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Chapter 2 Draft

Chapter 2 Draft

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Published by: xuanngoc on Jun 17, 2008
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Chapter 2: THE WTO DISPUTE SETTLEMENT MECHANISMDispute settlement can be as the most important activity which represents the function of aninstuition governing global economy of the WTO. Pursuant to the WTO’s regulations,complaining countries have right to file legal action against responding party in internationaltrade relation and the respondents must accept to settle disputes. This is a compulsory obligationof all WTO members, which makes the WTO dispute settlement mechanism have power andability to resolve international trade disputes. Up till now, there have been so many case losers to be punished, even they are developed countries. For that reason, most countries attempt to obtainsatisfactory solution to the matter before bringing the case to the WTO. The priority is to settledisputes through consulation. Dispute settlement, therefore, is the central pillar of theMultilateral trading system an is the WTO’s unique contribution to the stability of the globaleconomy2.1 Overview of the WTO dispute settlement mechanism (DSM):2.1.1 The importance of DSMThe best international agreement is not worth very much if its obligations cannot be enforcedwhen one of the signatories fails to comply with such obligations. An effective mechanism tosettle disputes thus increases the practical value of the commitments the signatories undertake inan international agreement. The fact that the Members of the (WTO) established the currentdispute settlement system during the Uruguay Round of Multilateral Trade Negotiationsunderscores the high importance they attach to compliance by all Members with their obligationsunder the WTO Agreement.Settling disputes in a timely and structured manner is important. It helps to prevent the etrimentaleffects of unresolved international trade conflicts and to mitigate the imbalances betweenstronger and weaker players by having their disputes settled on the basis of rules rather thansaving power determine the outcome. Most people consider the WTO dispute settlement systemto be one of the major results of the Uruguay Round. After the entry into force of the WTOAgreement in 1995, the dispute settlement system soon gained practical importance as Membersfrequently resorted to using this system.2.1.2 Objectives of the DSM:With a such wide coverage, the WTO dispute settlement mechanism must be set up by clear-defined objectives in order to ensure its function of governing global economy. Basically, DSMembraces two main objectives as follows
 Providing security and predictability to the multilateral trading system
A central objective of the (WTO) dispute settlement system is to provide security and predictability to the multilateral trading system (Article 3.2 of the DSU). Although internationaltrade is understood in the WTO as the flow of goods and services between Members, such tradeis typically not conducted by States, but rather by private economic operators. These market participants need stability and predictability in the government laws, rules and regulationsapplying to their commercial activity, especially when they conduct trade on the basis of long-term transactions. In light of this, the DSU aims to provide a fast, efficient, dependable and rule-oriented system to resolve disputes about the application of the provisions of the WTOAgreement. By reinforcing the rule of law, the dispute settlement system makes the tradingsystem more secure and predictable. Where non-compliance with the WTO Agreement has beenalleged by a WTO Member, the dispute settlement system provides for a relatively rapidresolution of the matter through an independent ruling that must be implemented promptly, or thenon-implementing Member will face possible trade sanctions.
 Preserving the rights and obligations of WTO Member 
Typically, a dispute arises when one WTO Member adopts a trade policy measure that one or more other Members consider to be inconsistent with the obligations set out in the WTOAgreement. In such a case, any Member that feels aggrieved is entitled to invoke the proceduresand provisions of the dispute settlement system in order to challenge that measure.If the parties to the dispute do not manage to reach a mutually agreed solution, the complainant isguaranteed a rules-based procedure in which the merits of its claims will be examined by anindependent body (panels and the Appellate Body). If the complainant prevails, the desiredoutcome is to secure the withdrawal of the measure found to be inconsistent with the WTOAgreement. Compensation and countermeasures (the suspension of obligations) are availableonly as secondary and temporary responses to a contravention of the WTO Agreement (Article3.7 of the DSU).Thus, the dispute settlement system provides a mechanism through which WTO Members canensure that their rights under the WTO Agreement can be enforced. This system is equallyimportant from the perspective of the respondent whose measure is under challenge, since it provides a forum for the respondent to defend itself if it disagrees with the claims raised by thecomplainant. In this way, the dispute settlement system serves to preserve the Members’ rightsand obligations under the WTO Agreement (Article 3.2 of the DSU). The rulings of the bodies
involved (the DSB the Appellate Body, panels and arbitrations) are intended to reflect andcorrectly apply the rights and obligations as they are set out in the WTO Agreement. They mustnot change the WTO law that is applicable between the parties or, in the words of the DSU, addto or diminish the rights and obligations provided in the WTO Agreements (Articles 3.2 and 19.2of the DSU).2.2 The Dispute Settlement Understanding (DSU) – the legal basis for settling diputes of theWTO:As noted above, an effective dispute settlement system is critical to the operation of the WorldTrade Organization. It would make little sense to spend years negotiating detailed rules ininternational trade agreements if those rules could be ignored.Therefore, a system of rule enforcement is necessary. In the WTO that functionis performed bythe Understanding on Rules and Procedures Governing the Settlement of Disputes (usually calledthe "Dispute Settlement Understanding" or simply the "DSU").As stated in Article 3.2 of the DSU, "[t]he dispute settlement system of the WTO is a centralelement in providing security and predictability to the multilateral trading system". In thecommercial world, such security and predictability are viewed as fundamental prerequisites toconducting business internationally.The DSU is effectively an interpretation and elaboration of GATT Articles XXIIand XXIII, which were not modified in the Uruguay Round.As noted above, these articles were the basis for dispute settlement in the GATT system, andsince all of the agreements annexed to the Marrakesh Agreement Establishing the World TradeOrganization rely on GATT Articles XXII and XXIII or very similar provisions as a basisfor dispute settlement, they are the basis for dispute in the WTO system as well. ArticleXXII provides that one WTO Member may request another Member to consult with respect toany matter affecting the operation of the agreement. Generally speaking, Article XXII providesfor the operations and dispute settlement procedures where one Member considers that another Member is failing to carry out its obligations under the agreement.2.2.1 Applicability of the DSU to covered agreements

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