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Role of the World Trade Organization (WTO) in the International Trade: focusing
on Harmonization of Covered Agreements and Effectiveness of Dispute
Settlement Mechanism of WTO

Article · February 2017

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 Role of the World Trade Organization (WTO) in the
International Trade: focusing on Harmonization of Covered
Agreements and Effectiveness of Dispute Settlement
Mechanism of the WTO

Ms. Ajra Azhar, LL.B (Hons), Attorney-at-Law

 Ms. Ajra Azhar, LL.B (Hons), Attorney-at-Law

Role of the WTO in regulating international trade, focusing on; the relevance of the covered
agreements and the dispute settlement mechanism of the WTO

ABSTRACT

The International trade has been dramatically transformed with the creation of the World Trade
Organization (WTO). Though international trade continues to be conducted essentially by private
parties, no attempt at harmonization has neared the success of the WTO. This paper critique the role
of the WTO in regulating international trade, focusing the relevance of the covered agreements
of the WTO in the effort at harmonization. and the dispute settlement mechanism of the WTO.
This paper provides a brief outline of the role of the World Trade Organization (WTO). It then builds the
paper by focusing into two phases; firstly, the relevance of the covered agreements of the WTO in the
effort at harmonization; secondly, the Dispute Settlement Mechanism (DSM) of the WTO and finally,
the paper will address the problem of the Appellate Body’s inability to remand the case to the original
panel for reconsideration and determination of relevant facts.

Introduction

The WTO is the only international organization that deals with the global rules of trade between nations.
It is built under the umbrella of WTO agreements which are often called as WTO’s trade rules. However,
it has become a driving force behind the institution of globalization and has had both positive and
potentially adverse effects on the world. The WTO's efforts have positively increased trade expansion
globally, but as a side effect, it has negatively impacted local communities and human rights also
undermines the principles of organic democracy and further increases the international wealth gap.
Firstly, the paper discusses the relevance of the covered agreements of the WTO in the effort at
harmonization, which analyzes the traditional non-harmonizing and the gradual assumption of the
harmonization role of GATT; the final outcome, the GATS, is not optimal but is an important first step
towards the liberalization of trade in services towards TRIPS, which is part of a trend of harmonization
but in contrary impede development of developing countries. Secondly, the Dispute Settlement

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 Ms. Ajra Azhar, LL.B (Hons), Attorney-at-Law

Role of the WTO in regulating international trade, focusing on; the relevance of the covered
agreements and the dispute settlement mechanism of the WTO

Mechanism (DSM) of the WTO, while it reflects its success it is far from perfect. Further, paper emphasis
on questions of effectiveness of DSM as; is it used equally by developed, developing and least developed
countries? What is the extent of compliance with binding recommendations of Dispute Settlement Body
(DSB)? How long do WTO dispute settlement procedures (DSP) take?

The WTO’s covered agreements in the effort at harmonization

The WTO’s covered agreements1 for the two largest areas - goods and services are covered by General
Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS).
The third area, Trade-Related Aspects of Intellectual Property Rights (TRIPS) is a solid consensus which
governs the entire Intellectual Property Regime (IPR).

The issue of divergent national standards and rules, and the prospect of harmonizing them in connection with
the world’s international trade regime, appear to have become a central motif of the WTO. Let’s discuss as
to what extent such dominant purpose had been attained throughout the covered agreements of the WTO.

Firstly, the GATT serves and lives as the foundation of the WTO, does not list harmonization of the national
laws of its signatories as one of its objectives2. This point is simply illustrated by the WTO, DSB in its first
case of – US– Standards for Reformulated and Conventional Gasoline3. In fact, the traditional policy and
mandate of the multilateral trade regime was to contribute to “the substantial reduction of tariffs and other
barriers to trade and to the elimination of discriminatory treatment in international commerce.”4

Gradually the GATT regime has transformed into a system which considered the harmonization of domestic
policies, as not a sharp shift that happened overnight, but rather a gradual evolutionary process. At first, the
harmonization of certain rules and procedures was simply a by-product of the need to eliminate

1
Appendix 1 of WTO Agreement, https://www.wto.org/english/tratope/dispute/dsue.htm#appendix1, cited on 20th
Jan 2018
2
F. Roessler, “Diverging Domestic Policies” Vol. 2: Legal Analysis (MIT Press, 1996) 21
3
WT/DS2/R (Panel Report); http://www.wto.org/english/tratop_e/dispu_e/distab_e.htm
4 rd
3 Preamble to the GATT

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 Ms. Ajra Azhar, LL.B (Hons), Attorney-at-Law

Role of the WTO in regulating international trade, focusing on; the relevance of the covered
agreements and the dispute settlement mechanism of the WTO

straightforward trade barriers. Gradually, however, the harmonizing measures were deliberately expanded
so as to affect pure domestic policies and rules. Anti-dumping and countervailing duties,5 custom
administration6 and the Agreement on Government Procurement7 were some of the examples which
expressly mention harmonization as one of its objectives.

Finally, we could perceive that how the GATT regime has evolved from a non-interventionist approach,
utilizing traditional trade-law doctrines of Most Favored Nation (MFN)8 and National Treatment (NT),9 to
an approach clearly promoting harmonization.

Secondly, to regulate the trade in services the emergence of the GATS,10 certainly characterized by a
complex structure and awkward drafting here and there, is not optimal but is an important first step towards
the liberalization of trade in services. It applies in principle to all service sectors, with two exceptions11.
Article XXI allows members to withdraw commitments where Bolivia withdrawn its health service in 2008.
Also, it distinguishes between four modes12 of supplying services: cross-border trade, consumption abroad,
commercial presence, and presence of natural persons.

Further, GATS provide a facility for harmonization via its Article VI (4) but does not require it. Moreover
because of the weak negative integration under Article VI (5) there are fewer incentives for harmonization
under the GATS.

Thirdly, we now come to the instrument which probably more than any other epitomizes this development
– the TRIPs13. Its subject matter is not international trade measures, but rather domestic laws and policies,
most of which apply equally to both domestic and foreign players14. Those policies in the field of IP must,

5
Article VI, GATT
6
Article VII, GATT
7
Uruguay Round AGP, signed in Marrakech on 15 April 1994
8
Article I, GATT
9
Article III, GATT
10
https://www.wto.org/english/tratop_e/serv_e/gatsqa_e.htm, cited on 21st Jan 2018 at 7.00am
11
Article I (3), GATS
12
Article II, GATS
13
TRIPS, Annex 1C, Final Act of Uruguay Round
14
Few exceptions, i.e. Article 31- compulsory licensing, the NT and MFN Treatments Art 3 & 4

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 Ms. Ajra Azhar, LL.B (Hons), Attorney-at-Law

Role of the WTO in regulating international trade, focusing on; the relevance of the covered
agreements and the dispute settlement mechanism of the WTO

under the TRIPs, comply with certain minimum standards of legal protection15. Those “minimum”
standards16 are in fact more than minimal, and tend to reflect the level of IP protection prevailing in the
industrialized countries (but not in many developing countries) and mandated by leading international
treaties17.

The effects of the TRIPs depend on empirical questions. Can TRIPs in fact oblige developing countries (DC)
to "harmonize" their IP laws with those of developed countries?18 Will the Agreement achieve its primary
goal by urging DC to adopt IP regimes comparable to those in developed countries?19 Conversely, how much
flexibility does the legalistic framework of TRIPs20 offer DC, not only in theory but also in practice?

To date, in accordance with the above questions, the academic conversation about the harmonizing power
of TRIPs has been largely theoretical, based on predicted effects and the formal flexibilities available under
the Agreement21. Likely, inclusion of TRIPs into the covered agreements of the WTO was bitterly contested
by many developing nations.

In this respect, as a conclusion of the first phase, I posit that, the WTO Agreement has many improvements,
if compared with the old GATT. Firstly, it includes new important regulations on services22 and IP rights,
which weren’t included in the GATT. Next the TRIPs23 Agreement is, in fact a comprehensive world-wide
harmonization of the basic standards of IP protection. So, the harmonization has already become part and
parcel of the existing WTO regime. But even more it seems to have become central plea surrounding the
WTO’S future agenda24.

15
Articles 2, 9, 10, 35, TRIPs
16
Article 72, TRIPs
17
Preamble of Berne Convention, objective to achieve as much uniformity in the protection of IP
18
Sidney A. Shapiro, International Trade Agreements, 54 Admin. 435, (2002)
19
John F. Duffy, Harmony and Diversity in Global Patent Law, 17 Berkeley Tech, 695-96 (2002)
20
Article 65 and 66, TRIPs
21
Carolyn Deere, The Implementation Game, The Trips Agreement And The Global Politics Of IP Reform In Developing
Countries 21 (2009)
22
GATS, Annex A1B Final Act of Uruguay Round
23
Supra note 12
24
Initiatives already proposed for the Doha Development Agenda

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 Ms. Ajra Azhar, LL.B (Hons), Attorney-at-Law

Role of the WTO in regulating international trade, focusing on; the relevance of the covered
agreements and the dispute settlement mechanism of the WTO

The dispute settlement mechanism of the WTO

The DSM of the WTO is considered as the “Jewel in the Crown” of the WTO. To ensure the implementation
of the WTO obligations, it is necessary an “enforcement power” to impose them whenever a member fails
to comply with its content. To deal with such problem the DSB25 was created under the DSU26.

One of the biggest improvements of the current system is gaining more celerity for the solutions. Also, the
procedures are more automatic, faster and less subject to interruption than the old GATT model. It operates
as the DSM for all covered agreements,27 is the key feature of it.

The procedure of the system is divided into two phases; the first consists on consultations between both
parties28, and latter comprise the establishment of panel29. However, entire process must only take 9
months30. Then the member of the WTO must inform its intention to implement the panel report 31. Finally,
if the negotiating process of agreement on compensation fails, complainant could request the DSB to grant
authority for the suspension of concessions32. Further, Article 23(1) and 6(1) has the exclusive power in
respect of the compulsory jurisdiction of the DSU, as decided in the case of, US-Section 301 Trade Act.

Though the DSM is exclusive in jurisdiction, emphasis on questions of effectiveness of it is important in this
respect. Firstly; is the DSM used equally by developed, developing and least developed countries (LDC)?

“It should be noted that although developed countries constitute less than 25% of all WTO member states
(161), they account for more than 50% of all Requests for Consultations, Panel Reports, and of all Appellate
Body (AB) Reports. In contrast, Developing countries, which constitute about 53% of all WTO member

25
Article IV(3), WTO Agreement
26
WTO Agreement, Annex 2
27
Article 2(1), DSU
28
Article 4(1), DSU
29
Article 4(7), DSU
30
Article 20, DSU
31
Article 21(3), DSU
32
Article 22, DSU

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 Ms. Ajra Azhar, LL.B (Hons), Attorney-at-Law

Role of the WTO in regulating international trade, focusing on; the relevance of the covered
agreements and the dispute settlement mechanism of the WTO

states, account for less than 40% and the greatest disproportion we find in relation to LDCs, is although
they constitute about 22% of all WTO member states, they account for only about 0.17%33.

Reason for the above identification is, except for the developed countries, most WTO members do not have
enough in-house expertise in order to file a complaint and to litigate it before a WTO panel, the AB, and
implementation arbitrator. They therefore need to hire outside legal counsel, which can be quite expensive.

Secondly; what is the extent of compliance with binding recommendations of DSB? Suspension requests are
the “last station” on the long winding road of the WTO DSP and they represent the targeted member state’s
unwillingness to submit to the system and to respect its international obligations. Suspensions of concessions
are not the goal of any complainant, but merely a last means to induce the other party to maintain the trade
liberalization.

The diplomacy of the 1947 GATT was “power oriented”, the post-Marrakesh WTO is “rule oriented”34. It
would seem, however, that some of the powerful member states are not so keen on abandoning the use of
their power even within what is supposed to be a rule-oriented DSM35.

The above discussion could be understood through this case law. In the case of Brazil v. Ecuador,36
Ecuador’s right to retaliate was a pyrrhic victory due the dependence of the products which will heighten the
economic crisis and also the Ecuador is not a large market of respondents’ products. So, retaliation is in
practice not useful to the developing nations, who aren’t significant export markets as well who are highly
depend on trading for essential goods.

Thirdly; how long does the WTO DSP take? An important component of a DSM’s effectiveness is the time
that it takes for it to resolve a dispute. “Justice delayed is justice denied”, is a well-known legal maxim.

33
Arie Reich, The Effectiveness of The WTO Dispute Settlement System: A Statistical Analysis, EUI Working Paper LAW
2017/11
34
John H. Jackson, “The DSU – Misunderstandings on the Nature of Legal Obligation”, 90(1) American Journal 60 (1997)
35
Marcia Don Harpaz, “Sense and Sensibilities of China and WTO Dispute Settlement”, 44 Journal of World Trade, pp.
1155 (2016)
36
Bananas Case, DS27

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 Ms. Ajra Azhar, LL.B (Hons), Attorney-at-Law

Role of the WTO in regulating international trade, focusing on; the relevance of the covered
agreements and the dispute settlement mechanism of the WTO

Although the drafters of DSU set out a tight timetable for each of the stages in the process of the system, is
not actually followed in the practical sense. Since 2011, the situation is continuing to deteriorate and delays
are getting worse37. Objective of ‘prompt-settlement’ of disputes are getting worse. To receive a clear figure
in this respect, refer the statistical analysis of the working paper38.

Finally; One of the procedural flaws of the WTO DSM is that the AB lacks the authority to remand a case
to the original panel, in order to make the factual findings required to complete the legal analysis. DSU
Article 17(6) provides that an appeal “shall be limited to issues of law covered in the panel report and legal
interpretations developed by the panel.” The job of a panel, on the other hand, is to “make an objective
assessment of the matter before it, including an objective assessment of the facts of the case”39. Because of
this lack of authority, in many cases the WTO dispute settlement system is unable to deliver a final resolution
of the dispute.

As a conclusion I here provide that, the DSU needs to be amended so as to grant the AB the power to remand
cases back to the panel, where it reaches the conclusion that it is unable to complete the analysis; DSU needs
to be amended so as to exercise pressure on super-power (developed countries) to compensate the
developing countries, paying heed to the relative economic weaknesses of the developing nations.

37
DS468 took 628 days from request to adoption
38
Supra note 33
39
Article 11, DSU

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