Himachal Pradesh National Law University, Shimla.

ASSIGNMENT ON:
THE WTO DISPUTE SETTLEMENT MECHANISM: A WORLD’S COURT
FOR GLOBAL TRADE

IN COMPLIANCE TO THE TOPIC ASSIGNED, FOR SEMESTER VII

OF 2020, IN THE SUBJECT “INTERNATIONAL RIGHTS”

SUBMITTED TO FACULTY:
AAYUSH RAJ
FOR EVALUATION

SUBMITTED BY:
SHIVANI CHOUDHARY
B. A., LL.B. (Hons.)
ROLL NO- 1020171806

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 TABLE OF CONTENTS

I. ACKNOWLEDGEMENT....................................................................2

II. ABSTRACT.........................................................................................3

III. INTRODUCTION.............................................................................4

IV. BACKGROUND................................................................................5

V. MAJOR FUNCTIONS OF DSB.........................................................7

VI. DIFFERENT PROCEDURES OF ARBITRATION WITHIN

WTO..........................................................................................................8

VII. THE CRITIQUE OF DSM..............................................................9

VIII. CONCLUSION.............................................................................11

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 I. ACKNOWLEDGEMENT

I would like to acknowledge a heartfelt thanks to Mr. Aayush Raj,

Teaching Associate of Law to provide me this research paper. It

allowed me to study the topic in detail and also contributed

significantly to my legal research skills. I am thankful to him for

helping to take another step towards the transition of myself from

student advocate to advocate.

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 THE WTO DISPUTE SETTLEMENT MECHANISM: A WORLD’S COURT
FOR GLOBAL TRADE

II. ABSTRACT

There can be no denial to the fact the International Trade Law and Relation curated
unique relationship since the Trade Facilitation Agreement, 2013 which came into
force from February 2017, where after all the member countries of World Trade
Organisation are obliged to comply with its decisions, and orders. The said
Agreement also made mandatory on the developed countries to aid the least and still
developing countries, to update their infrastructure.

In the increasingly interdependent and dynamic world, WTO aims to be centripetal in

fostering and facilitating co-operation among its member nations. For this purpose
WTO added another feather to its cap by providing a forum called Dispute Resolution
Body for conflict resolution among various member-nations.

The paper would delve upon the functions of Dispute Resolution Body as a key
institution of WTO. The paper will provide an overview of the important functions of
the DSB as corollary of the dispute settlement system of WTO. The paper will also
reflect upon the impact of the transformation of policy of WTO on its dispute
settlement procedure. The paper will conclude perusal at the legacy and failures of
the Dispute Settlement task undertaken by the WTO.

III. INTRODUCTION

The World Trade Organistation (hereinafter WTO) is an international non

governmental body. It may be young institution, but it has a long history of evolution
in the General Agreement on Tariffs and Trade (hereinafter referred as GATT) and

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continues with many of the structures and decision making. The trade related dispute
among nations are governed at WTO by Understanding on Rules and Procedures
Governing the Settlement of Disputes (hereinafter DSU). With certain exceptions, the
DSU is applies uniformly to the dispute that arise among member nations of all WTO
agreements. Along with it, there are some specialized rules, particular to disputes,
which are penned in annexer to the Marrakesh Agreement, the agreement which lead
to the establishment of WTO. The WTO dispute settlement has gained significance,
dynamism, as successful international dispute settlement systems in the last two and a
half decade.

A dispute arises when a nation state believes that another nation state is violating an
agreement entered in at the WTO. In WTO parlance, a ‘trade dispute’ arises when one
country claims that another is violating a trade agreement or commitment. 1 These
disputes can include, imposition of tariffs or anti-dumping duties, and violation of
basic principles such as most-favoured-nation treatment. WTO primary object is that
all the Member nations respect the rules in the interests of a safer and more reliable
multilateral trade system.2

In this sense, WTO Members have agreed that, when they judge that other Members
have broken trade rules, they shall refer the matter to the dispute settlement
mechanism rather than adopting unilateral measures. This involves complying with
the agreed procedures and respecting the decisions reached by the dispute settlement
bodies set up for that purpose.

IV. BACKGROUND

The GATT 1947, the predecessor of WTO at the time of its inception did not have, in
literal sense, specific provisions for the settlement of disputes nor did it provide legal
policy as to what a breach is and when a breach would give rise to a dispute.
However, it did provide for dispute resolution and consultation among disputed
parties. As GATT 1947 was drafted on conventional terms, including a liberal use of

1
Aarshi Tirkey & Shiny Pradeep, The WTO Crisis: Exploring Interim Solutions for India’s Trade
Disputes, ORF Occasional Paper No. 274, September 2020, Observer Research Foundation.
2
This information comes from the official WTO website:https://www.wto.org.html. (last visited Dec.
18, 2020).

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prohibitory language, the remedy provisions are not drawn in terms of sanction. 3 The
organizing principles as a whole are a system of reciprocal rights and obligations to be
maintained in balance.

Article XXIII:2 of the GATT 1947 mentions that states which are in dispute will deal
with the dispute jointly.4 However, all that the article provided is a general outline on
how disputes are to be processed, with no formal procedures or detailed guidelines
being specified.5 Notwithstanding this, a standard practice to appoint a panel of
individuals to adjudicate the dispute and prepare a report of its findings had developed
over the years.6 However, as the adoption of the Panel reports required consensus of
the GATT Council, the defendant could easily block unfavourable decisions made
against them.7 Earlier the dispute settlement system was just a show and no bite
mechanism. And had been critically criticized for its failure to serve any meaningful
purpose.

Earlier, the respondent party can neither block the establishment of a panel nor avoid
the finality of the panel’s recommendations to withdraw or amend the measure
challenged in the dispute and found in breach of the respondent’s WTO obligations.
This is due to the “reverse consensus” by which the Dispute Settlement Body (DSB)
adopts panel and Appellate Body (AB) reports, thus rendering adoption in practice
automatic.

The evolution of mechanisms for the settlement of international trade disputes has
involved an incremental process of legalization and judicialization. 8 While dispute
settlement under the GATT originally involved only political and diplomatic
approaches, through a succession of agreements and procedural understandings it had
already become, by the end of the Uruguay Round, almost a completely rules-based
system that included delegation of authority to independent panels.9 The more
3
See generally, A.K. Koul, Settlement of Disputes in International Trade, I. N.C.L.J. (46-48).
4
General Agreement on Tariffs and Trade (1947) 55 UNTS 194.
5
William Davey, Dispute Settlement in GATT, (1987) 11 (1) Fordham Intl LJ 51, 57.
6
Id.
7
Bernhard Zangl, Judicialization Matters! A Comparison of Dispute Settlement Under GATT and the
WTO, (2008) 52 ISQ 825, 831.
8
Alan Wolff, Testimony before Senate Finance Committee on proposed WTO Dispute Settlement
Review Commission Act (18 Dec 2020), at <www.finance.senate.gov/imo/media/doc/Hrg104-
124.pdf>.
9
Robert Hudec, Comment on: Free trade, sovereignty, democracy: The future of the World Trade
Organization, (2002), World Trade Rev 211 at 220.

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‘judicial-like’ process of the DSS was aimed at restraining unilateral action, especially
by the US, and to compel state parties to adhere to the rule of law.10

Thereafter, post the Uruguay Round, DSS was formed. The DSS was created with the
object to improvising the preexisting dispute resolution system of GATT. Panel
reports are now automatically adopted unless rejected by consensus. 11 This provided
the ‘bite’ that was previously missing as losing parties can no longer block the
adoption of unfavourable Panel reports. Additionally, detailed procedures as to the
implementation of recommendations and rulings are laid out in the “DSU”.12 The
importance of the AB cannot be understated as it ensures predictability of outcomes
by addressing divergence in interpretations in the various Panel decisions. 13 It allowed
the DSS to gain credibility in the eyes of the stakeholder as a mechanism of law to
address conflicts.

V. MAJOR FUNCTIONS OF DSB

The WTO Agreement14 comprises agreements setting out a delicate and carefully
achieved balance of rights and obligations for WTO members in respect of a vast
array of measures affecting trade, such as tariffs, internal taxes, subsidies, sanitary and
phytosanitary measures, intellectual property rights, and services, to name but a few.

The following points show how the DSB is central in the process of dispute settlement
process. The WTO is a multifarious body. It has different functions at the various
stages of that process:

 The WTO functions can be broadly divided as: first, legislative; and second,
judicial. General Council, which is the supreme decision-making body at WTO

10
Supra note 7 at 848.
11
Understanding on the Rules and Procedures Governing the Settlement of Disputes (Dispute
Settlement Understanding) (1994) 1869 UNTS, art 16.
12
Dispute Settlement Understanding, art 21.
13
Bradly Condon, Captain America and the Tarnishing of the Crown: The Feud Between the WTO
Appellate Body and the USA, [2018] J World Trade 535, 537.
14
In WTO law, reference may be made either to the “WTO Agreement” or the “WTO agreements”.
The term “WTO Agreement” refers to the Marrakesh Agreement Establishing the World Trade
Organization and its annexes, 18 Dec 2020 5:12 pm available at:
https://doi.org/10.1017/CBO9781316048160.021

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 interim its Ministerial Conferences, meets as the DSB to discharge the
responsibilities enshrined in the DSU. The DSB includes representative from
each member states. It has a chairperson appointed every year through a
democratic process by the representatives themselves. The DSB is empowered to
make rules for procedure as it deem fit to achieve the object of WTO i.e
harmonizing trade, and fostering economic development.
 The DSB allows members of WTO to express their views and provide inputs and
their stand on legal interpretations and reasoning of panels and the reports
prepared by the Appellate Body from time to time.
 DSB also acts as a watchdog and monitors parties’ compliance with the rulings
and recommendations of DSB in response to legal findings in dispute settlement
reports. Any aspect from legal to legislative to procedural can be raised by the
members. The DSB thus enables members to maintain control over the dispute
settlement process.15
 DSB also have Special meetings which are convened at the request of a member
in order to meet a particular deadline, or dispute in the event that no regular
meeting is scheduled during that period of time.
 As a decision-making body, the DSB has the authority to establish dispute
settlement panels, adopt panel and Appellate Body reports and authorize
retaliation when a WTO member does not comply with a ruling.16

VI. DIFFERENT PROCEDURES OF ARBITRATION WITHIN WTO

The WTO provides for two kinds of the arbitration procedures namely, the arbitration
under Article 25 of DSU, and the arbitration under paragraph 6 of Article 22.

a) ARTICLE 25

Arbitration under Article 25 provides for consensual adjudication in a matter of

dispute, for instance, the level of nullification or impairment of benefits of a Member
by the legislation of another Member. Members may seek arbitration within the WTO
as an alternative means of dispute settlement “to facilitate the solution of certain

15
Bozena Mueller-Holyst, The WTO dispute settlement body: Procedural aspects of its operation,
2015, Cambridge University Press. Available at: https://doi.org/10.1017/CBO9781316048160.021,
16
Id.

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disputes that concern issues that are clearly defined by both parties.” 17 The said parties
must agree mutually to arbitration and the procedures that are to be followed. Also the
arbitration procedure and time must be informed to all members.

Third parties may become party to the arbitration “only upon the agreement of the
parties that have agreed to have recourse to arbitration.” 18 Post the WTO agreement,
the parties to the proceeding must agree to abide by the arbitration award. “Arbitration
awards shall be notified to the DSB and the Council or Committee of any relevant
agreement where any member may raise any point relating thereto.”19

b) ARTICLE 22 (6)

Another way provided for adjudication is when a party to the dispute fails to carry out
the rulings, recommendations of DSB. Thereby another party bring it to the DSB to
suspend concessions as retaliation. The other party can defend and put forth its
argument whether the amount of suspension is proportionate to nullification.

Such arbitration has to be completed within sixty days and concessions or other
obligations negotiated earlier cannot be suspended during the course of the above said
arbitration20.The award, thus pronounced, will be final, binding and the parties are
forbade from seeking another arbitration in the said dispute. The role of the arbitrator
is limited as he cannot examine the nature of the concessions or other obligations to
be suspended but is concerned only with examining whether the level of nullification
and impairment is equivalent to the level of injury incurred by the member.21

VII. THE CRITIQUE OF DSM

Though the DSM has evolved over time, has a very successful history. Yet it has been
critisiced time and agains by various academicians, member nations, etc. The
perception of WTO disptute settlement system is certainly not doom and gloom. For

17
Supra note 17, art 25.
18
Id.
19
Id.
20
DSU, Article 22.6.
21
Supra note 3, at 77-78.

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example, it is argued that the Cron jewel of WTO is promoting litigous culture, and
also it criticised of judicial overreach.

a) COMPLAINCE FALIURE

Though the DSU states that ‘[p]rompt compliance with recommendations or rulings
of the DSS is essential in order to ensure effective resolution of disputes to the benefit
of all Members’.22 Yet, timely compliance is only present in about 60% of all
disputes.23 Frequent offenders include the US, the European Union, Canada, Japan
and Australia, especially in cases involving one another. 24 The victim state often has
little power to change the status quo and can only suffer losses as the other state
employs delaying tactics.25

Therefore, an improvement in the enforcement and compliance of the DSS would not
only be in the favour of providing justice for all but would also impart greater
confidence in the eyes of all nation states (small, or big, weak or strong) and would
allow greater harmony and fair play in international trade.

b) JUDICIAL OVERREACH AND JUDICIAL ACTIVISM

As far as WTO is considered ‘Judicial overreach’ and ‘judicial activism’ are often
used in a derogatory manner,26 thereby giving the impression that it has failed to
perform its duty as a proper adjudicative body. When the courts are perceived to have
embarked on judicial activism, their legitimacy is eroded.27

Judicial overreach undermines basic premises of establishment of the WTO

agreement including national sovereignty and democratic legitimacy. The issue is that
a number of member nations argue that the DSS consists of “activist judges”. The said
22
Dispute Settlement Understanding, Art. 21.
23
Pavan Krishnamurthy, To Enforce or Manage: An Analysis of WTO Compliance, (2018) 32 (3)
Emory Intl L Rev 377, 391. See also William Davey, ‘Compliance Problems in WTO Dispute
Settlement’ (2009) 42 (1) Cornell Intl L J 119, 121.
24
Id.
25
Arie Reich, The effectiveness of the WTO dispute settlement system: A statistical analysis, (2017) 11
European University Institute Working Papers 1, 16.
26
Maartje de Visser, A Cautionary Tale: Some Insights Regarding Judicial Activism from the National
Experience, Mark Dawson et al (eds) Judicial Activism at the European Court of Justice (Edward Elgar
2013) 188.
27
Id.

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activist judges attempt to impose their interpretation of the provisions of the DSU
without paying any heed to the arbitration, and negotiating history.’

In 2016, it was argued that DSS has its chairs dolled up with judicial activism 28. It
alleged that the AB has stepped out of his shoes of adjudicative role and encroached
into the territory of law-making.The US argued that in the Argentina — Financial
Services case29, more than two-thirds of the AB's report was obiter dicta, interpreting
provisions that were not necessary to resolve the dispute. 30 Also, In the US —
Countervailing Measures (China) case31, US put forth that the AB did not base its
reversal of the Panel report on parties’ submissions, but on its own arguments.32

Though many nation have also defended WTO. However the fact that the SDD is
being percieved as overreaching, it might have an unhealthy impact on its legitimacy.
To held its head high, WTO must make sincere efforts to engage members in open-
minded conversations, which will aid in building a trust and would deepen mutual
trust. Trust and collaboration are needed more now than ever if we are to defy trade
protectionism and advance our common goal of free and open, rules-based trade.33

VIII. CONCLUSION

These are turbulent times for international trade cooperation. Ongoing structural
transformation of the global economy and political upheaval in a number of countries
have unsettled multilateral approaches to cooperation that have largely worked well
for the past 70 years. It is not surprising that binding dispute settlement is caught in
the fray, given its essential role in preserving the security and predictability of the
rules-based trading system. Indeed, while the major innovations codified in the DSU
have contributed to the success of the system, they also changed its nature in ways
that have had unintended consequences that may have contributed to global discontent

28
Bradly Condon, ‘Captain America and the Tarnishing of the Crown: The Feud Between the WTO
Appellate Body and the USA’ [2018] J World Trade 535, 537.
29
Appellate Body Report, Argentina - Measures Relating to Trade in Goods and Services,
WT/DS453/AB/R and Add.1, adopted 9 May 2016, DSR 2016:II at 431.
30
Id.
31
Appellate Body Report, United States - Countervailing Duty Measures on Certain Products from
China, WT/DS437/AB/R, adopted 16 January 2015, DSR 2015:1 at 7.
32
Id.
33
Junichi Ihara, WTO Dispute Settlement Body — Developments (2017), (last visited: (19 December,
2020, 5:55 pm) available at: https://www.wto.org/english/tratop_e/dispu_e/ihara_17_e.html.

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