THE WTO DISPUTE SETTLEMENT MECHANISM IS MORE HYPE
THAN ACTUAL SUBSTANCE?
BY
CHRISTOPHER WING TO1a
&
MANSOOR ALAM1b
1a
Christopher Wing TO, BEng (Hons), LLB (Hons), MA, LLM, FCIArb, FHKIArb, FSIArb, FIEE,
FHKIoD, RPE, CEng, MHKIE, MHKCS, ARAes. Christopher Wing To is currently the Secretary
General of the Hong Kong International Arbitration Centre. He is a Fellow of the Chartered Institute of
Arbitrators and a Fellow of The Hong Kong Institute of Arbitrators. He is a Council Member of the
Hong Kong International Arbitration Centre, a Committee Member of the Hong Kong Mediation
Council, a Committee Member of the Chartered Institute of Arbitrators – East Asia Branch and
Chairman of the Inter-Pacific Bar Association Dispute Resolution and Arbitration Committee.
1b
Mansoor Alam, B.A, LL.B (Hons) (U.K), LL.M (WTO & Law) (HK). Mansoor Alam is JSD Student
City University of Hong Kong and is currently doing Internship at Hong Kong International Arbitration
Center (HKIAC) Hong Kong SAR, China. He enrolled as Advocate Punjab Bar Council, Pakistan and
has been practicing law since 2004.
i
INTRODUCTION:
The first ten years of the World Trade Organization (WTO) celebrated the success
of the Dispute Settlement Understanding, which at the time of its agreement raised many
concerns. Now, due to the huge success of its enforcement procedures, other international
organizations such as the International Labour Organization (ILO) and the World
Intellectual Property Organization (WIPO) also seek some inter-relation with the WTO
Dispute Settlement Mechanism. The Understanding on Rules and Procedures
Governing the Settlement of Disputes (DSU) within the WTO framework is the most
significant development in Multilateral Trading System. .
The DSU provides for panel adjudication or recourse to binding arbitration under
DSU Article 25 (Arbitration) if negotiations fail to resolve members’ disputes.
Unfortunately Arbitration has been over-shadowed, due to the huge success of the panel
adjudication process, to the point that WTO Members have initiated only one original
Arbitration proceedings. This paper shall highlight the dispute settlement mechanism
engulfed within the WTO and question why arbitration is not used. The DSU emphasizes
prompt and effective dispute settlement for the efficient functioning and development of
WTO, but the practices followed in the panel process undermine these objectives. There
have been numerous proposals for DSU reforms but due to dead lock in Doha Round of
Multilateral Trade Negotiations, there reforms are unlikely to take place in the near
feature. The paper highlights that Members consent to Arbitration proceedings provides
the only way forward to meet these demands for DSU reforms. It further establishes that
Arbitration shall not only make dispute settlement more effective and expeditious but
also alter the approach of WTO Members towards their Multilateral Commitments.
A)
DISPUTE SETTLEMENT UNDERSTANDING & ITS OBJECTIVES
The WTO was established as a result of the Marrakesh Agreement1 to fulfill the
needs of the multilateral trading system by integrating the General Agreement on Tariffs
1
Marrakesh Agreement concluding Uruguay Round of Multilateral Trade Negotiations 1986-1994
establishing the WTO. Available at http://www.worldtradelaw.net/uragreements/wtoagreement.pdf,
retrieved on 24/07/07. Legal Text.
1
and Trade (GATT) and the new Agreements in a single legal system. 2 The Covered
Agreements establishing the WTO3 include the DSU4 that serves as procedural law for
WTO dispute settlement.5 In the case of Guatemala - Cement I, the Appellate Body
(AB) observed that:
"… The DSU is a coherent system of rules and procedures for
dispute settlement which applies to 'disputes brought pursuant to
the consultation and dispute settlement provisions of' the covered
agreements.”6
The objective of the WTO Dispute Settlement Mechanism (DSM) is to provide prompt
settlement of its Members’ trade disputes in terms of securing positive solution(s)
through mutual agreement; or to secure withdrawal of WTO Agreement inconsistent
measures.7 This is “essential for the effective functioning of the WTO and the maintenance for
the proper balance between the rights and obligations of Members.”8
Therefore, the DSU functions as a fundamental instrument in governing the
WTO Agreements.9 In a broader sense, the DSU provides security and predictability as
well as enhances trade opportunities within the WTO regime. 10
The DSU further imposes a dual obligation upon its Members: to comply with
the WTO Agreements and to seek recourse through the DSU for any breach of WTO
Agreements. 11 Where a member fails to comply or nullifies benefits guaranteed under
the WTO Agreements, the complaining member can only seek dispute settlement
through the DSU provisions within the WTO frame work.
Peter Malanczuk, Akehurst’s Modern Introductory to International Law (7 ed. Routledge London 1997)
231.
3
See Annexure to the WTO Agreements Legal Text Supra Fn1.
4
See Annex 2 of the World Trade Organization Agreements, Ibid.
5
Yang Guohua, Bryan Mercurio, and Li Yongie, WTO Dispute Settlement Understanding: A Detailed
Interpretation, (Kluwer Law International Netherlands) (2005) xi.
6
Panel Report, Guatemala – Anti-Dumping Investigation Regarding Portland Cement from Mexico
(Guatemala – Cement I), WT/DS60/R, adopted 25 November 1998, modified by Appellate Body Report,
WT/DS60/AB/R, DSR 1998: IX, 3797, ¶ 64.
7
Art 3.7: DSU.
8
Art 3.3: DSU.
9
Panel Report, United States – Sections 301-310 of the Trade Act of 1974(US – Section 301 Trade Act),
WT/DS152/R, adopted 27 January 2000, DSR 2000: II, 815, ¶ 7.75.
10
Art. 3.2: DSU.
11
US - Trade Act sec 301, Supra, FN 9, ¶ 7.43.
2
2
B)
WTO DISPUTE SETTLEMENT:
Scholars have considered DSU as the most effective dispute resolution
mechanism ever conceived in multilateral trade. 12 The DSU expressly prohibits the
GATT practice of unilateral actions13 and stipulates multilateral settlement of disputes
through quasi-judicial panel/arbitration procedures14 where negotiations fail to resolve
WTO Members’ disputes.
The introduction of mutually agreed binding Arbitration15 in WTO law is a new
development in international law. As there is no appeal against an arbitration award, this
option is rarely used in determining the actual breach of obligation. However,
arbitrations16 commonly feature in the enforcement of Dispute Settlement Body (DSB)17
recommendations within the WTO dispute settlement mechanism.
The DSU provides two modes for adjudication of violations causing nullification
or impairments of WTO benefits18 to its Members, namely the panel process and binding
arbitration.
I)
THE PANEL PROCESS:
The panel procedure is the principal and most commonly used dispute settlement
mechanism within the WTO, having many similarities with commercial arbitration but
in certain aspects being more legalistic and formal as WTO members have to follow
strict time lines, rules and procedures during the panel process.
The complainant triggers the panel process with the request for consultation to
the DSB followed by the request for panel composition, circulation of report after
hearing the parties to the dispute. Once the report is circulated to the parties and the
DSB, it has to be adopted provided the parties to the dispute do not exercise their right
of appeal to the Appellate Body. If appealed, the Appellate Body report has to be either;
adopted by the DSB or rejected by consensus of all WTO members. The whole process
12
Giorgio Sacerdoti, Alan Yanovich and Jan Bohanes, The WTO at Ten, Cambridge University Press,
2006, Part III and Part VI.
13
US - Trade Act sec 301, Supra FN 9, ¶ 7.75.
14
Peter Van den Bossche, The Law and Policy of the World Trade Organization, (1st ed Cambridge
University Press New York 2005) at 181 & DSU Art. 23.1.
15
Art. 25: DSU.
16
See Art. 21.3 reasonable time determination & Art 22.6 extent of nullification of benefits arbitration
proceedings of DSU.
17
The whole dispute settlement mechanism is governed and administered by the DSB under DSU art 2.1.
Powers of DSB (Art IV: 3, The WTO Agreement). See Also Freider Roessler 2001, page 323.
18
Art. 3.1 DSU, (Arts XXII & XXIII of GATT).
3
is explained in Table A:
Procedural Stage
DSU Provision
Duration
Consultations & other ADR methods
Art. 4 & 5
60 days
Panel Establishment & composition
Art. 6 – 8
40 – 50 days
Panels Interim Report to parties for
review
Art. 15
Final Report to DSB
Art. 16
DSB Adopts panel. if no appeal in 30
days
Art 16.1 & 16.4
180 days from panel
composition
60 days if no appeal
12 months approx.
Total duration
If Appealed Appellate Body report
Art. 17.5
90 days
DSB Adoption of Appellate Body
report
Art 17.14
30 days
15 - 16 months.
Total duration with appeal
In the proceeding paragraphs each stage of the process shall be discussed with reference to Table
A.
The WTO has dealt with more than 350 disputes 19 in its first ten years as
compared to the 126 cases that were adjudicated in fifty years of GATT tenure. The
DSU’s effectiveness has been a major success in the international arena. The
Consultative Board to the Director-General praised the system and warned the
negotiators to “do no harm” to it.20 Valerie Hughes, while analyzing the DSU system
and procedures, proposed reforms of the current process and praised the panel process
by stating that:
“if it ain’t broke, don’t fix it.”21
However, this does not mean that the WTO dispute resolution process is
flawless. Various reforms have been suggested to eradicate the shortfalls of the present
process. Proposals for a permanent pool of panelists, full time Appellate Body
19
WTO Secretariat document, UPDATE OF WTO DISPUTE SETTLEMENT CASES, 9 January 2007,
WT/DS/OV/29, available at http://www.worldtradelaw.net/misc/ov.pdf, at ii retrieved on 20/7/07.
20
Report, Consultative Board to Director-General Supachai Panitchpakkdi, “The Future of WTO:
Addressing Institutional Challenges in the New Millennium”, Geneva, 2004, at 49.
21
Essay by Valerie Hughes, The WTO dispute settlement system-from initiating proceedings to ensuring
implementation: what needs improvement? Supra Fn 12, at 194.
4
Members, reducing the time for consultations, as well as monetary compensation for
alleged violations, are just a few examples.22 Since the Doha Round of Negotiations is
on hold, the calls for reforms in rectifying the shortcomings seem a long shot. However,
some reforms can be addressed through recourse to Arbitration. This leads us to
consider the scope of Arbitration under Article 25, which also promotes the objectives
of the DSU, namely prompt and effective mutual settlement of disputes.
II)
ARBITRATION UNDER ARTICLE 25 OF THE DSU
Article 25.1 of DSU provides,
“Expeditious arbitration, within the WTO as an alternative means of
dispute settlement, can facilitate the solution of certain disputes that
concern issues that are clearly defined by both parties.”
Parties involved in a dispute can seek recourse to arbitration or file a request for
consultation. If the parties fail to resolve their dispute through consultations, the parties
can chose either to initiate the panel procedure or mutually consent to binding
Arbitration.
In US – Certain EC Products 23 , the panel observed that WTO Members can
resort to arbitrations for WTO related disputes as an alternative to the panel procedure.
The Appellate Body declared panel’s observations illegal due to lack of panel’s terms of
reference ,24 it can still be argued that these observations were correct in substance as
confirmed by the arbitrators in US – Section 110(5) Copyright Act (Article
25.3)Arbitration. The arbitrators confirmed the panel’s view and stated that the
Arbitration procedure “is actually an alternative to a panel procedure.”25
Recourse to Arbitration requires mutual consent and agreement of the parties to
refer their dispute for Arbitration, who also agree to abide by the award without any
prospect of appeal. The parties mutually agree on the arbitrator, or they may request the
22
Supra Fn 12.
Panel Report, United States – Import Measures on Certain Products from the European Communities (US –
Certain EC Products), WT/DS165/R and Add.1, adopted 10 January 2001, modified by Appellate Body
Report, WT/DS165/AB/R, DSR 2001:II, 413, ¶ 6.119.
24
Ibid, ¶ ¶ 89-90
25
Award of the Arbitrators, United States – Section 110(5) of the US Copyright Act – Recourse to Arbitration
under Art. 25 of the DSU [US – Section 110(5) Copyright Act (Art. 25.3)], WT/DS160/ARB25/1,
9 November 2001, DSR 2001:II, 667, ¶ 2.3.
23
5
Director-General of WTO to appoint one. Article 25 requires parties to notify the DSB
of their recourse to Arbitration prior to commencement of proceedings,26 which serves
to inform interested third parties about the nature of the dispute. 27 Article 25 allows
much more flexibility to disputants, as they mutually agree on rules and procedures
applicable in arbitration. The DSU does not specify any time constraints or procedures
for Arbitration proceedings. Similarly, the involvement of third parties is at the
discretion of disputants involved in Arbitration proceedings.
The DSU only obliges its Members to notify the DSB of the award. The
enforcement and compliance provisions under Articles 21 and 22 are also applicable to
Arbitration awards, which empower DSB to ensure compliance of adopted reports and
awards.
Unfortunately, Arbitration under Article 25 has not been a popular mode for
resolving disputes among WTO Members. US – Section 110(5) Copyright Act (Article
25.3) case, in which the EC and the U.S. initiated Arbitration proceedings, is the only
example of WTO Members’ recourse to Arbitration. The question arises why Members
do not use arbitration for resolving their disputes, which like the panel process also
ensures compliance through the DSB.
C)
WHY ARBITRATION IS NOT USED FOR RESOLVING WTO DISPUTES:
Although Arbitration is recognized as an alternative to the panel process, its rare
use in the WTO raises concerns. WTO Members have not preferred this mode for
resolving their grievances. There are some factors that may influence the disputing
Members’ choice of forum for adjudication. Prospects of appeal and lack of consent are
the most apparent factors among others and each one has to be analyzed in-turn.
i) Lack of consent:
In WTO, the DSB regulates the adjudication process in any dispute once all
efforts for mutually agreed solutions have been exhausted and the violation continues.
Cases like EC – Banana III and US – Offset Act (Byrd Amendment) are the best examples
26
27
Art.25.2: DSU.
Art. 25.3: DSU. As interested third parties (WTO Members) have the right of participation under Art
22.2 of the DSU.
6
of such negotiations.28 Respondent’s continued violation of WTO law leaves no room
for the member to consent to arbitration. The cases such as Japan – Alcoholic Beverages
II 29 wherein Japan increased its own domestic tax, suggest the Members’ willingness to
exercise their regulatory autonomy. Consenting for the review of Members’ own actions
generates issues such as undermining their own regulatory autonomy and implies that
the measure challenged by the complainant actually breaches the obligation.
The disputes usually arise when the member views its action to be justified. In
public international law, generally the countries are always adamant about their actions
and behavior. Unless there is strong demand domestically, the governments are reluctant
to give in. The panel process on the other hand requires no certain consent from the
respondent and is triggered upon request for consultations. Once the complainant has
requested the establishment of a panel, the respondent is forced to defend its actions,
contrary to the case of arbitration. The Members do not have the choice to avoid
proceedings following their overall multilateral obligations.
ii) Prospect of Appeal:
Establishment of an Appellate Body within the WTO is considered an
extraordinary development in international law, which does not exist in any other
international organization. By opting for panel proceedings, parties have the opportunity
to avail themselves of the built-in appeal mechanism. It provides the losing party a
further incentive to defend its actions. The panel report can only be challenged on legal
and interpretation of laws issues and factual determination by the panels cannot be
altered by the Appellate Body.
Between 1995 and 2006, 104 panel reports were adopted, out of which 71 were
appealed.
30
Similarly, the compliance ratio of appeals from the compliance panel
reports is remarkably high since the introduction of appeals in compliance proceedings
Appellate Body Report, EC – Bananas III, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II,
591; Appellate Body Report & US – Offset Act (Byrd Amendment), WT/DS217/R, WT/DS234/R, adopted
27 January 2003, modified by Appellate Body Report, WT/DS217/AB/R, WT/DS234/AB/R, DSR 2003:II,
489.
29
Panel Report, Japan – Taxes on Alcoholic Beverages [Japan – Alcoholic Beverages II ], WT/DS8/R,
WT/DS10/R, WT/DS11/R, adopted 1 November 1996, modified by Appellate Body Report,
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, DSR 1996:I, 125.
30
APPELLATE BODY, ANNUAL REPORT FOR 2006, WT/AB/7, 23 January 2007, available at
http://www.wto.org/english/tratop_e/dispu_e/wt_ab7_e.doc (retrieved on 04/04/2007).
28
7
in 2000.31 The high number of appeals also brings into question the quality of panel
decisions. Alternatively, they may indicate the tendency of Members to continue the
violation until it becomes necessary to comply with the DSB rulings.
iii) Role of the Appellate Body:
The Appellate Body has been actively involved in hearing appeals from the
panel reports. The tendency to raise interpretation issues on part of the claimant from the
panel proceedings is the norm, and most of the parties to a panel proceeding do
participate in the appellate stage, as in the case of
Japan – Alcoholic Beverages II. 32
The figure 1 indicates the ratio of appeals within the WTO panel process for dispute
settlement.
Appeals from panel to AB
25
19
20
12
15
12
10
10
5
5
2
11
10
12
8
12
7
Panel report
Appeals
9
7
5
20
17
6
7
6
6
0 2
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
From 1995-2006,
Panel reports 122, AB reports 83 @ 68% ratio
APPEAL RATIO FIGURE 1
The Appellate body has consistently overruled panel interpretations of WTO
Agreements; however, its own interpretations have also created doubts. In Japan
Alcohol case, where the panel’s interpretation of ‘like product’ was appealed, the
Appellate Body’s definition of ‘like product’ was not helpful either. 33
The Appellate Body’s affirmation of the panel’s interpretation in US – Shrimp
Panel Report, Brazil – Measures Affecting Civilian Aircraft – Art. 21.5 Recourse by Canada [Brazil –
Aircraft (Art. 21.5 – Canada)], WT/DS46/RW, adopted 4 August 2000, as modified by the AB Report,
WT/DS46/AB/RW, DSR 2000:IX, 4093.
32
Supra FN 29.
33
Ibid, ¶¶ G- H.
31
8
also raises ambiguity. The panel concluded that the new U.S. measure was in
compliance as long as the report conditions prevailed and serious good efforts to reach
multilateral agreement were satisfied. The panel went on to say that if those conditions
“cease to be met in future”, then any party to the original proceedings is entitled to have
recourse to Article 21.5 proceedings.34 The Appellate Body upheld these findings, which
hardly correspond with DSU objectives, namely “security and predictability” since there
is no definition of “serious good efforts” and what factors would decide those conditions
have “ceased to exist.” This sort of interpretation encourages respondent to file review
of the questioned measures and continue violations until the Appellate Body circulates
its report.
iv) Delaying Tactics:
The general trend suggests that the respondent in a consultation request vetoes
the first panel request, which is accepted in the second meeting where there is no
possibility of veto from the respondent. 35 Further delay is caused by the inability of
parties to decide on a panel, which eventually results in its composition by the Director
General.36 The average time consumed in composition of the panels is about 60 days,37
whereas DSU Article 8.7 prescribes 20 days for this process. The parties are keen to
build up their cases by utilizing the interim review stage of the panel report, which
theoretically provides an opportunity of mutually resolving the dispute. Panel
proceedings can also be suspended for up to 12 months by consent of the complainant
for mutual negotiations,38 but if those negotiations fail, that again causes further delay.
Similarly, in the compliance review stage under Article 21.5, the parties tend to
initiate proceedings to review the measures adopted. In EC – Banana III the panel
observed that the compliance panels’ terms of reference direct it to consider the
“existence or consistency with a covered agreement of measures taken to comply with
the recommendations and rulings (emphasis added)” of the DSB. 39 This further
34
Panel Report, United States-Import Prohibitions of Certain Shrimp and Shrimp Products-Recourse to
Art. 21.5 by Malaysia (US-Shrimp (21.5), WT/DS58/RW, adopted as modified by the Appellate Body 21
November 2001, ¶ ¶ 6.1(a) & 6.2.
35
Art. 6.1: DSU.
36
Art. 8.1: DSU.
37
European Communities’ Replies to India’s Questions, Communications from the European
Communities, TN/DS/W/7, 21 May 2002, Annex I, ¶ ¶ 11- 13.
38
Art. 12.12: DSU.
39
Panel Report Report, EC – Regime for the Importation, Sale and Distribution of Bananas – Recourse to
9
provides an opportunity to appeal causing more delays in implementing the DSB
recommendations and rulings.
v) High Winning Ratio of Complainants and Domestic Pressures:
Typically, complainants win cases they bring before a WTO panel. Around 90
percent of the complainants have been successful in establishing a breach of obligations
by the respondents. As measures are usually introduced for a short duration, the best bet
for respondent is to delay the adjudication process in order to achieve the desired goals
of the specific measure. This is coupled with pressures from domestic groups of the
respondent Member, who will sometimes influence the administration to take WTOillegal measures. For example, Anti-dumping the duties imposed for an alleged dumping
allegation may actually be imposed for the protection of a domestic industry, whereas
such protective measures are only allowed under the Safeguard Agreement which is
complicated and difficult to impose. Domestic pressure groups and political opposition
make it difficult for a Member’s administration to accept the burden of safeguards, or
enter into a mutual agreement for resolving a dispute.40 Respondents normally know the
outcome of the proceedings and capitalize on the delay factors to continue acting in
violation of their WTO obligations.
The above factors particularly favor the respondent whose actions or inactions are
challenged by another Member, but in fact they diminish the significance of the dispute
resolution process. The delaying tactics practiced in the Panel process deny the
complainants of their guaranteed rights and defeat the objectives of prompt and effective
settlement of disputes. To overcome these concerns a number of proposals have been
suggested, including an emphasis on more frequent use of Arbitration.41 This leads us to
evaluate the case of Arbitration in view of the DSU objectives and concerns influencing
members’ choice of forum.
Art. 21.5 of the DSU by Ecuador, [EC – Banana III] WT/DS27/RW/ECU, 12 April 1999, DSR 1997:II,
803, ¶ 6.2.
40
Andrew Guzman, “The Political Economy of Litigation and Settlement at the WTO”, Berkeley Program
in Law & Economics, Working Paper Series (University of California, Berkeley), Boalt Hall School of
Law, UC Berkeley http://repositories.cdlib.org/blewp/art81 (retrieved on 24/07/07), Copyright © 2003
by the author, page 2.
41
Proposal by the African Group, Negotiations on the Dispute Settlement Understanding, TN/DS/W/15, 25
September 2002.
10
D)
THE CASE OF ARBITRATION. IS IT IMPOSSIBLE?
The initial case for Arbitration arises from the lack of authority on part of the
DSB to initiate proceedings for violations of the WTO Agreements by any member.
Recourse to Arbitration provides another option for the mutual settlement of a dispute.
The binding nature of the award not only ensures the fairness of the process, but also
strengthens multilateral control, as enforcement is conducted by the DSB through
surveillance and implementation. 42 The remedies or reasonable time to implement the
award or challenges pertaining to nullification and compliance are also available under
DSU procedures if the parties opt for arbitration.
However there is one requirement that “the arbitration award… has to be in
conformity with the covered agreements and shall not amount to nullification or
impairments of benefits accruing to any member under those agreements, not impede
the attainment of any objectives of those agreements.”43 The panel and the Appellate
Body also have to assess the measures in the same manner, so this requirement should
not be difficult to meet. Some of the key issues that undermine recourse to Arbitration
under Article 25 have to be addressed in turn.
i) The Duration factor:
The panel procedure has been praised for its quick resolution of disputes. The
DSU itself provides strict timetables for the adjudication of disputes by the panel and the
Appellate Body. In reality, this is not so; there have been long delays in the panel
process. Henrik Horn and Peter C. Mavoidis’ analysis of the whole WTO dispute
settlement process presents alarming conclusions 44 and concludes that it is the panel
proceedings which in fact cause delays. The one exception is the efficiency of the
Appellate Body in submitting its report, as summarized in the Table B below:
Duration of Panel Procedure in Practice
42
Art 17.14, 16.1 & 16.4: DSU.
Art 3.5: DSU.
44
Henrik Horn and Peter C. Mavoidis, The WTO Dispute Settlement System 1995-2004: Some Descriptive
statistics, 31 January 2006, (available at http://siteresources.worldbank.org/INTRES/Resources/4692321107449512766/HornMavroidisWTODSUDatabaseOverview.pdf visited on 10.06.07) at 31.
43
11
Table B
Proceedings
DSU Stipulated Time
Avg. No. of Days
60 days
221.76
108 days or 9 months
386.89
90 days
88.73
Reasonable period Award
90 days
376.03
Compliance panel Report (request
90 days
208.62
Appellate Body Report (compliance)
90 days
83.00
Total
528 days
1365.03 days
(3.74 years)
Consultations
(from date of request)
Panel Report Circulation
(from panel establishment)
Appellate Body Report
(from notice to circulation)
to circulation)
Similarly, in Special Agreements as listed in Appendix 2 of the DSU, special
provisions have been drafted to modify the panel process, depending upon the nature of
the agreement in question and which; prevail over any contradicting DSU provisions.45
Even in these Special Agreements there have been long delays. No panel has so far been
able to submit its report within 90 days, and in the case of US – Foreign Sales
Corporation46 and Canada – Automobiles47, the panels issued their report after more
than 300 days.
In comparison, arbitration should not consume as much time nor cost due to the
nature of the proceedings. Since the parties bear the costs of dispute resolution, they are
more likely to comply strictly with the agreed upon timetables. Through recourse to
arbitration, a number of delays hindering international trade and denying benefits to
Members can be avoided by having a positive approach towards mutual and binding
agreements for adjudication by arbitrators. This mutual realization of benefits is
evidenced by the bilaterally agreed upon time period (9.18 months) for compliance
being far less than the reasonable period awarded by the arbitrators (12.18 months).
45
Art. 1.2: DSU.
Panel Report, United States – Tax Treatment for “Foreign Sales Corporations, [US – Foreign Sales
Corporation] WT/DS108/R adopted 20 March 2000, as modified by the AB Report, WT/DS/108/AB/R,
DSR 2000:IV, 1677.
47
Panel Report, Canada – Certain Measures Affecting the Automotive Industry, [Canada – Automobiles]
WT.DS139/R, adopted 19 June 2000, as modified by AB Report, WT/DS139/AB/R, DSR 2000:VII,
3043.
46
12
ii) Concerns of Consent to Arbitrate:
The major argument concerning the lack of arbitration surrounds the mutual
consent of the parties to arbitrate. The DSU undoubtedly rests the burden on the parties
concerned. According to the WTO Secretariat 48, more than half of the disputes have
been settled through bilateral mechanisms provided for within the DSU, as shown in the
Figure 2.
120
105
100
90
Total adopted reports
75
Total
60
57
45
30
15
24
29
16
19
0
Mutually agreed
settlements
Arbitration Art 21.3 (c)
reasonable time
Arbitrations Art. 22.6
Level of suspensions
In-active or settled
Art.21.5 reports
Nature of proceedings
Comparison
Comparison of Panel v. Mutual Agreements proceedings Figure 2
One crucial aspect of the dispute settlement mechanism is the appearance of the
developed Country Members. According to Kara Leitner and Simon Lester’s49 analysis,
the United States and the European Communities have been involved in 151 disputes as
complainants, 143 disputes as respondents and have faced each other directly on 45
occasions.
The mutual agreement between these two extensive users to resort to binding
arbitration on a reciprocal basis shall not only relieve the burden on the WTO
adjudicating bodies but shall also be in the mutual interest of the two Members
themselves. Through Arbitration proceedings they shall also achieve expedited
resolution of disputes. Therefore Arbitration, as recognized in US – Section 110(5)
Copyright Act by the Arbitrators, is a far better option, allowing the parties to have more
control over the proceedings for the prompt settlement of disputes.
48
49
WTO Secretariat document, Supra Fn 19 at ii.
Kara Leitner and Simon Lester, WTO dispute settlement from 1995 to 2005 – a statistical analysis,
Journal of International Economic Law 9(1), at 219–231.
13
iii) The Appellate Body Role:
Individually Appellate Body Members have been frequently involved in
arbitration proceedings under DSU Articles 21.3 and 22.6. All arbitrations held so far
under the DSU have involved present or former Appellate Body Members . The
Appellate Body Members continue their personal commitments and serve as Appellate
Body Members on a part-time basis.50 There have been proposals for full-time Appellate
Body Members, but such demands are unlikely to be met in the near future. However,
WTO Members can seek their expertise for adjudication of disputes through binding
Arbitration. This will not only bring more certainty and predictability to WTO law as a
whole, but will also resolve disputes on much speedier basis.
The Appellate Body has also adopted the role of court of first instance in
determining factual issues, as in the case of US – Shrimp,51which by no means falls
under the mandate of the Appellate Body under the DSU52. The Appellate Body only
deals with appeals on points of law. Factual determinations rest with the panels, which
have to make an objective assessment of facts and the applicability of the covered
agreements 53 in a given case. But due to the complex nature of WTO disputes, it
becomes difficult to separate facts and the application of laws. Apart from the first few
years, the Appellate Body has regularly alleged a lack of objective determination of facts
by the panel and has proceeded to engage in its own fact finding. 54 The approach of the
Appellate Body in cases like US – Carbon Steel55 has prompted some concerns, and
remand procedures have been proposed. Factual determinations by the Appellate Body
also deprive Members of the right to appeal in the panel process, and a strong argument
in favor of recourse to Arbitration appears from these cases.
Moreover, Article 25 only requires the binding nature of an award. Though there
is no appeal provision in Arbitration, adjudication by Appellate Body Members should
resolve many of the legal objections normally appealed from panel reports.
50
Essay by Valerie Hughes, Supra FN 12, at 218.
AB Report United States – Import Prohibition on Certain Shrimp and Shrimp Products (US – Shrimp),
WT/DS58/AB/R, 12 October 1998, ¶ 128.
52
Art. 17.6: DSU
53
Art. 11: DSU.
54
See for example, AB Reports on EC – Bed Linen (Art. 21.5 – India) “Panel Report, European
Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India – Recourse to Art.
21.5 of the DSU by India, WT/DS141/RW, adopted 24 April 2003, modified by Appellate Body Report,
WT/DS141/AB/RW, DSR 2003:IV, 1269”; US – Offset Act (Byrd Amendment), Supra FN 28.
55
Panel Report, United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat
Products from Germany (US – Carbon Steel), WT/DS213/R and Corr.1, adopted 19 December 2002,
modified by Appellate Body Report, WT/DS213/AB/R and Corr.1, DSR 2002:IX, 3833.
51
14
iv) The Cost Factor:
The five major users 56 of the GATT still regularly initiate panel
proceedings. Though developing countries are also participating in dispute settlement
proceedings, many do not initiate DSU proceedings due to high legal costs and lack of
resources,57 or simply do not pursue cases because of their dependency on developed
Members. Though the WTO secretariat provides impartial assistance to developing or
under developed Members,58 this assistance does not supplement the need for lawyers.
The average fee of a good trade law firm in Geneva or Washington ranges from US$500
to US$1000 per hour, excluding expenses. Where the measures are complex the legal
costs are unlimited. In the Japan – Photographic Films59 case, combined legal fees were
more than US$10 million. A developing country would prefer to have such an amount in
foreign aid rather than to incur such a burden on its economy.
Arbitration on the other hand would be far less costly than going through all the
stages of the dispute settlement process for lower economy Members. Domestic and
international political costs, as well financial limitations, are the deciding factors
involved for enforcing Members’ rights in the WTO.60 Due to these hindrances, some
Members either do not make a claim or are influenced during negotiations by stronger
economic Members.
Therefore, the provision of arbitration can not only benefit the countries involved
in a dispute, but also bring more strength to the multilateral trading system by
minimizing the inequity of confrontations due to the economic strengths of the Members
involved.
v) Remedies in the WTO:
56
Five major Users of the GATT and present Dispute Settlement Mechanism includes U.S., E.U, Japan,
Australia & Canada.
57
Valentina Delich, Developing Countries and the WTO Dispute Settlement System, in Development,
Trade, and the WTO, (Bernard Hoekman et al. eds., 2002) at 79.
58
Art. 24(2): DSU.
59
Panel Report, Japan – Measures Affecting Consumer Photographic Film and Paper, [Japan –
Photographic Films], WT/DS44/R, adopted 22 April 1998, DSR 1998:IV, 1179. The first case where no
appeal was filed by the US to the AB.
60
Håkan Nordström, “The cost of WTO litigation, legal aid and small claim procedures,” 1 June, 2005,
page 1.
15
The upside of the WTO dispute resolution mechanism has been its inclusion of
remedial measures. This concept of remedies allows the imposition of sanctions for nonfulfillment of WTO obligations. This form of remedy does not exist in any other
organization. Andrew T. Guzman (2002, at 186) states that,
“the WTO provides a dispute settlement mechanism under which,
if all else fails, a complaining party may impose sanctions on a
party found to have violated its WTO obligations.”
Contrarily, US – Combed Cotton Yarn61case suggests that the remedies available
do not provide an immediate and effective relief to the complainant and often the
respondent ensures to fulfill its purpose of imposing such measures before it actually
withdraws it. Least developed and developing country Members are in no position to
impose sanctions as it hurts their domestic markets more than it would serve the purpose
of inducing compliance. The small economies, with small trade stakes, are more
dependent on their trade than larger economies with diversified trade interests and
imports. Due to the lack of interim measures options, respondents tend to continue the
violation until the adoption stage. The claimants with weaker economies are hit hard by
this approach and prefer to have compensatory measures. 62 The arbitrators in US –
Section 110(5) Copyright Act recognized arbitration as a mutually agreed solution to
determine compensation until the withdrawal of the measure. The recent compliance
panel report in U.S. – Gambling Services (Article 21.5)63 shows that Members would be
inclined to impose cross-retaliatory measures where they cannot impose sanctions in
same trade sector.
Developed country Members use the present system more frequently. If the
measure imposed is against least developed or developing Member, they are more likely
to negotiate due to their dependence on the developed Member. If the remedy of
compensation is available, even through mutual agreement for arbitration, it would be a
more attractive option to small or weaker economies.
Appellate Body Report, United States – Transitional Safeguard Measure on Combed Cotton Yarn from
Pakistan [US – Combed Cotton Yarn], WT/DS192/AB/R, adopted 5 November 2001, DSR 2001:XII,
6027.
62
Andrew Guzman Art. Supra FN 40.
63
Panel report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting
Services – Recourse to Art. 21.5 of the DSU by Antigua and Barbuda [U.S. – Gambling Services (Article
21.5)], circulated on 30 March 2007, WT/DS285/RW.
61
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vi) Third Parties involvement:
There has been a significant increase in Members’ participation as third parties
in panel and Appellate Body proceedings. In the figures published on 31 January 2006,
726 requests for third party participation have been made by Members in more than 350
cases.64 In the Appellate Body alone through December 2006, there were 291 third party
appearances on the part of WTO Members. In 2006, out of 53 total appearances, 23
appearances were made by the developing countries in Appellate Body proceedings.
Third parties in panel proceedings not only have the right to file their submissions but
also have the right of audience in panel proceedings.65
Third party involvement is crucial for the development of multilateral trade as it
enhances such Members’ familiarity with the WTO adjudication process. Third parties
only raise legal issues and it does not involve their economic interests in a dispute.
However, it also causes unnecessary delays and costs to the actual parties in responding
to third party views. Now there are more multiparty disputes 66 than ever before, due to
which the consultations often end in disagreements and result in panel composition
requests. Third party participations reduce the chances of any mutual settlement among
actual parties of the dispute and any Member can join the dispute by notifying the DSB
of its substantial interest in the dispute.
On the other hand, in Arbitrations there is no such possibility of joining the
proceedings by notifying one’s interest to the DSB, as it requires the consent of the
original disputants to allow third party involvement. With this consent requirement the
disputants can mutually agree and determine the scope and rules for third party
participation in a given dispute, which gives much more control of the procedure and
proceedings to disputant Members.
Therefore, the possibility of third party participation does not actually influence
Members’ choice of forum, as third party involvement is only possible once the panel
request has been made or parties have mutually agreed on binding arbitration.
64
Henrik Horn and Peter C. Mavoidis, Supra FN 44, at 10.
Art. 3.6: DSU.
66
See e.g. Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Certain Steel
Products(US – Steel Safeguards), WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R,
WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R, adopted
10 December 2003, DSR 2003:VII, 3117, Appellate Body Report, European Communities – Export
Subsidies on Sugar(EC – Export Subsidies on Sugar), WT/DS265/AB/R, WT/DS266/AB/R,
WT/DS283/AB/R, adopted 19 May 2005.
65
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D)
THE FUTURE
OF THE WTO
The WTO celebrated its first ten years with proven success. But unfortunately,
there has been no legislative development since 1994. Adjudicating bodies of the WTO
are interpreting laws more than 60 years old, such as GATT 1947. Until legislative
progress happens the criticism shall remain over the judicial development of law
through panel and Appellate Body reports. 67
Many scholars have proposed various suggestions to improve the DSU from the
establishment of permanent Appellate Body to having a permanent list of panel
Members, from reducing the time for the consultation stage to bringing more flexibility
for least developed countries, from demanding that the ‘Umpire needs better rules of the
game’ 68 to suggesting that ‘if it is not broken – improve it.’ 69 The fact is that the
legislative development of the WTO has been on hold for quite some time, and the
recent deadlock during the Doha rounds is heading towards failure. Mr. Pascal Lamy
Director-General of the WTO, in a speech to the U.S. Chamber of Commerce in
Washington on 23 April 2007, stated that
"US leadership is always required to sustain the WTO but the
exercise of this leadership by the Administration and Congress in
the weeks and months ahead will be key to the fate of the Round."
Members’ inclination towards economic partnerships such as E.U & NAFTA (North
American Free Trade Agreement) suggests that Members have not been able to adopt
the concept of sustainable and mutual development. The inability to make new
legislation in the WTO, and delaying tactics adopted in the DSU, raise concerns over the
future of the WTO and the DSU. Until the approach towards multilateralism changes,
these concerns shall continue to grow.
The African Group proposal for compensatory remedies and more frequent use of
Article 25 Arbitration seems to be a way forward for the Multilateral Trading System,
especially when negotiations on new legislation are heading nowhere.70
AB report on US – Shrimp (Supra Fn 34 & 51) & Japan – Alcohol (Supra Fn 29).
Essay by Jacques Bourgeois, The umpire needs better rules of the game, Supra Fn 12.
69
Essay by Daniel Brinza, If it is not broken – improve It,Ibid.
70
Supra FN 41.
67
68
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E)
CONCLUSION
Under the present circumstances and political dilemma faced by the WTO, it
appears that recourse to arbitration can resolve many of the concerns about the
functioning of DSU institutions. The GATT’s inability to induce compliance required
Members to change their approach towards multilateral obligations, which lead to the
establishment of the WTO. The delaying tactics adopted by members deny complainants
of their guaranteed rights and weaken the objectives of the DSU. The panel process is
hard hit by delaying tactics and costs, particularly with respect to poor and developing
Country Members. In fact the factors undermining recourse to arbitration defeat the
multilateral objectives of “barrier free trade & prompt and effective settlement of
disputes” and establish that the DSU is more hype than substance. To overcome these
shortfalls, and in view of the suspension of future trade negotiations, recourse to
Arbitration seems to be the only logical solution to further enhance the WTO dispute
resolution mechanisms which in turn will benefit all Members.
19