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Dispute Settlement System at the World Trade Organisation

Dispute Settlement System at the World Trade Organisation

An increasing number of developing countries look to the World Trade Organisation to settle their trade disputes. Is this system adequately geared to look after the interests of developing countries?

COMMENTARY

Dispute Settlement System at Mechanism (DSM), 137 (38 per cent of all complaints) of them resulted in panel es
the World Trade Organisation tablishment. 102 (28 per cent) appellate body (AB) and panel reports have been
adopted by the Dispute Settlement Board
(DSB) in this period. There have been 58
Atul Kaushik mutually agreed to solutions and there are

An increasing number of developing countries look to the World Trade Organisation to settle their trade disputes. Is this system adequately geared to look after the interests of developing countries?

Atul Kaushik (atulkaushik@yahoo.com) now in the ministry of petroleum and natural gas, government of India, was earlier in the Permanent Mission of India to the World Trade Organisation in Geneva. The views in the article are personal.

D
ecision-making processes, enforcement procedures and compliance of decisions in disputes among member nations in international intergovernmental organisations are often inordinately slow and painful. However, the World Trade Organisation (WTO) is an exception.

The General Agreement on Tariffs and Trade (GATT) being a member-driven intergovernmental body that took decisions based on consensus, panel reports containing recommendations to resolve disputes were often not adopted. While the member-driven nature of the world trade body was kept intact in the formation of the WTO in 1994, two major changes were agreed to in the WTO with respect to dispute settlement: one, all reports were to be automatically adopted except where all members agreed not to adopt it; and two, an almost automatic system of retaliation against a non-complying member was installed. As a result, all reports have been adopted since the creation of the WTO (except one where it was never put up for adoption for a peculiar and not to be repeated reason), and compliance of the recommendations contained in such reports has increased substantially. Thus, was born the “WTO with teeth”.

Cases initiated by developing countries doubled in the second five years compared to the first five years of the life of WTO. One may conclude that developing countries have acquired the legal capacity to work the system to their advantage. A closer look at the statistics of participation of developing countries in the dispute settlement mechanism, however, shows that much is still left to be desired.

Participation in WTO Disputes

Since the inception of the WTO on January 1, 1995 up to April 23, 2007 (data available in the WTO document WT/DS/OV/30 dated April 25, 2007) 363 complaints were brought to the Dispute Settlement 25 active panels as on April 23, 2007. Compared with a total of 101 cases in the entire life of GATT, the WTO DSM has been much more active.

Keeping aside the six complaints which were initiated by a combined group of developed and developing countries, 197 (59 per cent of the total complaints) were initiated by developed countries, 121 (61 per cent) of which were against another developed country. 132 (39 per cent) complaints were initiated by developing countries, 69 (52 per cent) of which were against a developed country. Only one complaint was initiated by a least developed country (LDC). Complaints initiated by developing countries constituted 36, 65, 28, 47, 21, 53, 76, 77, 84, 67 and 59 per cent respectively of the total complaints in each of the 11 years from 1995 to 2005. This trend may be perceived to indicate that developing countries have become major users of the DSM. However, only 29 developing countries have ever brought a complaint to the DSB. Thus, the use of the DSM is not widespread amongst developing countries. The top three developed country users have been the US (81 complaints), EC (70) and Canada (26), while amongst developing countries they are Brazil (22), India (16) and Mexico (15). Thus, developing countries’ frequency of use is also not anywhere near the frequency of use by developed countries.

Sixty-five developing countries have participated in the DSM in some capacity: 35 as participants and 30 as third participants only. Participation of developing countries in the DSM has increased over time. They initiated 41 cases in the fiveyear period up to 1999 but 89 cases in the six years from 2000 to 2005. Statistics also indicate that perhaps a plateau has been reached in the use of DSM by developing countries. Since January 1, 2000, only six developing countries have initiated a first dispute, and of them two (China and Chinese Taipei) are new members. So, of the 29 developed country users, 23 were

January 12, 2008 Economic & Political Weekly

COMMENTARY

users in the first five years itself. Thus, it can be argued that the DSM is not becoming any more inclusive.

There could be various reasons for developing countries not having used the DSM optimally for their benefit: (1) many developing countries have not had a reason to use the system; (2) they may not be aware of how the use of the system can benefit them; (3) they do not have the capacity to use the system; or (4) they have chosen not to use the system because of the possible negative consequences of its use such as adverse effects on bilateral relations or international aid, etc.

Using the System

Let us now take the case of developing countries that do use the system, and determine whether they behave any differently than developed countries. First, statistics show that while 72 per cent of the cases initiated by developed countries result in appeals as well, only 24 per cent of the cases initiated by developing countries are appealed. Second, developing countries are more likely to settle a case midstream than a developed country [Brown and Hoekman 2005]. This may indicate that developing countries are more likely to settle disputes than developed countries. Conversely, developing countries are more likely to accept panel rulings and less likely to escalate disputes. This could be for political reasons or because of limited resources. This would be more worrisome due to an ill prepared case in the beginning.

Developing countries have a perception that the special and differential treatment (S&DT) provisions of the Dispute Settlement Understanding (DSU) have not benefited them much. Article 12.10 allows time extensions to them, and only one case of a request for an extension by 10 days for submitting a written submission (India in the quota restrictions case) is recorded as a request under this provision. Article 12.11 requires an explicit indication of the form in which account was taken of the S&DT of developing countries. Of the five cases in which it was invoked (Mexico – taxes on soft drinks, US – Byrd, US – safeguards, Brazil – aircraft and India – quota restrictions), it was actually interpreted and applied only in the Indiaquota restrictions case as the subject matter itself (Article XVIII, GATT) was a S&DT provision. Article 21.2 requires that particular attention be paid to matters affecting developing countries in surveillance and monitoring compliance. Ten of the 13 invocations of this provision are related to arbitration proceedings regarding reasonable period of time, and no specific additional time was added by the arbitrator in any case on this account. Lastly, Article 24.1 requires that particular consideration be given to the special situation of LDCs. It was invoked by Benin and Chad but was not accepted by the panel as they were third parties. Thus, S&DT provisions in the DSU are virtually dead letter. Of course, developed countries and some experts state that the DSU should not have any S&DT provisions, which should be limited to substantive agreements under the WTO. They argue that while special consideration could be negotiated in favour of developing countries in terms of rights and obligations in the WTO, once there is a dispute, the law and procedures should apply equally to all members.

The Advisory Centre on WTO Law (ACWL) is a law firm set up with the help of the WTO for the benefit of developing countries. ACWL provides free legal advice, and acts as the lawyer for the developing countries at a concessional fee. India, Thailand, Ecuador, Guatemala and Indonesia have used the ACWL more than once for dispute settlements, another 10 have used it once, and an LDC has also used it. Apart from use in dispute settlement, developing countries, LDCs and groups of such countries have used the services of

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Economic & Political Weekly January 12, 2008

COMMENTARY

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Developing countries perceive the DSM as an onerous and costly proposition for settling trade disputes [Shaffer et al 2003]. If we go by the proposals made in the ongoing DSU review by developing countries, access to the DSM is an issue with them. They have asked for: (a) a limit on the cases against developing countries each year (China says not more than two per year);

  • (b) need to reimburse the costs of litigation to developing countries, at least in case of a “win” (proposal from like- minded group of countries); (c) increased reasonable period of time to developing countries; and
  • (d) automatic cross retaliation in any sector by developing countries, etc.2
  • As regards the last mentioned proposal in DSU reforms, it may be mentioned that developing countries are not normally able to retaliate, even if they obtain an authorisation from the DSB. Ecuador obtained a right to retaliate in the EC – Bananas case but never exercised that right. Brazil obtained such a right in the Canada – aircraft case with the same result (though there was a cross case in this matter, where Canada also did not retaliate). Similarly, India, South Korea, Chile and Brazil did not retaliate in the US – Byrd case after having obtained the authorisation (only Mexico retaliated). A typical case of difficulties in retaliating is the EC – Ecuador bananas case. Ecuador could not retaliate as retaliation would have been very cumbersome, even though it was allowed to cross retaliate in the copyright sector, as the monitoring of “level” of retaliation would have been difficult. The way the US-gambling case plays out would add further experience on the exercise of the right to retaliate by a small developing country against a major trading partner.

    Status of Compliance

    Of a total of 363 complaints3 initiated in the WTO DSM up to April 23, 2007, 137 (38 per cent) were initiated by developing countries. Of these 137 complaints,4 80 (58 per cent) were against developed country measures and 57 (42 per cent) against deve loping country measures. Of these 137 complaints, in 445 (32 per cent) cases panel/AB reports have been adopted by the DSB. 32 (73 per cent) of these adoptions have been in complaints against developed country measures and 12 (27 per cent) in complaints against developing country measures.

    It is not easy to determine whether there has been full and satisfactory compliance in each completed dispute in the WTO. Lack of compliance comes to the knowledge of the WTO members other than the disputants only where they seek a compliance panel, and further to adoption of the compliance of the compliance panel/ AB reports by the DSB, the complaining party seeks authorisation to retaliate. Thus, the only sure shot way of determining that there has been no compliance is to identify whether there has been arbitration under article 22 of the DSU or under article 7.9 of the Subsidies and Countervailing Measures Agreement (SCMA).

    In the history of the WTO DSM, only 16 cases were subject to the compliance and remedy regime under 22.6 (and none under article 7.9 of the SCMA). These include the two Bananas cases (by the US and Ecuador against the EC), the two Hormones cases (by Canada and the US against the EC), two aircraft cases (cross cases between Brazil and Canada), 8 Byrd cases against the US (there were 11 complainants6, three7 did not seek authorisation to retaliate; of the 88 that sought and obtained retaliation rights, five9 were developing countries).

    Thus, as on date, retaliation rights have been obtained by developing countries in seven cases, and actually used only in one case.

    India’s Participation

    India has participated in the DSM 17 times as complainant, 19 times as respondent, and more than 25 times as a third party. Of the cases as complainant, India won seven, did not pursue another six, obtained mutually agreed solutions (MASs) in two, lost one and one case is ongoing. As defendant, out of 19 India lost five cases, got MASs in six cases, one case is suspended and one ongoing, while the rest have not been pursued by the complainants. India is one of the largest users of the DSM, and has certainly benefited from its security and predictability.

    While India has been using external (international) law firms to help settle its disputes from the time it began its participation, the last two disputes – one

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    January 12, 2008 Economic & Political Weekly

    COMMENTARY

    as a complainant and another as a defendant – have been fought with the help of Indian lawyers. Many developed countries, particularly the US, EC and Canada have their own government lawyers to fight such cases. They have a well established legal division in their trade departments. India does not have that institutional mechanism. The ministry of law and the legal and treaties division of the ministry of external affairs are available to the commerce and industry ministry but they employ external lawyers in addition, perhaps due to the lack of experience of government lawyers in international trade law. The importance given by India to dispute settlement in the WTO can be gauged from the fact that even attorney general level lawyers have been fielded by India in the panel or appellate body proceedings in Geneva.

    India has participated in many trade remedy related disputes as a third party. Such participation, apart from enabling the consideration of India’s views on the legal claims in the dispute, would have provided insight into procedures adopted by the panel and appellate body in different types of cases and make available submissions of the parties which may contain valuable data about their domestic trade regimes.

    Lacunae

    Although there have been a number of suggestions for clarifications or improvements in the DSM in the ongoing DSU review, two sets of proposals stand out as lacunae needing urgent action.

    The first is the so-called “sequencing” issue. Article 21.5 provides for setting up a compliance panel in case of a disagreement between the parties as regards compliance by the responding party but does not specify the time when action to set up the compliance panel will be triggered. Article 22.2, on the other hand, provides that if no satisfactory compensation has been agreed to between the parties within 20 days after the expiry of the reasonable period of time (RPT) given to the responding party to comply, the complaining party may request authorisation to retaliate. Thus, situations may arise where a compliance panel has not been sought within 20 days of expiry of the RPT

    Economic & Political Weekly January 12, 2008

    (or has been sought after the 20 days) while the complaining party is obliged to request authorisation to retaliate in order to preserve its right to retaliate. In short, the sequencing between the establishment of a compliance panel to adjudicate upon the disagreement between the parties and the kicking in of the right to retaliate is absent in the rules. Various proposals, chiefly from the EC/Japan, Korea and a group of six countries (Argentina, Brazil, Canada, India, New Zealand and Norway) are being discussed. In practice, the lacuna is being overcome by the two parties entering into an agreement on the sequencing of these two steps.10 However, the potential of this lacuna creating a problem in dispute settlement remains until this practice (or a negotiated variation of it) is incorporated into the DSU by amendment.

    The second lacuna is the lack of remand procedures in the DSM. The panel establishes the facts as well as makes legal findings, while the AB only considers issues of law and legal interpretation. Thus, if there is a change in the legal interpretation at the AB stage that requires fresh facts to be established in order to make a finding necessary to resolve a dispute, AB cannot establish those facts or remand the case to the panel, unlike in most domestic jurisdictions. The panels (duly endorsed by the AB, it would appear from jurisprudence) as well as the AB frequently use judicial economy, resulting in absence of any findings on many claims, which exacerbates this problem. Proposals from the group of six countries referred to in the context of sequencing proposals, as well as South Korea have made proposals in this regard in the ongoing negotiations.

    Conclusion

    Developing countries have increasingly started using the WTO dispute settlement system to wrest their market access rights from recalcitrant trading partners. Although there may be a lack of institutional infrastructure, and perhaps capacity, to make the best use of the system, availability of legal advice from ACWL and domestic lawyers is increasingly adding comfort to the decision-makers in developing country governments in taking disputes to the WTO. There is now a need for research on actual market access wrested open by developing countries through their legal forays, and whether the assumption that smaller countries are intimidated by the clout of the larger, more powerful countries in taking disputes against them or insisting on enforcement of dispute decisions is correct or not.

    Notes

    1 See www.acwl.ch 2 Culled out of various proposals in the WTO DSU negotiations in the series TN/DS/W/… series of documents on WTO’s website www.wto.org 3 Each dispute settlement (DS) number is counted as a complaint. 4 In the case of multiple complainants, whether the other complainants are developed or developing countries, so long as a developing country is a cocomplainant, the complaint is counted in the total as one. 5 Multiple complaints by developing countries under the same DS number are counted as one. For example, while there were four complainants in the US – shrimp case, it has been counted as one. Similarly, of the five complainants in the EC – bananas case, four are developing countries but the complaint has been counted as one. If the total number of developing countries involved in a dispute against developed countries is to be considered, then this number will go up to 55, as there are three cases in which there are multiple developing country complainants acting under the same DS number (US – Byrd, EC – bananas and US – shrimp). Conversely, if there are different developing country complainants initiating a dispute on the same subject matter against the same developed country, and therefore under different DS numbers, they are counted separately. For example, in the EC – sugar case, two of the three complainants were developing countries, acting under separate DS numbers, so they are counted as two disputes even though a common panel/AB report was circulated. 6 Australia, Brazil, Canada, Chile, the EC, India,

    Indonesia, Japan, Korea, Mexico and Thailand. 7 Australia, Indonesia, Thailand. 8 Only Canada, the EC, Japan and Mexico actually

    retaliated. 9 Brazil, Chile, India, Korea, Mexico.

    10 For example, see the sequencing agreement between Argentina and the US in the Office of Trades Growth and Competitiveness (Organisation of American States) case in WT/DS268/14 dated January 5, 2006.

    References

    Brown, C P and B M Hoekman (2005): ‘WTO Dispute Settlement and Missing Developing Country Cases: Engaging the Private Sector’, Journal of International Economic Law, Vol 8, No 4, pp 861-90.

    Shaffer, G, V Mosoti et al (2003): ‘Towards a Development-Supportive Dispute Settlement System in the WTO’ ICTSD, Geneva, available at www.ictsd.org

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