How are Dispute Settled in the WTO?
Dispute in Latin is called disputatione meaning debate. Resolution on the other end means resolvere meaning settle. That being so, dispute resolution is a procedure of which the disputants agree to end the arguments through a third party, the primary role of the third party here is to remain neutral while still facilitating the disputants.
The World Trading System today consists of National laws, plurilateral and bilateral agreements which are recognised under International law and together they govern and provide for a case in the cross border conduct of states when it comes to the exchange of goods and services.
The Uruguay Round marked the completion of multi-national trade negotiations which embarked on a new trade revolution and an International Institution based of what is called today the World Trade Organisation. This institution works on trade and trade related areas of the global policy making and more so it has fostered avenues for integration and the development status of the global economy today.
The WTO dispute settlement is the most active and adjudicative in the world today. However WTO it is not part of the United Nations(UN), neither a part of the Economic Social and Cultural council (ECOSOC) it has continuously maintained strong relations with the UN and its agencies ever since its establishment. The UN-WTO relations are regulated by the agreement on Arrangements for Effective Cooperation with other Intergovernmental Organization signed on the 15th November 1995 and the ECOSOC-WTO relationship occupy a special status and participate and cooperate in the UNCTAD towards the trade-related Millennium Goals and rules of trade participate in contribution of the ECOSOC.
DISPUTE SETTLEMENT IN THE GATT
Brief History before the genesis of the GATT
International Trade law came into play in the 19th Century after the Second World War whereby there was the need to establish networks of trade, this was after the war temperatures calmed down and there was a potential opportunity for trading. The central concern was not to replicate the disastrous experience of the war towards the international economy. The 20th Centaury was characterised by a global depression as it was filled by creation of the United Nation on and the formation of the Tribunals for the trials of war criminals, on matters trade, it was in the discriminative state of unilateralism full of high taxes, discriminative economic arrangements, and import quotas among other aspects.
The great depression was characterised by “beggar thy neighbour policies” as each country tried to transfer its economic problems to the other countries by depreciating its own currency, imposing high tariffs and this led to almost the collapse in the international trading system.
Attempts to create a multinational agreement on the rules or code of conduct on trade took place in 1943 to create financial relations of states. This was to be demonstrated between states and this was to exist across all nationalists, private and public entities, state enterprises and firms. This rules or codes were to be designed in such a model that would limit the migration of goods from one place to another geographically and this code to date has formed a substantial basis for the law of International Trade Law and acts as source of law thus forms a precedent.
Ultimately through signing of the United Nations Charter 1945 in San Francisco, led to the development of International Monetary Fund (IMF), World Bank (WB) and later on through the Havana Charter in 1948 resulted to the International Trade Organization (ITO) which was not formally set up and finally the General Agreements of Tariffs and Trade and today the World Trading Organization takes position.GATT AND THE DISPUTE SETTLEMENT.
Early Settlement
Under the GATT 1947, dispute settlement was seen as a tool for bargain by members in the “Shadow of the Law” . Under the Evolution of GATT/WTO Dispute settlement ,the initial drafters of this agreement did misconstrue that they were drafting a code of conduct and that a dispute may come into realization between contracting parties on interpretation and the application in the event of violations. Hereby there was no involvement of a third patty neither was it carried in a court or any dispute tribunal, neither was there a legal representative in either of the proceedings. The parties herein were contracting states.
Let us look on the account of how the disputes were solved.
Consultations were made prior to Article XXII
This was mainly based on sympathetic considerations in the arguments presented to the council by the complainant.
Adequate opportunities were given for contracting parties to settle on matters on their own. Consultation was carried own by each party in correspondence of any matter for which it was not possible to find a solution.
Case of UK and Netherlands, wherein the respondent failed to agree to the request of consultation of Netherlands which had pointed an ad hoc panel of experts composed of representatives of contracting parties instead of regular panel.
Case of Germany and Greece, which engaged a custom experts where the Chairman considered not a requirement to appoint a panel.
Nullification
When there was a situation whereby a contracting party interfered or hampered with the objectives under the agreement, as a result of such a failure to carry out its obligation, on the application of whether it conflicts with a certain provision of the agreement or if it falls under any other situation of another party, then they were to present a written application in form of a representation or a proposal to the other contracting party or parties and thus it was considered to be a sympathetic consideration.
Case of Pakistan and India, this concerned the request of the government of Pakistan, herein the complainant on the deduction of excise duties on certain products exported from India, the consultations were held and it was mutually agreed by consensus however the request was withdrawn.
Contracting parties to Investigate on complaints
There was no specific inclusion on how the issues presented to the contracting parties were to be solved, however much, the only point of reference to the contracting party; Article XXIII of the GATT states; the contracting party shall promptly investigate and make recommendation to the committee which eventually was not certain on any position, whether to settle as a conciliators was not clear.
Where there were no Satisfactory Adjustments
Parties were required to consult with ECOSOC under the UN and any other IGO when the cases were considered extreme. If the circumstances were considered to be serious enough to justify, such action may authorise a contracting party to suspend their obligation as they deemed it to be appropriate.
If the application to the contracting party included any right or rather concession, if any obligation is suspended, the contracting party shall then be free-not later than 60 days write a short notice to the Executive Secretary of the intention to withdraw from this agreement.
Note; This articles that is (1a and 1b) contradicted each other and it proved not to be clear as it suggested a methodology which was applicable not only to allegation by one contracting party but also the failure of one contracting party to carry out its obligation under the agreement.
Determination of Injury
An injury here could either way be tortuous or contractual and a complaining party may establish arrangements that the general agreement is being nullified. Also an injury may succumb and then the party is binded to apply for party redress even in the situation where the measure did not constitute a violation.
In the case above, the GATT system did not allow for a complaint procedure to apply for a remedy, neither to justify any claim. Exemptions to this rule came in the other set of rounds as GATT evolved.
Recommendation
Article XXIII, This part stated that if there is a justified complaint among the contacting parties, they themselves would provide for a state and a recommendation to the respondent state to terminate the measure or practice on the matter in issue. If there is no compliance then it does not contemplate retaliation.
THE EFFECTS OF CONSENSUS IN THE GATT SETTLEMENT PROCEDURE
The system was “consensus” based.Consensus actually relates to the common understanding between the parties with an aim of settling at negotiation in order to develop a report based on mutual perception. This notion gave rise to ambiguity and negative consensus and it could significantly seen by the GATT council which demonstrated it as a non objection procedure or a form of passive consensus. This meant that if a decision was made, there was a reflection of a refrain to take the same decision and thus set the page.
In the Case of US negotiating for panel on the European community, on certain payments of subsidies to Australia on Ammonium Sulphate, the chairman here was entrusted to establish consensus, the council for the other countries stated that if the contracting party did not deem that a consensus existed, then the chairman was to determine otherwise, as long as his decision was not contested, the chairman could conclude that there was consensus. This methodology proved there was unanimity and thus was very technical.
The panel reports that underwent through this procedure between contracting parties were unwritten, after a while, it acquired recognition as the GATT evolved and thus there was need to document each detail arising from the panel report. This proved the system to be biased.
Consensus was based on contracting parties involved in their own disputes, however the “consensus minus two” principle would have cured the system of which contracting parties would be shun away from participating in their own disputes. In the Case of United States Exports Restrictions, it was an issue of the complainant party Czechoslovakia on the US export restrictions on various materials and equipments, the reports were issued, but the claims were rejected by a vote.
The system was very frustrating and technical in its delivering core mandate of dispute settlement and thus making it to look as a ridicule way of seeking justice. Therefore as there was revolution, let to its unique development within the rounds until the current forerunner the WTO, which demonstrate a complete turnover of what a dispute settlement should be like.
OTHER EFFECTS THAT RESULTED TO THE SURFACING OF THE WTO
Drafting was domiciled by leading states
Dispute settlement The General Agreement on Tariffs and Trade (GATT) began in the 1948 by 23 parties and up to 1960’s it had grown to 35 parties. Professor Hudec attempts to formulate an approach used for the procedure that should be followed, the criteria entails:
A specific complaint made by one or more contracting parties.
It is directed against specific actions, measures, or policies of one or more contracting parties.
Based on a claim or more than one claim that are under the GATT 1947, this relates to the violation of the GATT articles.
It should entail a request, unambiguous, for a decision or ruling by so adjudicating body on the matter at issue
In addition the countries which were represented at the Geneva were the same persons who behaved in the same way as if it existed as a “Club” who negotiated and drafted the Havana Charter. The countries were domiciled by the United Kingdom and the United States. The provisions of the proposed code affirmed the principle of the most favoured-nation treatment, limitation of subsidies, prevention of cartels and negotiation cut off agreement.
The System was not Integrated
Under GATT, the basic rule of uniformity was absent. Member countries would take a la carte approach in selecting a dispute settlement mechanism that would be to some point accommodative on their side and that would suit them. The classic example here is during the consultation stage .
Fear of Undermining national sovereignty
This relates to the context of systemising on rigidity or making the system strict. It goes back to the reasons why the ITO was unsuccessful and was conceived although never ratified. GATT on the other side which is not firmly structured and its less restrictive was adopted only as a provisional treaty and operated from (1948-1994).
Absence of a legal division
The GATT Secretariat did not have a legal division when the dispute came before the panels it was the diplomats and not lawyers. Thus the degree of controversy, lack of corrective adjudicatory measures , political interference and independence.
Sanctions
During the GATT years, there were no authorised sanctions as they played no material role in the system. Disputes were resolved through diplomacy and this was oftentimes through panel reports.
Based on the WTO, the economic sanctions were introduced to act as a complimentary policy and not as a symbolic measure. In the Case of Russia and US, the US decided to boycott the Olympic games in Russia, and threatened to repeat the same mistake. Russia gained a bucket full of sanctions that weighed across the economic, diplomatic and financial of its economy.
Ambiguities in judgements
The State challenged each other at first it came through requests through the chairman in 1948, the Chairman solved 4 cases through simple statement without clear basis of law or analysis of the legal issues. Thereby GATT did not provide a forum for the code of conduct. The “Grandfathers clause” was used vaguely to restrict contracting state not to change existing rules without proper procedure of submitting it through parliament. This clause however was declared unconstitutional in the case of Guinn v Us by the Supreme Court.
EVOLUTION AND DEVELOPMENT OF THE WTO
Changes were made in 1952 after several cases were submitted to the chairman of the contracting parties. The tension was high, many countries were now part of the GATT and there was the immediate need to transform the entire system of Dispute settlement, let us focus on the developments and the niche areas the WTO covered.
DEVELOPMENT IN THE WORLD TRADE ORGANIZATION
The Gaps that the WTO filled under GATT
The exodus can be traced back from the trade rounds; the GATT being the only multilateral instrument after the ITO 1948 was kicked out and declared dead in the Havana Charter after its ratification by some of the national law making arms was almost impossible.
Plurilateral agreements were birthed in the 1970s and this paved way for the opportunities for voluntary membership and the word of reducing tariffs was evident. Membership of the GATT doubled as new states bridge in after the colonial rule with a focus of attaining trade independence. Like minded states that dominated ever since then became decreasingly invisible as integration became relevant for example The European Economic Community. The Chicken war case between United States and the European Community over agricultural policy on decline to poultry exports in West Germany led to the development of compensation or redress for trade loss.
Kennedy Round
It brought a new concept to the GATT laws on dispute resolution after there was a reduction of the cases. This round brought about panel procedures or form that became the principle forum of making a provision from anti-dumping agreement among other fields.
Tokyo Round 1973-1979
This was formulated by the need to establishing a panel. In particular, the United States required international discipline should be imposed on managed trade and an outline on arrangements on safeguards was measured. The GATT council on subsequent accounts rejected and there was unwillingness to delay when it came to a decision and thus there was need to set up a panel as a way to diplomacy side in the GATT forum. In the MIPS case, the United States rebelled against the European Community over the concentrates of tomatoes, herein acting in at most bad faith and defaulted in providing a panel representative. Also the case was in Disc case hereby approved that all process would go wrong thus they were to be submitted to the GATTs council of which they were to act in consensus. This case also exposed that the Secretariat did all the work that entailed drafting and compiling the work of the panels hence failure to include legal expert further demonstrated the drawbacks of the GATT system in the present case.
Multi-national Trade Negotiations (1973-1979)
This document was introduced to enhance the notion of “effective international discipline” and this way the subject matter was on dispute settlement on an ultimate understanding regarding, notification, consultation and dispute settlement and generally surveillance. The united state proposed for a selection of panel of which a complainant party may submit a complaint or request this would come after the attempt to settle the matter in a more precise way.
Uruguay Round (1986-1994)
Under this round, the rules of GATT were revised and updated to meet the changing conditions of the international trade law. It brought forth the generation of separate agreements that encompasses agriculture, textile, subsidies, and anti-dumping elements of multilateral agreements of trade of goods, GATS and trade related aspects on Intellectual Property Rights.
Furthermore this round were characterised by cases, The panel which there would be an absolute right to establish a panel and a panel report notwithstanding who were timely and in completion and the rulings were approved by the GATT council.
The disputes presented did not only be one sided on the point of injury ,but also, they were also to challenge the procedure by adding merits to points of law, example The European Community Challenge the US manufacturing clause of the US Copyright Law which did not allow the importation of American authors books to be printed abroad.
Today the WTO system of dispute understanding is legal based as opposed to the political system. The WTO resulted to be the fore runner of GATT that is the WTO and a new set of agreement.
PROCEDURE FOR DISPUTE RESOLUTION UNDER THE WTOPanel Stage
A panel here is the first instance division and it functions like a quasi judicial body whose main responsibility is in adjudicating disputes between members in the first instance. The panel consist of three members qualified from the government or non government or even has presented case in the former GATT 1947 as a council or under the committee who are selected on ad hoc basis. Their main objective is to review the case presented. This case must be substantive and it should prove that the factual and legal aspects consist a breach or an infringement to the WTO .Also it submit a report to the dispute settlement body and according to Article 11 and 19 it provides recommendation for the implementation process.
November 2000, ( Turkey v Egypt). A case brought by Turkey against Egypt involving the anti dumping duties on imports of steel reinforcement, the dispute reached the panel stage and Egypt was required to comply with the recommendations and ruling of the dispute solving body.
Appellate Stage
This body is enshrined under article 17. Core mandate is to uphold, modify or reverse the legal findings and conclusion of a panel, the appellate body reports It comprises of 7 persons that hears too appeals that are presented by the panel stage. The appellate body reports must be acknowledged by the Dispute settlement body once they have been accepted by the parties
Compliance Stage
It concerns itself with the implementation of the ruling and recommendation of panel report based on article 21, if there is no appeal then this process will be expected to be straight focused and needs not to take a long duration. The DSB acts as or rather maintain surveillance of the implementation, recommendation and rulings .Under the International law, compliance could relate to two dominant theories. To begin with the first one is the Enforcement approach and the management approach. The enforcement approach will tend to argue that implementation failures will tend to occur due to the gross cost of compliance the latter approach will seek to give a reason that state may presser to compliance, nevertheless the domestic administration will stand in their way
January 2004 (United States v Egypt) The case was on the United States who wanted to impose anti-dumping measures on Egypt on matters affecting import of textile. The United States and Egypt reached a mutual understanding in May 2005 by yielding the compliance.
Compensation and Suspension of Concession
The cardinal point here is effective compliance in the state whereby a state is able to comply with the recommendations and rulings and may be able to be positioned in a situation whereby they can negotiate with the complainant. Compensation could also mean the consistency by the parties to the agreement that binds them. The most-favoured –nation obligations, Article 1 of the GATT 1994.
Compensation examples could mean reduction of tariffs by state which the outmost benefits will go directly to the complainant.
Suspension of concession is a situation whereby contracting states have failed to comply with the orders of compensation, this is after the time lapse, hereby the complainant may seek for permission to impose trade sanctions against the respondent who is in breach to honour its obligation for example retaliation sanctions which is the serious as it entails the applicant to provide countermeasures for the violation of the action. The Dispute Settlement body is in charge of imposing such economic sanctions and this is the case under article 22.
In summary,the evolution of GATT was the first trade multilateral trade agreement and over decades now the forerunner WTO has turned history around by being an impressive body of dispute settlement of dispute and procedure. The new feature of dispute settlement under the WTO that ultimately sealed the gaps were the;
Principle of non-discrimination, which further goes to the roots of Most Favoured Nation and National treatment which means that if a GATT country grants a concession to another county the concession automatically applies to all countries, and that imported goods should be treated in the same way as homemade goods. Reciprocator of countries must act in good faith and lastly prohibition on trade restriction other than tariffs. However still the WTO has its setback in the dispute settlement, it is very clear that it can action on states to develop a multilateral treaty on this sigh an agreement compared to the first GATT.This has adversely contributed to a world dispute settlement body in the international trade and economic law.
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