Role of World Trade Organisation in Dispute Resolution

SYNOPSIS REPORT
ON
“ROLE OF WORLD TRADE ORGANISATON IN DISPUTE RESOLUTION”

SUBMITTED TO:
MR. V SURYA NARAYANA RAJU
FACULTY MEMBER IN ALTERNATIVE DISPUTE RESOLUTION SYSTEM

SUBMITTED BY:
AVISHEK PATHAK
B.A.LL.B. (HONS.) STUDENT
SEMESTER- VI, SECTION- C, ROLL NO. – 43.

SUBMITTED ON:
08-02-2018

HIDAYATULLAH NATIONAL LAW UNIVERSITY

UPARWARA, POST- ABHANPUR, NEW RAIPUR- 493661(CHHATTISGARH)

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 Role of World Trade Organisation in Dispute Resolution

 IDENTIFICATION OF RESEARCH TOPIC:

Role of World Trade Organisation in Dispute Resolution

 LITERATURE SURVEY
The study has been carried out with the help non secondary data available in the books and
internet. The information regarding the topic has been taken from the internet while the basic
views & thoughts of “Role of World Trade Organisation in Dispute Resolution” contain
annotations from books.

This study has been done taking the help of secondary data i.e. websites, articles. It is
descriptive in nature. To construct this project, the help of dictionaries, legal websites as well as
social science websites are referred. The points as discussed in this project include the study of
different sources on the topic as well as the points guided by the faculty.

Research Methodology is systematic approach and methods of study concerning for obtaining
new knowledge and generalization and the formulation of theories.

 NATURE OF STUDY-

Non empirical research work has been used in this project as the material in this project mainly
consists of the work of people which is already done. The project is basically doctrinal in
nature. Citations are also provided wherever they were necessary.

 SOURCES OF DATA-

This Project is made on the basis of secondary sources of information, which include:

1) Books, and

2) Information from the internet.

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 Role of World Trade Organisation in Dispute Resolution

 LITERATURE REVIEW
1. Madhusudan Saharay, Arbitration & Conciliation with Alternative Dispute Resolution (3 rd
Edition, Universal Law Publishing Co.) (2015).

The Textbook on Arbitration and Conciliation with Alternate Dispute Resolution is an extensive
work on the law relating to Arbitration, Conciliation and other Alternate Dispute Resolution
mechanism in India. Primarily meant for the students of law, the book shall also serve those
interested in exploring this area of study, as it explains the provisions of the Act in an analytical
and illustrative manner. All latest relevant case-law and legislative changes with the introduction
of the Arbitration and Conciliation (Amendment) Act, 2015 have been incorporated at
appropriate places.

2. Bernard Hoekman and Petros C. Mavroidis, The World Trade Organization: Law,
Economics, and Politics
This book is an extensive work on The World Trade Organization (WTO) which is one of the
most important international organizations in existence today. It contains a set of disciplines that
affect the ability of governments to impose trade restrictions, and has helped to support the
steady expansion of international trade since the 1950s. It is a unique organization in providing a
framework for member states to make binding policy commitments that are enforced through a
unique dispute settlement system and a variety of transparency mechanisms.

3. Peter Van Den Bossehe, The Law and Policy of the World Trade Organization

This is a stellar work on the working of the World Trade Organisation, This in itself is a
remarkable achievement given the increasing breadth and depth of WTO jurisprudence. This
book secures its place as the pre-eminent textbook on the legal principles underpinning the
purpose and functioning of the WTO. This textbook is exhaustively researched, this book
provides in-depth, contextualized discussion broken down into thoughtfully organized chapters
along with concise and timely commentary reflecting recent developments in case law and
beyond. Van den Bossche's and Zdouc's expansive knowledge of WTO law is unparalleled, just
as their ability to convey often difficult concepts with clarity and charisma.

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 Role of World Trade Organisation in Dispute Resolution

STATEMENT OF PROBLEM

1. How WTO governs Arbitration?

2. What made WTO effective in case of dispute resolution?

 HYPOTHESIS
The WTO’s procedure is a mechanism which is used to settle trade dispute under the Dispute
Settlement Understanding. A dispute arises when a member government believes that another
member government is violating an agreement which has been made in the WTO. However,
these agreements are consequential to dialogues between the member States and hence they
are the writers of such agreement. In case any dispute arises, the ultimate duty to settle it lies in
the hands of member government through Dispute Settlement Body. The WTO’s Dispute
Settlement Understanding (DSU) advanced out of the ineffective means used under the GATT
for settling disagreements among members. Under the GATT, procedures for settling disputes
were ineffective and time consuming since a single nation, including the nation whose actions
was the subject of complaint could effectively block or delay every stage of the dispute
resolution process. It remains to be seen whether countries will comply with the new WTO
dispute settlement mechanism, but thus far the process has met with relative success.

RESEARCH QUESTION

1. How effective is dispute resolution of the World Trade Organisation?

 OBJECTIVES
1. To study the features of dispute settlement mechanism of WTO.
2. To understand the quick dispute settlement by the world trade organisation.
3. To emphasize the dispute resolution procedure of the WTO.

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 Role of World Trade Organisation in Dispute Resolution

 SCHEME OF CHAPTERISATION
The presented study is a detailed research on the topic “Role of World Trade Organisation in
Dispute Resolution”. The research study has been presented with the chapterization scheme.
Each part of the study has a significant role in the completion of study. Here is a chapterwise
introduction of each chapter.

1. INTRODUCTION
2. UNDERSTANDING THE WORLD TRADE ORGANISATION
 ORIGIN
 MEMBERSHIP

 STRUCTURE

3. DISPUTE SETTLEMENT
 MECHANISM
 STAGES

4. LEGAL BASIS
5. DISPUTE SETTLEMENT BODIES
6. DISPUTE SETTLEMENT MECHANISM AND DEVELOPING COUNTRIES
7. CONCLUSION
8. BIBLIOGRAPHY

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 Role of World Trade Organisation in Dispute Resolution

Chapter 1: Introduction

Trade agreements on the basis of reciprocity are instruments used by governments to achieve
trade liberalisation. The reciprocal exchange of market access rights, which occurs through such
agreements amounts to an international exchange of domestic political support between
governments, helps policymakers to overcome the protectionist bias of uncoordinated trade
policies. In order to protect the negotiated balance of rights and obligations from eroding - e.g.,
by trade restrictions which one government may introduce in violation of the trade agreement in
order to enhance its political support from import-competing interests - trade agreements usually
include dispute settlement mechanisms based on diplomatic and/or adjudicative procedures.

Such a dispute settlement mechanism is also included in the multilateral trading system. Based
on the rudimentary provisions of two articles in the General Agreement on Tariffs and Trade
(GATT) 1947, i.e., Article XXII on Consultations and Article XXIII on Nullification or
Impairment of Benefits, dispute settlement developed gradually through evolving practice and
occasional codifications thereof. The conclusion at the Uruguay Round of Multilateral Trade
Negotiations brought the establishment of the World Trade Organisation on 1 January 1995.

One of the most noteworthy achievements of the establishment of the WTO was the introduction
of its binding dispute settlement system. Building upon GATT dispute settlement practice, the
Understanding on the Rules and Procedures Governing the Settlement of Disputes ('DSU')
contains innovations that resulted in a paradigm shift from a system based on economic power
and politics to one based on the rule of law. The resulting increased legality of the WTO has
been hailed to benefit considerably smaller countries, of which many are developing countries
and least-developed countries ('LDCs'). As Steger and Hainsworth comment, the shift 'is
particularly beneficial for smaller countries, as without the rules and procedures of the DSU...
they would not have the necessary bargaining power vis-à-vis the larger powers.'1 Similarly,

1
D. Steger and S. Hainsworth, 'World Trade Organization Dispute Settlement: The First Three Years' 1998 JIEL
1(2) 199, at 225.

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 Role of World Trade Organisation in Dispute Resolution

Weiler notes the advantages of the legalised WTO model, 'especially for the meek economically
and politically unequal.'2

Despite these perceived benefits, the vast majority of developing countries have not participated
actively in the WTO dispute settlement system. This raises concerns that they are not benefitting
fully from the WTO legal regime. As Bown and Hoekman observe, 'a systemic pattern of
missing dispute settlement activity calls into question whether the full public good and positive
externality benefits of the trading system are sufficiently exploited.'3 Davey also has commented
that 'only an effective dispute settlement system can ensure rule enforcement, which in turn
provides predictability and stability in trade relations.'

According to Article 181.3 of the WTO Agreement, dispute settlement is one of the key
functions of the WTO. Dispute settlement is administered by a Dispute Settlement Body (DSB)
that consists of the WTO's General Council. The Dispute Settlement Body has 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." The Dispute Settlement system aims to resolve disputes by clarifying the
rules of the multilateral trading system; it cannot legislate or promulgate new rules.

The introduction of binding WTO dispute settlement is perceived to be of considerable benefit

for developing countries. The shift from a power- to a rules-based system is seen to permit even
the smallest and weakest economic powers to enforce the rules under which they trade and
consequently to provide unprecedented security and predictability in their trading relations.

2
J. Weiler, 'The Rule of Lawyers and the Ethos of Diplomats Reflections on the Internal and External
Legitimacy of WTO Dispute Settlement' 2001 Journal of World Trade 35(2) 191, at 192.
3

J. Weiler, 'The Rule of Lawyers and the Ethos of Diplomats Reflections on the Internal and External
Legitimacy of WTO Dispute Settlement' 2001 Journal of World Trade 35(2) 191, at 192.

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 Role of World Trade Organisation in Dispute Resolution

Chapter 2: Understanding the WTO

The World Trade Organization is the only global international organization dealing with the
rules of trade between nations. The main aim of the WTO is to help the producers of goods and
services, exporters, and importers conduct their business.

Its functioning pivots around the WTO agreements, which are negotiated and signed by the bulk
of the world’s trading nations and ratified in their parliaments.

There are a number of ways of looking at the WTO. It’s an organization for liberalizing trade.
But the WTO is not just about liberalizing trade, and in some circumstances its rules support
maintaining trade barriers — for example to protect consumers or prevent the spread of disease.

It’s a forum for governments to negotiate trade agreements. It’s a place for them to settle trade
disputes. It operates a system of trade rules. Above all, it’s a negotiating forum; The WTO was
born out of negotiations, and everything the WTO does is the result of negotiations. These
negotiations lead to the compilation of documents, which provide the legal ground-rules for
international commerce. They are essentially contracts, binding governments to keep their trade
policies within agreed limits. Although negotiated and signed by governments, the goal is to help
producers of goods and services, exporters, and importers conduct their business, while allowing
governments to meet social and environmental objectives. The bulk of the WTO’s current work
comes from the 1986–94 negotiations called the Uruguay Round and earlier negotiations under
the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new
negotiations, under the Doha Development Agenda launched in 2001.

The third important side to the WTO’s work is its dispute settlement function, which is the main
focus of this project. Trade relations often involve conflicting interests and agreements often
need interpreting. The most harmonious way to settle these differences is through some neutral
procedure based on an agreed legal foundation.

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 Role of World Trade Organisation in Dispute Resolution

2.1 Origin

The WTO commenced functioning on 1 January 1995, but its trading system is half a century
older. Since 1948, the General Agreement on Tariffs and Trade (GATT) has provided the rules
for the global trading system.

It did not take long for the General Agreement to give birth to an unofficial, de facto
international organization, also known informally as GATT. Over the years, GATT evolved
through several rounds of negotiations.

The last and largest GATT round, was the Uruguay Round which lasted from 1986 to 1994 and
led to the creation of the WTO. Whereas GATT had mainly dealt with trade in goods, the WTO
and its agreements also covers trade in services and intellectual property.

2.1.1 Post-Second World War Scenario

The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was established
after World War II in the wake of other new multilateral institutions dedicated to international
economic cooperation — notably the Bretton Woods institutions known as the World Bank and
the International Monetary Fund. A comparable international institution for trade, named the
International Trade Organization was successfully negotiated. The ITO was to be a United
Nations specialized agency and would address not only trade barriers but other issues indirectly
related to trade, including employment, investment, restrictive business practices, and
commodity agreements. But the ITO treaty was not approved by the U.S. and a few other
signatories and never went into effect.

In the absence of an international organization for trade, the GATT assumed the primary role in
trade governance.

2.2 Establishment

In response to the problems identified in the 1982 Ministerial Declaration; structural

deficiencies, spill-over impacts of certain countries' policies on world trade, the eighth GATT
round -known as the Uruguay Round - was launched in September 1986, in Punta del Este,
Uruguay.

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 Role of World Trade Organisation in Dispute Resolution

It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend the
trading system into several new areas, notably trade in services and intellectual property, and to
reform trade in the sensitive sectors of agriculture and textiles; all the original GATT articles
were up for review. The Final Act concluding the Uruguay Round and officially establishing the
WTO regime was signed April 15, 1994, during the ministerial meeting at Marrakesh, Morocco,
and hence is known as the Marrakesh Agreement.

The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the
Uruguay Round negotiations.

2.3 Membership

The WTO is member-driven, with decisions taken by consensus among all member governments
In this respect, the WTO is different from some other international organizations such as the
World Bank and International Monetary Fund - in the WTO, power is not delegated to a board of
directors or the organization’s head. All members have joined the system as a result of
negotiation and therefore membership means a balance of rights and obligations. They enjoy the
privileges that other member countries give to them and the security that the trading rules
provide. In return, they had to make commitments to open their markets and to abide by the
rules. Such commitments are the result of the membership or accession negotiations. Countries
negotiating membership are called WTO “observers”.

Types

There are two types of members; original and acceded. The original members include the
members to the GATT as on the date of entry into force of the agreement. Besides the original
members, States which have acceded to this agreement and the Multilateral Trade Agreements
annexed thereto are WTO members.

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 Role of World Trade Organisation in Dispute Resolution

Current Membership

The WTO has 153 members and 26 observers. In addition to states, the European Union is also a
member. WTO members do not have to be full sovereign nation-members. Instead, they must be
a customs territory with full autonomy in the conduct of their external commercial relations.
Thus Hong Kong (as "Hong Kong, China" since 1997) became a GATT contracting party, and
the Republic of China (Taiwan) acceded to the WTO in 2002 as "Separate Customs Territory of
Taiwan, Penghu, Kinmen and Matsu" (Chinese Taipei) despite its disputed status.

Iran is the biggest economy outside the WTO. Fourteen states and two territories so far have had
no official interaction with the WTO.

Withdrawal

Any member may withdraw from this agreement by giving a written notice to the Director
General of the WTO. The withdrawal takes effect upon the expiry of six months from the
application date.

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 Role of World Trade Organisation in Dispute Resolution

Chapter 3: Dispute Settlement

For the global peace and prosperity, an open, rule based trading system, based on the principles
of non-discrimination, progressive liberalization of tariffs, and rule of law could be of great help.
Obviously, once the international obligation and rights and duties of member states have been
defined, the question of how those obligations, rights and duties are to be enforced specially in
the arena of international trade, multilateral conventions and treaties needs to be addressed. In
the Havana Charter4 ITO, the concept of balancing the rights and duties was incorporated by
providing for compensatory adjustment in case a member has not obligated itself of the rights
and duties which it had agreed upon while acceding to the ITO. After the ITO failed to come into
existence, almost similar provisions were incorporated in Articles XXII and XXIII of GATT
1947. The management of disputes in the WTO is structured on the same basis of the Articles of
GATT, and the rules and procedures as further elaborated and modified therein. Therefore, it will
not be out of place to briefly survey the jurisprudence of settlement of disputes as developed in
GATT 1947 up to the incorporation of an elaborate treaty of twenty seven articles and four
appendices known as Understanding on Rules and Procedures Governing the Settlement of
Disputes as part of the governing the settlement of disputes of WTO dispensation on 1 January,
1995.

Mechanism

Article 3 of the Dispute Settlement Understanding (DSU) sets out the general provisions
outlining mainly the objectives of the dispute settlement mechanism as enshrined in the DSU.
These are summarised as under:

1. Adherence to the management principles applies under Articles XXII and XXIII
of the 1947 GATT as modified by the DSU;

2. DSU is meant for security and predictability of the multilateral trading system, to
serve and preserve the rights and obligations of members under the covered

4
Kenneth W. Dam. The GATT and international Economic Organisation 352 (1977)

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 Role of World Trade Organisation in Dispute Resolution

Agreements. Recommendations of the DSB should not add to or diminish the

rights and obligations of members of the WTO;

3. Promptness of settling situations where a member considers that his benefits have
been infringed, and to maintain a proper balance between rights and obligations of
the members.

4. DSB’s aim should be achieving a satisfactory settlement of the disputes in

accordance with the rights and obligations of the members;

5. Consultation and dispute settlement should be such that they are consistent with
the covered agreements and do not nullify or impair benefits of members, nor the
objectives of the Agreements;

6. Matters formally raised under the consultation and dispute settlement shall be
notified to the DSB and the relevant Councils and Committees, where any
Member may raise any point relating thereto;

7. Solutions mutually agreed to a dispute are preferred. In the absence of a mutually

agreed solution, the first objective of dispute settlement mechanism is usually to
secure the withdrawal of the measures concerned if found to be inconsistent with
the provisions of any of the covered agreements.  Compensation should be
resorted to only if the immediate withdrawal of the measure is impracticable.  The
last resort is the possibility of suspending the application of concessions or other
obligations under the covered agreements on a discriminatory basis vis-à-vis the
other Member, subject to authorization by the DSB.

8. In cases where there is an infringement of the obligations assumed under a

covered agreement, it constitutes a case of nullification or impairment prima
facie, i.e., presumption that rules have an adverse impact on other Members in the
covered agreement, and it is the responsibility of the other Member against whom
the complaint has been brought to rebut the charge;

The WTO provides for a Dispute Settlement Body (DSB) which consists of representatives of
every WTO member and is responsible for the settlement of disputes. The Dispute Settlement

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 Role of World Trade Organisation in Dispute Resolution

Body may establish panels for specific investigation, may constitute appellate body, may adopt
reports of panels and Appellate Body and may exercise surveillance to ensure compliance with
rules and recommendations and if necessary may also authorise retaliatory measures in cases of
non-implementation of recommendations.

For the purpose of investigation, the DSB has four subsidiary bodies-

1. Working groups

2. Panels

3. Permanent Expert Group

4. Arbitration

The main stages in the dispute settlement process, under the WTO, are explained below.

Stages in the Dispute Settlement Procedure

Consultation
The first stage in the settlement of disputes is consultation among the members of concerned.
Normally, an international trade dispute settlement commences with consultation between the
member nations of WTO under Article XXII of GATT 1947, the consultation mechanism was
further strengthened and reaffirmed in the Tokyo Round. The WTO, DSU affirms in the
effectiveness of the consultation and provides that each member undertakes to accord
sympathetic consideration to and afford adequate opportunity for consultation regarding any
representation made by a another member concerning measures affecting the operation of the
covered Multilateral Trade Agreements taken within the territory of the former. Such
consultations occur regularly at the official level and can be raised at the Ministerial level as
appropriate.5 The purpose of holding consultation is to arrive at mutually agreed and satisfactory
solution. The holding of consultation does not prejudice the rights of the members. The request
for consultation is to be notified to DSB and to the relevant Councils and Committees. Any
request for consultation ought to be notified to the DSB in writing, specifying the reason for the
request. The request for consultations should specify the articles of relevant WTO Agreements
under which consultations are sought.
5
Article 4 of the DSU

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 Role of World Trade Organisation in Dispute Resolution

The complaining party should give reasons for the request including identification of measures at
issue and the identification of legal basis for the complaint. It is necessary that the request for
consultations should be broad in scope as far as possible, both in identifying the measure and in
indicating the legal basis for such complaint, as these will limit the scope of any eventual panel
request and that in turn, will limit the scope of the terms of reference of the panel. 6 A measure
that is not subject of consultations cannot be referred to a panel. When a member makes a
request for consultations, it has to be replied promptly within ten days and to hold consultation
within 30 days from the date of the request by the other member. Many disputes are thus settled
in this initial stage. However, if a dispute is not solved through consultation within 60 days from
the date of request, the party may request the DSB for the establishment of a panel.

Good Offices, Conciliation and Mediation- If the consultation fails, the members of the WTO
may avail themselves DSU’s good offices, conciliation and mediation services. Article 5
provides for the above services to be voluntarily taken by the members, if the members to
dispute so agree and request for such services to any item of dispute which can be terminated at
any time. Good offices, conciliation and mediation services are to be entered into within sixty
days from the date of request for consultation before requesting for a panel.

Establishment of Panel
If the dispute is not settled through consultations, the member who sought the consultations may
request the DSB to establish a panel. To resolve a dispute, within 60days if the consultation fails
(if a member to which a request for consultation is made agrees within 10days to consult within
30 days, and does so, the complaining party may not ask for a panel until 60 days have elapsed
from the date of original request, unless the parties agree that further consultations would not be
productive), at the request of the complaining party, a meeting of the DSB shall be convened
within 15days provided at least 10 days advance notice Such a request ought to be accompanied
with full particulars of the dispute, details of notice of the meeting is given, and the panel may be
established by the DSB to hear the dispute. This request ought to be accompanied with full
particulars of dispute, the details of the consultations and the reasons for their failure. After
considering the request, the DSB decides the establishment of a panel. The panel is composed of
three or five panelists. The panel is established in consultation with the parties in dispute. The
6
United States – Denial of MFN treatment as to the Non rubber footware from Brazil, BISD 39S/128, 147-148
(adopted June, 1992)

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 Role of World Trade Organisation in Dispute Resolution

panel functions as an expert team to help the DSB to arrive at a finding. If the dispute is between
a developing and a developed country and if the country so desires, one panelist ought to be from
the developing country. The panelists are selected by the Secretariat. The Panelists serve in their
individual position and not in their official position.

Report of Panel
After examining the complaint, the panel prepares its report containing its findings and
recommendations. The panel has to submit its report within six months and in case of urgency
within three months. In any case, the maximum time which the panel can take to circulate the
report to the members is nine months.

Adoption of Panel Report

After examining the complaint, the panel prepares its report containing its findings and
recommendations. The panel has to submit its report within six months and in case of urgency
within three months. In any case, the maximum time which the panel can take to circulate the
report to the members is nine months.

Appellate Review
The WTO provides for a Standing Appellate Body to hear appeals. Under Article 17 of the DSU,
the DSB has been empowered to establish a Standing Appellate Body with 7 members, three of
whom shall serve any one case and shall hear appeals from Panel cases. The panel’s decision can
be challenged in the SAB by either party to the dispute. It is provided that the Appeal
proceedings must not generally exceed 60 days and in no case 90 days. The Standing Appellate
Body comprises of seven persons who have distinguished themselves in the field of law and
international trade. The DSB provides for strict rule of confidentiality and there is a prohibition
of ex parte communications with the panel or the appellate body with regard to matters for their
consideration. However, the members to the dispute have a right to access the same. The
Appellate Body may uphold, modify, or reverse the legal proceedings and conclusions of the
panel.

Implementation
Article 21 of the DSU provides an elaborate mechanism of surveillance of implementation of
recommendations and rulings of panels and Appellate Body reports. Once a panel finds a

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 Role of World Trade Organisation in Dispute Resolution

complaint is justified, its report categorically recommends that the offending member should
cease and desist from violations of GATT rules by either withdrawing the offending measures or
suitably amend the measures to bring them in conformity with GATT rules or covered
Multilateral Agreements. Thirty days after the adoption of the report by the panel or the decision
of the Appellate Body, it is the obligation of the party concerned to inform the DSB its
willingness or otherwise to implement the rulings or recommendations. If the member concerned
fails to implement within the reasonable time, it is obliged to start the negotiations with the
complainant. If the negotiations fail or satisfactory compensation is not agreed, the complainant
may approach the DSB to suspend concessions or obligations against the other party. This is the
last remedy available to an aggrieved member.

Chapter 4: Legal Basis

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 Role of World Trade Organisation in Dispute Resolution

Disputes in the WTO are essentially about broken promises. WTO members have agreed that if
they believe fellow-members are violating trade rules, they will use the multilateral system of
settling disputes instead of taking action unilaterally. That means abiding by the agreed
procedures, and respecting judgements. A dispute arises when one country adopts a trade policy
measure or takes some action that one or more fellow-WTO members considers to be breaking
the WTO agreements, or to be a failure to live up to obligations. A third group of countries can
declare that they have an interest in the case and enjoy some rights.

A procedure for settling disputes existed under the old GATT, but it had no fixed timetables,
rulings were easier to block, and many cases dragged on for a long time inconclusively. The
Uruguay Round agreement introduced a more structured process with more clearly defined
stages in the procedure. It introduced greater discipline for the length of time a case should take
to be settled, with flexible deadlines set in various stages of the procedure. The agreement
emphasizes that prompt settlement is essential if the WTO is to function effectively. It sets out in
considerable detail the procedures and the timetable to be followed in resolving disputes. If a
case runs its full course to a first ruling, it should not normally take more than about one year —
15 months if the case is appealed. The agreed time limits are flexible, and if the case is
considered urgent (e.g. if perishable goods are involved), it is accelerated as much as possible.

The Uruguay Round agreement also made it impossible for the country losing a case to block the
adoption of the ruling. Under the previous GATT procedure, rulings could only be adopted by
consensus, meaning that a single objection could block the ruling. Now, rulings are automatically
adopted unless there is a consensus to reject a ruling — any country wanting to block a ruling
has to persuade all other WTO members (including its adversary in the case) to share its view.
Although much of the procedure does resemble a court or tribunal, the preferred solution is for
the countries concerned to discuss their problems and settle the dispute by themselves. The first
stage is therefore consultations between the governments concerned, and even when the case has
progressed to other stages; consultation and mediation are still always possible.

Article 1.1 of the DSU stipulates that its rules and procedures apply to “disputes brought
pursuant to the consultation and dispute settlement provisions of the ... ‘covered agreements’”.
The basis or cause of action for a WTO dispute must, therefore, be found in the “covered
agreements” listed in Appendix 1 to the DSU, namely, in the provisions on “consultation and

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 Role of World Trade Organisation in Dispute Resolution

dispute settlement” contained in those WTO Agreements. In other words, it is not the DSU, but
rather the WTO Agreements that contain the substantive rights and obligations of WTO
Members, which determine the possible grounds for a dispute.

These provisions on “consultation and dispute settlement” are:

 Articles XXII and XXIII of GATT 1994; 

 

 Article 19 of the Agreement on Agriculture; 

  

 Article 11 of the Agreement on the Application of Sanitary and Phytosanitary Measures; 
  

 Article 8.10 of the Agreement on Textiles and Clothing; 

  

 Article 14 of the Agreement on Technical Barriers to Trade; 

  

 Article 8 of the Agreement on Trade-Related Investment Measures; 

  

 Article 17 of the Agreement on Implementation of Article VI of GATT 19941;

  

 Article 19 of the Agreement on Implementation of Article VII of GATT 19942;

  

 Articles 7 and 8 of the Agreement on Preshipment Inspection; 

    

 Article 6 of the Agreement on Import Licensing Procedures; 

  

 Articles 4 and 30 of the Agreement on Subsidies and Countervailing Measures; 

  

 Article 14 of the Agreement on Safeguards; 

  

 Articles XXII and XXIII of the General Agreement on Trade in Services;

  
Article 64 of the Agreement on Trade-Related Aspects of Intellectual Property Rights.

Chapter 5: Dispute Settlement Bodies

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 Role of World Trade Organisation in Dispute Resolution

The Dispute Settlement Body (DSB) of the World Trade Organization (WTO) makes decisions
on trade disputes between governments that are adjudicated by the Organization. Its decisions
generally match those of the Dispute Panel. It was created during the Uruguay Round to deal
with the disputes arising under any of the WTO agreements; it does so in accordance with the
provisions of the Understanding on Rules and Procedures Governing the Settlement of Disputes,
or the “Dispute Settlement Understanding (DSU)”. The DSB has the authority to establish
dispute settlement panels, to adopt panel and appellate body reports, to maintain surveillance of
the implementation of the rulings and recommendations it adopts, and to authorize the
suspension of the concessions and other obligations under the covered WTO agreements, if its
rulings and recommendations are not acted upon by the members in a timely fashion.

WTO members have agreed that if they believe fellow-members are violating trade rules, they
will use the multilateral system of settling disputes instead of taking action unilaterally. That
means they should abide by the agreed procedures, and respect judgments. The WTO’s dispute
settlement agreement is formally known as the Understanding on Rules and Procedures
Governing the Settlement of Disputes (DSU). The DSU provides the primary legal means of
settling trade related conflicts in the WTO. Settlement of disputes is the responsibility of the
Dispute Settlement Body (composed of all Members of the WTO).

Typically, a dispute arises when a country adopts a trade policy measure or takes some action
that another member considers to be a violation of a WTO agreement. A dispute may also arise
if a member feels that, as a result of another country’s action, it has been denied WTO benefits to
which it is entitled. A third group of countries can also declare that they have an interest in the
case and, when that is the case, they enjoy some rights as Third Parties.

The DSB is more than a vehicle by which panels are established and reports adopted are
implemented, it also serves as a forum where matters of disputes are discussed. The DSB is, in
effect, a session of the General Council of the WTO: that is, all of the representatives of the
WTO member governments, usually at ambassadorial level, meeting together. It decides the
outcome of a trade dispute on the recommendation of a Dispute Panel and on a report from the
Appellate Body of WTO, which may have amended the Panel recommendation if a party chose
to appeal. Only the DSB can make these decisions: Panels and the Appellate Body are limited to
making recommendations.

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 Role of World Trade Organisation in Dispute Resolution

Functioning

The DSB meets “as often as necessary to carry out its functions,” normally monthly, but it may
also meet at special sessions at the request of a member. It is presided over by a chairman,
usually the head of one of the permanent missions to Geneva of one of its members.

The DSB uses a special decision procedure known as 'reverse consensus' or 'consensus against'
that makes it almost certain that the Panel recommendations in a dispute will be accepted. The
process requires that the recommendations of the Panel (as amended by the Appellate Body)
should be adopted "unless" there is a consensus of the members against adoption. This has never
happened, and because the nation 'winning' under the Panel's ruling would have to join this
reverse consensus, it is difficult to conceive of how it ever could. Since consensus requires
approval of the complaining party, those parties, not the DSB, normally will have the last word
on crucial topics.

Although much of the procedure resembles a court or tribunal, the preferred solution is for the
countries to settle the dispute by themselves. Before a country can request the formation of a
dispute settlement panel, it must consult with the other side for a minimum period of 60 days
after it first requests a formal consultation. Therefore, formal consultations invoked under the
specific provisions of the DSU are the first stage of the process. Even when the case has
progressed to other stages, consultation, negotiation and mediation remain an option for
resolving the issue.

Once it has decided on the case, i.e., whether the complaint had been shown to be right or wrong,
the DSB may direct the 'losing' Member to take action to bring its laws, regulations or policies
into conformity with the WTO Agreements. This is the only direction that emerges from a WTO
dispute. There is no concept of "punishment" or even restitution. The DSB will give the losing
party a "reasonable period of time" in which to restore the conformity of its laws etc. Any
country that wants to block a ruling has to persuade all other WTO members (including its
adversary in the case) to share its view.

If the losing party fails to restore the conformity of its laws within the "reasonable period of
time", the DSB may—on an exceptional basis—authorize a successful complainant to take
retaliatory measures to induce action on the part of the losing party. This is very rare. Almost all

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 Role of World Trade Organisation in Dispute Resolution

WTO members "voluntarily" implement DSB decisions in time. Of course, when a losing
country brings its laws etc. into conformity it may choose how to do so; indeed, it may not
necessarily make the changes that the winning party would prefer.

Appellate Body

The Appellate Body was established in 1995 under Article 17 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU). It is a standing body of seven persons
that hears appeals from reports issued by panels in disputes brought by WTO Members. The
Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel, and
Appellate Body Reports, once adopted by the Dispute Settlement Body (DSB), must be accepted
by the parties to the dispute. The Appellate Body has its seat in Geneva, Switzerland.

Appellate Body Members and Secretariat

The Appellate Body is composed of seven Members who are appointed by the DSB to serve for
four-year terms, with the possibility of being reappointed once. The Appellate Body membership
shall be broadly representative of membership in the WTO. The Appellate Body receives
administrative and legal support from the Appellate Body Secretariat.

Appeals are conducted according to the procedures established under the Understanding on
Rules and Procedures Governing the Settlement of Disputes (DSU) and the Working Procedures
for Appellate Review (Working Procedures). The Working Procedures are drawn up by the
Appellate Body in consultation with the Director-General of the WTO and the Chairman of the
Dispute Settlement Body (DSB). They have been amended six times since 1995(1).

Chapter 6: Dispute Settlement Mechanism and Developing Countries

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 Role of World Trade Organisation in Dispute Resolution

In the WTO dispute settlement is governed by the Dispute Settlement Understanding ("DSU"),
which is effectively an interpretation and elaboration of GATT Article XXIII. There are
essentially four phases in the WTO dispute settlement process: consultations, the panel process,
the appellate process and surveillance of implementation.

In WTO dispute settlement, private economic actors such as consumers, producers, importers
and exporters cannot bring complaints directly. Nor does the WTO by itself initiate legal cases
against its Members, even if their trade measures obviously violate multilateral trade law. In
WTO dispute settlement, complaints may exclusively be brought by (and against) governments.
Whether or not a government will make use of the system in order to tackle a trade issue that is
raised by a private economic actor is therefore a matter of national policy,

law, and procedure, Some countries have established norms for this decision process (such as the
United States with "Section 301" or the European Union with the "Trade Barriers Regulation").
In many countries, however, there is no publicly-known decision process.

The primary goal of dispute settlement is to ensure national compliance with multilateral trade
rules. Accordingly, the Dispute Settlement Body encourages Members to their make best
possible efforts to bring legislation into compliance with the panel ruling within a “reasonable
period of time” established by the parties to the dispute. If a Member does not comply with
rulings, the DSB can authorize the complainant to suspend commitments and concessions to the
violating Member. In general, complainants are encouraged to suspend concessions with respect
to the same sector as the subject of the dispute; however, if complainants find this ineffective or
impracticable, they may suspend concessions in other sectors of the same Agreement or even
under separate Agreements. The suspension of concessions or other obligations, if authorised,
normally takes the form of punitive tariffs on a defined value of the complainant's imports from
the defendant. Ecuador, for example, suspended its TRIPs commitments to the European Union
in retaliation against the EU’s non-compliance with panel rulings in the goods-based Banana
dispute.

India as complainant

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 Role of World Trade Organisation in Dispute Resolution

European Communities - Anti-Dumping Duties on Imports of Cotton-type Bed Linen from India7

India requested consultations with the EC in respect of Council Regulation (EC) No 2398/97 of
28 November 1997 on imports of cotton-type bed-linen from India. The measure at issue was the
definitive anti-dumping duties imposed by the European Communities, including the European
Communities' zeroing method used in calculating the dumping margin.

India contended that:

 the determination of standing, the initiation, the determination of dumping and injury as
well as the explanations of the EC authorities’ findings are inconsistent with WTO law. 

 the EC authorities’ establishment of the facts was not proper and that the EC’s evaluation
of facts was not unbiased and objective. 

 the EC has not taken into account the special situation of India as a developing country.

 there were violations of many Articles of the Anti-Dumping Agreement, and Articles I
and VI of the GATT 1994.

The panel constituted concluded that the EC did not act inconsistently with its obligations under
certain Articles, but found that there was inconsistency with certain other Articles. India
appealed the recommendations of the Panel and after many rounds of discussions and
consultations, the Appellate Body recommended that the DSB request the EC to bring its
measure into conformity with the Anti-Dumping Agreement. At its meeting on 24 April 2003,
the DSB adopted the Appellate Body Report and the Panel Report, as modified by the Appellate
Body Report.

India as respondent

7
DS 141

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 Role of World Trade Organisation in Dispute Resolution

The United States as complainant and India as respondent submitted a dispute to the Dispute
Settlement Body, of the WTO 8regarding violations of the TRIPS Agreement

On 2 July 1996, the US requested consultations with India concerning the alleged absence of
patent protection for pharmaceutical and agricultural chemical products in India. Violations of
the TRIPS Agreement Articles 27, 65 and 70 were also claimed. The Panel established by the
Dispute Settlement Body found that India has not complied with its obligations under
Article 70.8(a) or Article 63(1) and (2) of the TRIPS Agreement by failing to establish a
mechanism that adequately preserves novelty and priority in respect of applications for product
patents for pharmaceutical and agricultural chemical inventions, and was also not in compliance
with Article 70.9 of the TRIPS Agreement by failing to establish a system for the grant of
exclusive marketing rights. India appealed certain issues of law and legal interpretations
developed by the Panel. The Appellate Body upheld, with modifications, the Panel’s findings on
Articles 70.8 and 70.9, but ruled that Article 63(1) was not within the Panel’s terms of reference.
India enacted the relevant legislation and implemented the recommendations and rulings of the
DSB.

8
DS50, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products (Complaint by the United
States)

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 Role of World Trade Organisation in Dispute Resolution

Bibliography

 Joel P. Trachtman, “The Domain of WTO Dispute Resolution”, 40 Harv. Int'l L.J. 333
(1999)

 World Trade Organisation http://www.wto.org/index.htm

 Seema Sapra, “India in the WTO”, accessed at

http://indiainthewto.wordpress.com/category/wto-dispute-settlement/>

 Marc L. Busch and Eric Reinhardt, “Trade brief on the WTO Dispute Settlement”,
accessed at www.sida.se/publications

 S.K Kapoor, International Law and Human Rights, Central Law Agency, 14th edn.
(2008), pp. 318-320.

 Uruguay Round Agreement: Understanding on Rules and Procedures Governing the

Settlement of Disputes, accessed at <http://www.wto.org/english/docs_e/legal_e/28-
dsu_e.htm>

 David Palmeter and Petros C. Mavroidis, Dispute Settlement in the World Trade
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 Autar Krishen Koul, Guide to the WTO and GATT Economics, Law and Politics, Satyam
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 http://userwww.service.emory.edu/~erein/research/SIDA.pdf

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