which are sometimes applies against imports of retreaded tyres, despite the fact that these are not used tyres; Brazil's imposition of a fine of 400 BRL per unit on the importation, as well as the marketing, transportation, storage, keeping or keeping in deposit or warehouses of imported, but not of domestic retreaded tyres; and Brazil's exemption of retreaded tyres imported from other Mercosur countries from the import ban and from the above-mentioned financial penalties, in response to the ruling of a Mercosur panel established at the request of Uruguay18. The EC considers that the foregoing measures are inconsistent with Brazil's obligations under Articles I:1, III:4, XI:1 and XIII:1 of the GATT 1994. In this case, Brazil was imposing many trade bans on imports of tyres from the EC and the European communities clearly saw this as failure of Brazil to keep up with the WTO regulations and its own obligation as a WTO member to have a free and open trade with EC members. The EC members requested consultations with Brazil in Geneva in June 2005. In another case of dispute between the European Communities and the United States, consultations have been requested by the EC although no panel has been established and no settlement has been notified. In October 2004, the European Communities filed a complaint that the United States has been providing prohibited and actionable subsidies to US producers of large civil aircraft (LCA) and in particular the BOEING company, as well as legislation, regulations, statutory instruments and amendments providing such subsidies, grants, and any other assistance to the US producers (US LCA industry). According to the European Communities, the US has been providing assistance to US producers of large civil aircraft, particularly the Boeing company, contrary to certain provisions of Articles 3.1(a) and (b), 3.2, 5(a) and (c), and 6.3(a), (b) and (c) of the SCM Agreement and Article III:4 of GATT 1994. In the EC complaint, the prohibited grants and aids given to local US producers include 1. specified state and local subsidies for the production of the Boeing 7E7; 2. specified NASA research and development subsidies; 3. specified Department of Defense research and development subsidies; 4. specified National Institute of Standards and Technology subsidies; 5. FSC/ETI subsidies; 6. research and experimentation tax credits; 7. NASA procurement contracts and other subsidies. The EC notes that the cited US, state, and local statutes, regulations, and administrative procedures are inconsistent with the SCM and GATT 1994 provisions. The EC further notes that the use of these measures causes adverse effects (i.e. serious prejudice or a threat of serious prejudice) to the interests of the EC and material injury or threat of material injury to the EC large civil aircraft industry in a manner that violates US obligations under provisions of Articles 5 and 6 of the SCM Agreement (Dispute case, DS317, WTO retrieved 2005). The results of the consultations followed on 31May2005, and the European Communities requested the establishment of a panel. Further Directions According to the Doha Round Briefing Series, published in 2005, the review of the Dispute Settlement Understanding has moved slowly mainly because most members consider the DSU to be reasonably effective in settling disputes and serving its overall purpose. Certain proposals for changes to the DSU have been proposed in 2005 and the emphasis is on clarifications of these proposals and negotiating on actually implementing the changes proposed19. The aim is to reach a 'package agreement' or a set of changes that could be agreed on with a consensus from all participating WTO members. The DSB has recognised the need to improve and clarify the agreements within the DSU along with the need to establish a roster of permanent panel members, insisting on transparency and accountability and acceleration of timeframes in Dispute Settlement Understanding20. Following the new measures of settlement of disputes as finalised in the Uruguay round, dispute settlement through consultations are directed to be informal with consultations giving a clear picture of the facts within the dispute21. The improvement of functioning of panels and establishing panels more efficiently and quickly to settle disputes seem to be the focus of DSU reform. Greater powers could be given to the Appellate body for settling of confusion or misinterpretation of rules within the DSU. Conclusion: The main function and applicability of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) strengthens and improves the GATT dispute settlement system. The DSU creates an integrated multilateral dispute settlement system which governs the resolution of disputes that can arise between trading members. The members of the WTO who agree to Multilateral Trade Agreements (MTAs) as well as the Plurilateral Trade Agreements (PTAs), are generally required by the WTO policies to agree to the application of the DSU. Considering the dispute cases and the Articles studied the establishment of panels following trade disputes, following of rules and trade regulations by member countries and using a multilateral system to accelerate trade dispute decisions and resolutions are some of the key aspects and purposes of the WTO regulations and the DSU. It may however be necessary for greater emphases on following trade regulations by member countries so that equal judgments could be applicable for all countries. The DSU signifies an improvement of the trading rules and policies that have to be followed by WTO members and the DSU reforms proposed in Uruguay and Doha rounds are aimed to update DSU rules according to the needs of the WTO members and the changing trade patterns. Bibliography Bown C.P. The Economics of Trade Disputes, the GATT's Article XXIII, and the WTO's Dispute Settlement Understanding Economics and Politics, Volume 14,Number 3, November 2002, pp. 283-323(41) Publisher: Blackwell Publishing Chathin C.N. The European Community and the Member States in the Dispute Settlement Understanding of the WTO: United or Divided European Law Journal, Volume 5,Number 4, December 1999, pp. 461-478(18) Blackwell Publishing DISPUTE SETTLEMENT: DISPUTE DS332 Brazil - Measures Affecting Imports of Re-treaded Tyres Accessed WTO, 2005 DISPUTE SETTLEMENT: DISPUTE DS317 United States - Measures Affecting Trade in Large Civil Aircraft Accessed WTO, 2005 UNDERSTANDING THE WTO: SETTLING DISPUTES Accessed WTO, 2005 DISPUTE SETTLEMENT: LEGAL TEXT Understanding on rules and procedures governing the settlement of disputes http://www.wto.org/english/tratop_e/dispu_e/dsu_e.htm Accessed WTO, 2005 A Summary of the Final Act of the Uruguay Round Legal texts: the WTO agreements, accessed from WTO documentation, 2005 http://www.wto.org/english/docs_e/legal_e/ursum_e.htm Gran P. 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WTO dispute settlement practice relating to the GATS Journal of International Economic Law, Volume 2,Number 2, June 1999, pp. 295-346(52) Oxford University Press Dispute Settlement Review - Doha Round Briefings November 2005 Review of the Dispute Settlement Understanding Publications: ICTSD and IISD Read More