FINAL DRAFT Subject: International Trade Law Project Topic: EC-US Beef Hormones Dispute: An Analysis of WTO Dispute

Settlement Regime

Submitted to: Ms. Seema Siddiqui, Teaching Associate (Law), Dr. RMLNLU.

Submitted by: Krishna Pratap Singh, 7th Sem. Roll No. 071, B.A., LL.B. (Hons), Dr. RMLNLU.

TABLE OF CONTENTS
1. Introduction..3 2. WTO Dispute Settlement Regime....4 A. B. C. D. The origins of the WTO dispute settlement system Principles of WTO dispute settlement Institutions of WTO dispute settlement WTO dispute settlement proceedings

3. Case Study: European Communities Measures Concerning Meat and Meat Products (Hormones) DS26..9 4. Conclusion13 Bibliography.14

1. Introduction
The most recent multilateral trade negotiation known as the Uruguay Round created the World Trade Organization (WTO) which went into operation in January of 1995. This international organization was designed to propitiate the rules of trade among nations. Growing out of the structure of its predecessor, the General Agreement on Tariff and Trade (GATT), the WTO commands increased powers to compel nations to alter their domestic trade laws when they violate the negotiated GATT/WTO Agreements. The key to the execution of this power lies in the system which resolves trade disputes known as the Dispute Settlement Body (DSB). The former process under the GATT Agreements was highly successful at reducing tariffs and other free trade barriers, although its ability to resolve trade disputes was limited due to structural inadequacies and the lack of capacity to coerce nations into removing trade measures found to be in violation of the GATT Agreements. The DSB will be key in determining the success or failure of the WTO. As with most international organizations, the WTO relies on the support, both financial as well as political, of its members to function effectively. A main reason for the creation of the WTO is so that the international trade community will have a fair and just forum for resolving disagreements between nations. Having such a forum offers advantages over negotiating the dispute bilaterally or solely between the two nations involved. Thus, nations are willing to give up a portion of their sovereignty to allow such a system to be effective. The dispute settlement process is very elaborate, but includes mandated timetables to get through the process as quickly as possible. Due to the required support of WTO contracting members, especially powerful economic members such as the United States and European Union, the importance of resolving disputes in short order is of primary concern for the WTO. Presently, the system is proving to operate as effectively as the Uruguay Round negotiators had hoped. However, since the system is functioning well, an increasing number of cases are being taken to the DSB for resolution. To this date, 451 complaints have been filed. 1 This increase is already putting administrative strains on the WTO requiring hard-to-acquire additional funds and caseload back-ups are resulting in further delay. Furthermore, the WTO has experience its first difficulty with eliciting compliance from a losing party of a trade dispute. The European Union and the United States were opponents in a trade dispute concerning a EU ban on the import of US beef containing growth hormones. The EU trade measures were found in violation of the GATT/WTO Agreements by the DSB when it ruled on the dispute case European Communities- Measures Affecting Meat and Meat Products (Hormones), Complaint by the United States (WT/DS26) (herein after EC-US Beef Hormones Dispute case).

Visit: <http://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm>. Last accessed on 20th October, 2012.

The EU appealed, but the ruling was not overturned and they were compelled to remove their trade measures. Presently, the EU has decided not to remove their trade measures and has accepted WTO sanctioned retaliation measures from the United States. The EU has elected to use the WTO DSB to delay the removal of their trade measures and has accepted trade restrictions from the US rather than comply with the WTO ruling. This action is viewed by many experts in international trade as threatening the credibility of the WTO as an effective dispute resolution system. Without a successful dispute settlement system in place, nations revert back to resolving their dispute bilaterally. This usually involves increases in trade restriction from both parties and a movement away from free trade principles.

2. WTO Dispute Settlement Regime

The WTO provides a significant system to settle such disputes between WTO Members concerning their rights and obligations under the WTO agreements. The WTO dispute settlement system has been operational for 17 years now. In that period it has perhaps been the most fruitful of all international dispute settlement systems. Between 1 January 1995 and 20 October 2012, a total of 451 disputes had been brought to the WTO system for resolution. That is more than were brought to the GATT, the WTOs predecessor, in the forty-seven years between 1948 and 1995. In almost a quarter of the disputes brought to the WTO system, the parties were able to reach an agreeable solution through consultations, or the dispute was otherwise resolved without recourse to adjudication. In other disputes, parties have resorted to adjudication. Some of the disputes brought to the WTO dispute settlement system have caused considerable controversy and public debate and have attracted much media attention. The EC-US Beef Hormones dispute has been one of such cases in which the European Communities imposed ban on import of meat from cattle treated with growth hormones. A. The origins of the WTO dispute settlement system The WTO dispute settlement system, which has been in operation since 1 January 1995, is largely based on the GATT 1947. Article 3.1 of the DSU states: Members affirm their adherence to the principles for the management of disputes heretofore applied under Articles XXII and XXIII of GATT 1947, and the rules and procedures as further elaborated and modified herein. Article XXII provided for Consultations and Article XXIII provided for Nullification or Impairment. Initially the parties to dispute resorted to under Articles XXII the GATT 1947. When they failed to resolve a dispute arising under the GATT 1947, the dispute was then handled by working parties, set up pursuant to Article XXIII.2. These working parties consisted of representatives of all interested Contracting Parties, including the parties to the dispute, and made decisions on the basis of consensus.

With the successful culmination of the Uruguay Round negotiations, the Contracting Parties finally reached on the Understanding on Rules and Procedures Governing the Settlement of Disputes, commonly referred to as the Dispute Settlement Understanding or DSU. The DSU is attached to the WTO Agreement as Annex 2, and constitutes an integral part of that Agreement. The DSU provides for an elaborate dispute settlement system, and is often referred to as one of the most important achievements of the Uruguay Round negotiations. B. Principles of WTO dispute settlement (i) Prompt Settlement of Dispute: Article 3.3 of the DSU, the prompt settlement of such disputes is essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members. (ii) Settlement of disputes in good faith: Article 3.10 of the DSU provides that the use of the dispute settlement procedures should not be intended or considered as contentious acts and that all Members must engage in these procedures in good faith in an effort to resolve the dispute. Engaging in dispute settlement in good faith, i.e. with the genuine intention to see the dispute resolved, is part of the object and purpose of the WTO dispute settlement system. (iii) Jurisdiction: The WTO dispute settlement system works only when it has jurisdiction. (iv) Accessibility: Access to, or the use of, the WTO dispute settlement system is limited to Members of the WTO. C. Institutions of WTO dispute settlement The Dispute Settlement Body, the Dispute Settlement Panel, and the Appellate Body are three basic institutions involved in WTO dispute settlement mechanism. While the WTO has entrusted the adjudication of disputes, at the first instance to panels, and at the appellate level to the Appellate Body, the Dispute Settlement Body continues to play an active role in the WTO dispute settlement system. (i) The Dispute Settlement Body: Article 2.1 of the DSU provides that the WTO dispute settlement system is administered by the Dispute Settlement Body (DSB). Article IV:3 of the WTO Agreement states, in relevant part: The General Council shall convene as appropriate to discharge the responsibilities of the Dispute Settlement Body provided for in the Dispute Settlement Understanding. The Dispute Settlement Body may have its own chairman and shall establish such rules of procedure as it deems necessary for the fulfillment of those responsibilities. Thus when the General Council administers the WTO dispute settlement system, it convenes and acts as the DSB. As the General Council, the DSB is composed of ambassador-level diplomats of all WTO Members. With respect to the functions of the DSB, Article 2.1 of the DSU broadly defines these functions as the administration of the dispute settlement system and then specifies them by stating: the DSB shall have the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and

recommendations, and authorize suspension of concessions and other obligations under the covered agreements. The involvement of the DSB in each major step of a dispute fulfils two useful purposes: a. it keeps all WTO Members directly informed of WTO dispute settlement; and b. it gives WTO Members a designated political forum in which issues arising from the use of the dispute settlement system can be debated. (ii) The Dispute Settlement Panel: Article 6 of the DSU provides for the establishment of the dispute settlement panels. The actual adjudication of disputes brought to the WTO is carried out, at the first-instance level, by dispute settlement panels. WTO dispute settlement panels are not standing bodies. They are ad hoc bodies established for the purpose of adjudicating a particular dispute and are dissolved once they have accomplished this task. The complainant must request the DSB to establish a panel. Pursuant to Article 6.2 of the DSB, the request for the establishment of a panel, also referred to as the panel request, must be made in writing and must: a. indicate whether consultations were held; b. identify the specific measures at issue; and c. provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly. The panel is established at the latest at the DSB meeting following the meeting at which the request for the establishment first appeared as an item on the agenda. At this stage, the panel is established unless the DSB decides by consensus not to establish a panel. Article 7 provides for the Terms of Reference of Panels and Article 8 provides for the Composition of Panels. (iii) The Appellate Body: Article 17.1 of the DSU provides for the establishment of an Appellate Body to hear appeals from reports of dispute settlement panels. The DSB established the Appellate Body in February 1995. Unlike panels, the Appellate Body is a standing, i.e. permanent, international tribunal. The Appellate Body is composed of seven Members who are appointed by the Dispute Settlement Body (DSB) to serve for four-year terms. Each person may be reappointed for another four-year term. Terms are staggered, ensuring that not all Members begin and complete their terms at the same time. Each Member of the Appellate Body is required to be a person of recognized authority, with demonstrated expertise in law, international trade and the subject-matter of the covered agreements generally. They are also required to be unaffiliated with any government and are to be broadly representative of the Membership of the WTO. A Chairman is elected among the Members to serve a one-year term, which can be extended for an additional period of one year. The Chairman is responsible for the overall direction of Appellate Body business. The current Chairperson is Yuejiao Zhang.

A Division of three Members is selected to hear each appeal; each Division elects a Presiding Member. The process for the selection of Divisions is designed to ensure randomness, unpredictability and opportunity for all Members to serve regardless of their national origin. To ensure consistency and coherence in decision-making, Divisions exchange views with the other Members of the Appellate Body before finalizing Appellate Body Reports. The conduct of Members of the Appellate Body and of the Appellate Body Secretariat is regulated by the Rules of Conduct for the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). These Rules emphasize that Appellate Body Members shall be independent, impartial, and avoid conflicts of interest. D. WTO dispute settlement proceedings In WTO dispute settlement proceedings four separate stages can be distinguished: (i) consultations; (ii) panel proceedings; (iii)appellate review proceedings; and (iv) implementation and enforcement of the recommendations and rulings of the panel and/or the Appellate Body, as adopted by the DSB. (i) Consultations (Article 4 DSU) Article 4 of the DSU permits a WTO Member to consult with another Member regarding measures affecting the operation of any covered agreement taken within the territory of the latter. Article 3.7 of the DSU states, in relevant part: The aim of the dispute settlement mechanism is to secure a positive solution to a dispute. A solution mutually acceptable to the parties to a dispute and consistent with the covered agreements is clearly to be preferred. The DSU thus expresses a clear preference for solutions mutually acceptable to the parties reached through negotiations, rather than solutions resulting from adjudication. Accordingly, each dispute settlement proceeding must start with consultations (or an attempt to have consultations) between the parties to the dispute, with a view to reaching a mutually agreed solution. To resolve disputes through consultations is obviously cheaper and more satisfactory for the long-term trade relations with the other party to the dispute than adjudication by a panel. Article 3.5 of the DSU states that any mutually agreed solution reached through consultations needs to be consistent with WTO law. Article 3.6 of the DSU states that if consultations are successful and lead to a mutually agreed solution to the dispute, these solutions must be notified to the DSB and other relevant WTO bodies. Any Member may raise any point relating to these notified solutions at meetings of the DSB or other WTO bodies. Article 4 further provides that if a request for consultations is made pursuant to a covered agreement, the Member to which the request is made shall, unless otherwise mutually agreed, reply to the request within 10 days after the date of its receipt and shall enter into consultations in good faith within a period of no more than 30 days after the date of receipt of

the request, with a view to reaching a mutually satisfactory solution. If the Member does not respond within 10 days after the date of receipt of the request, or does not enter into consultations within a period of no more than 30 days, or a period otherwise mutually agreed, after the date of receipt of the request, then the Member that requested the holding of consultations may proceed directly to request the establishment of a panel. If the consultations fail to settle a dispute within 60 days after the date of receipt of the request for consultations, the complaining party may request the establishment of a panel. (ii) Panel Proceedings (Articles 6, 8, 11, 12, 15 and 16; and Appendix 3) If consultation, good offices, conciliation or mediation fails to settle the dispute, the complaining party may request the formation of panel. The DSB shall form a panel, unless at that meeting the DSB decides by consensus not to establish a panel. Panels shall be composed of well-qualified governmental and/or non-governmental individuals, with a view to ensuring the independence of the members, and whose governments are not the parties to the dispute, "unless the parties to the dispute agree otherwise. Three panelists compose a panel unless the parties agree to have five panelists. The Secretariat proposes nominations for panels that the parties shall not oppose except for compelling reasons. If the parties disagree on the panelists, upon the request of either party, the director-general in consultation with the chairman of the DSB and the chairman of the relevant council or committees shall appoint the panelists. When multiple parties request the establishment of a panel with regard to the same matter, the DSU suggests a strong preference for a single panel to be established to examine these complaints taking into account the rights of all members concerned. The DSU gives any member, that has a substantial interest in a matter before a panel (and notifies its interest to the DSB), an opportunity to be heard by the panel and to make written submissions to the panel. The panel shall submit its findings in the form of written report to the DSB. As a general rule, it shall not exceed six months from the formation of the panel to submission of the report to the DSB. In interim review stage, the panel submits an interim report to the parties. The panel shall hold a further meeting with the parties if the parties present written comments. If no comments are provided by the parties within the comment period, the report shall be the final report and circulated promptly to the members. Within sixty days after the report is circulated to the members, the report shall be adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its decision to appeal or the DSB decides by consensus not to adapt the report. (iii) Appellate Review Proceedings (Article 17 DSU) The DSB establishes a standing Appellate Body that will hear the appeals from panel cases. The Appellate Body shall be composed of seven persons, three of whom shall serve on any one case. Those persons serving on the Appellate Body are to be persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the

Covered Agreements generally. The Body shall consider only issues of law covered in the panel report and legal interpretations developed by the panel. Its proceedings shall be confidential, and its reports anonymous. This provision is important because, unlike judges in the United States, the members of the appellate panel do not serve for life. This means that if their decisions were public, they would be subject to personal retaliation by governments unhappy with decisions, thus corrupting the fairness of the process. Decisions made by the Appellate Body may uphold, modify, or reverse the legal findings and conclusions of the panel. The DSB and the parties shall accept the report by the Appellate Body without amendments unless the DSB decides by consensus not to adopt the Appellate Body report within thirty days following its circulation to the members. (iv) Implementation and enforcement of the recommendations and rulings of the panel and/or the Appellate Body, as adopted by the DSB (Article 21 and 22 DSU) There are consequences for the member whose measure or trade practice is found to violate the Covered Agreements by a panel or Appellate Body. The dispute panel issues recommendations with suggestions of how a nation is to come into compliance with the trade agreements. If the member fails to do so within the determined reasonable period of time, the complainant may request negotiations for compensation. Within twenty days after the expiration of the reasonable period of time, if satisfactory compensation is not agreed, the complaining party may request authorization from the DSB to suspend the application to the member concerned of concessions or other obligations under the Covered Agreements. Retaliation shall be first limited to the same sector(s). If the complaining party considers the retaliation insufficient, it may seek retaliation across sectors. The DSB shall grant authorization to suspend concessions or other obligations within thirty days of the expiry of the reasonable time unless the DSB decides by consensus to reject the request. The defendant may object to the level of suspension proposed. The original panel, if members are available, or an arbitrator appointed by the director-general may conduct arbitration.

3. Case Study: European Communities Measures Concerning Meat and Meat Products (Hormones) DS26
(1) Current status: Mutually acceptable solution on implementation notified on 25 September 2009 (2) Key facts: a) b) c) d) Short title: Complainant: Respondent: Third Parties: EC Hormones United States European Communities Australia; Canada; New Zealand; Norway

e) Agreements cited (as cited in request for consultations): Agriculture: Art. 4; GATT 1994: Art. III, XI; Sanitary and Phytosanitary Measures (SPS): Art. 2, 3, 5; Technical Barriers to Trade (TBT): Art. 2. f) Request for Consultations received: 26 January 1996 g) Panel Report circulated: 18 August 1997 h) Appellate Body Report circulated: 16 January 1998 i) Article 21.3(c) Arbitration Report circulated: 29 May 1998 j) Recourse to Article 22.6 Arbitration Report circulated: 12 July 1999 (3) Summary of the dispute to date (i) Consultations On 26 January 1996, the United States requested consultations with the European Communities claiming that measures taken by the EC under the Council Directive Prohibiting the Use in Livestock Farming of Certain Substances Having a Hormonal Action restrict or prohibit imports of meat and meat products from the United States, and are apparently inconsistent with Articles III or XI of the GATT 1994, Articles 2, 3 and 5 of the SPS Agreement, Article 2 of the TBT Agreement and Article 4 of the Agreement on Agriculture. On 25 April 1996, the United States requested the establishment of a panel. At its meeting on 8 May 1996, the DSB deferred the establishment of a panel. (ii) Panel and Appellate Body proceedings Further to a second request to establish a panel by the United States, a panel was established at the DSB meeting on 20 May 1996. On 2 July 1996, the panel was composed. The panel report was circulated to Members on 18 August 1997. The panel found that the EC ban on imports of meat and meat products from cattle treated with any of six specific hormones for growth promotion purposes was inconsistent with Articles 3.1, 5.1 and 5.5 of the SPS Agreement. On 24 September 1997, the European Communities notified its intention to appeal certain issues of law and legal interpretations developed by the panel. The Appellate Body report was circulated to Members on 16 January 1998. The Appellate Body upheld the panels finding that the EC import prohibition was inconsistent with Articles 3.3 and 5.1 of the SPS Agreement, but reversed the panels finding that the EC import prohibition was inconsistent with Articles 3.1 and 5.5 of the SPS Agreement. On the general and procedural issues, the Appellate Body upheld most of the findings and conclusions of the panel, except with respect to the burden of proof in proceedings under the SPS Agreement. The Appellate Body report and the Panel report, as modified by the Appellate Body, were adopted by the DSB on 13 February 1998. (iii) Reasonable period of time (Compliance)

On 8 April 1998, the European Communities requested that the reasonable period of time for implementation of the recommendations and rulings of the DSB be determined by binding arbitration, pursuant to Article 21.3(c) of the DSU. The Award of the Arbitrator was circulated to Members on 29 May 1998. The Arbitrator determined that the reasonable period of time for implementation to be 15 months from the date of adoption (i.e. 15 months from 13 February 1998), therefore the European Communities had to comply by 13 May 1999. The European Communities undertook to comply with the recommendations of the DSB within the implementation period. At the DSB meeting on 28 April 1999, the European Communities informed the DSB that it would consider offering compensation in view of the likelihood that it may not be able to comply with the recommendations and rulings of the DSB by the deadline of 13 May 1999. (iv) Proceedings under Article 22 of the DSU (remedies) On 3 June 1999, the United States, pursuant to Article 22.2 of the DSU requested authorization from the DSB for the suspension of concessions to the European Communities in the amount of USD 202 million. The European Communities, pursuant to Article 22.6 of the DSU, requested arbitration on the level of suspension of concessions requested by the United States. The DSB referred the issue of the level of suspension to the original panel for arbitration. The Decision by the Arbitrators was circulated to Members on 12 July 1999. The Arbitrators determined the level of nullification suffered by the United States to be equal to USD 116.8 million. At its meeting on 26 July 1999, the DSB authorized the suspension of concessions to the European Communities by the United States in the amount determined by the Arbitrators as being equivalent to the level of nullification suffered by the United States. At the DSB meeting on 7 November 2003, the European Communities stated that following the entering into force of its new Directive (2003/74/EC) regarding the prohibition on the use in stock farming of certain hormones, there was no legal basis for the continued imposition of retaliatory measures by the United States; one of the reasons cited by the Appellate Body in its ruling against the European Communities was its failure to carry out a risk assessment within the meaning of Articles 5.1 and 5.2 of the SPS Agreement; and, having commissioned such an assessment to be undertaken on its behalf by an independent scientific committee whose findings indicated that the hormones in question posed a risk for consumers, the European Communities had fulfilled its WTO obligations and was entitled to demand the immediate lifting of the sanctions imposed by the United States in accordance with the provisions of Article 22.8 of the DSU. The United States stated that they had carefully reviewed the new EC Directive and did not share the view that it implemented the recommendations and rulings of the DSB. The new measure lacked any scientific basis and as such could not be justified under the SPS Agreement. Contrary to the European Communities claim, a number of studies had found that there was no increased health risk from the consumption of meat from animals treated with growth-promoting hormones. In the

circumstances, the United States was not in a position to accede to the request by the European Communities. The European Communities responded that on the basis of the negative position expressed by the United States, it would reflect on the appropriate actions that would be necessary in order to preserve its rights under the WTO agreements. At the DSB meeting on 1 December 2003, the European Communities stated that: in light of the disagreement between the parties to the dispute with regard to the European Communities compliance with the DSBs recommendations, the matter should be referred to the WTO for a multilateral decision; this situation was similar to other cases, which had been resolved in the past through recourse to Article 21.5 of the DSU; the United States should initiate multilateral procedures to determine whether or not the European Communities was in compliance; the European Communities stood ready to discuss this matter with the United States. The United States stated that it failed to see how the revised EC measure could be considered to implement the DSBs recommendations; with regard to the European Communities suggestion that multilateral proceedings be established to determine whether or not the European Communities was in compliance with the WTO rulings, the United States was ready to discuss this matter along with other outstanding issues in relation to the European Communities ban on US beef. On 8 November 2004, the European Communities filed a separate request for consultations with the United States asserting that the United States should have removed its retaliatory measures insofar as the European Communities had removed the measures found to be inconsistent. On 22 December 2008, the European Communities requested consultations under Article 21.5 of the DSU. On 19 January 2009, Australia, Canada and New Zealand requested to join the consultations. Subsequently, the United States informed the DSB that it had accepted the requests of Australia, Canada and New Zealand to join the consultations. (v) Implementation of adopted reports On 25 September 2009, the European Communities and the United States notified the DSB of a Memorandum of Understanding regarding the importation of beef from animals not treated with certain growth-promoting hormones and increased duties applied by the United States to certain products of the European Communities, agreed by the United States and the European Communities on 13 May 2009, in relation to this dispute.

4. Conclusion
With the establishment of the World Trade Organization (WTO) and its powerful Dispute Settlement mechanism in 1995, a new forum has been created for addressing international trade disputes. With its increased strength, the Dispute Settlement Body now possesses significant ability to coerce states into abiding by the international agreements they have signed. A key purpose of this international organization is to remove the political aspect from the process in which disputes are resolved. The WTO hopes to replace political maneuvers with the structured dispute settlement process established by GATT/WTO Agreements. Pursuant to this process, trade disputes taken to Dispute Settlement Body (DSB) must proceed through a series of stages with mandated timetables. The DSB process is designed to achieve fair and timely resolutions to international trade disputes. Since the WTO relies on the support of its Members for operational funds and for voluntary compliance with its rulings, time delays are undesirable. Presently, a significant increase in the amount of cases taken to the WTO has created a backload. This places a strain on the process, creating delays and increasing the likelihood that the quality of the case reports will suffer. Another important issue facing the WTO is the potential for the losing party in a dispute to misuse the process through delaying tactics. This has occurred in the dispute case ECHormones, Complaint by the United States. In this potentially precedent-setting case, the European Union (EU) has been unwilling to remove restrictive trade measures judged by the DSB to be in violation of GATT/WTO Agreements. Instead, the EU has employed a series of delay tactics and has chosen to accept retaliation measures in lieu of eliminating these restrictive measures. Most experts believe these actions by the EU are damaging the effectiveness and credibility of the dispute settlement process and the WTO as a whole.

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