Dispute Settlement in wto

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Disp Disput utee Sett Settle lem ment, ent, Com Compe pens nsat atio ion n and Retaliation Under the WTO Robert Read

One One of the the key key outc outcom omes es of the the !T !TT Uru" Uru"ua uay y Roun Round d ne"otiations #as the creation of more effecti$e system of dealin" #ith international trade disputes, the WTO Dispute Settlement Underst Understand andin" in" %DSU&. Th This is entered entered into into force force on ' (anuar (anuary y '))5. The DSU succeeded the ori"inal !TT system for dispute settlement settlement #hich had *ecome *ecome increasi increasin"l n"ly y una*le to resol$e resol$e ma+o ma+orr trade trade confl conflic icts ts *et# *et#ee een n its its em* em*er er countr countrie ies. s. Th This is Chapter outlines the structure and operation of the WTO trade disp dispute ute settl settlem emen entt syste system, m, parti particu cula larl rly y #ith #ith respe respect ct to the the impl implem emen entat tation ion of dispu dispute te panel panel find findin in"s "s and the issue issuess of compen compensat sation ion and retali retaliati ation. on. Th Thee first first section section pro$ide pro$idess an o$er$ie# of the o*+ecti$es of the DSU in the conte-t of the shortcomin"s of the pre$ious !TT dispute settlement system. Sectio Section n  sum summa mari rise sess the key articles articles and procedure proceduress of the DSU. This is follo#ed *y a discussion of the DSU frame#ork for the sus suspen pensi sion on of concess concession ions, s, compen compensat sation ion and retali retaliati ation on supported *y illustrati$e e-amples from recent cases. The final section offers a *rief criti/ue of the key issues that ha$e arisen in the first decade or so of the operation of the DSU. 4.' T01 OR223S OR223S O T01 WTO WTO D2SUT1 D2SUT1 S1TT6113T S1TT6113T S7ST1 rior rior to the intr introdu oducti ction on of the DSU, DSU, the !T !TT syste system m of dispute settlement had *een functionin" more or less successfully successfully for almost 58 years in spite of its e$ident shortcomin"s. The ne# WTO DSU #as the outcome of a thorou"h o$erhaul of the !TT system althou"h it mirrored much of the ori"inal !TT le"al frame#ork and retained the accumulated *ody of case la# and precedent.

aisford 9 :err ; 0and*ook on Trade olicy

The GATT Dispute Settlement System

The !TT system of dispute settlement #as founded upon t#o principal principal articles< Consultation %!rticle ==22& and 3ullific 3ullification ation or 2mpairment, i.e. compensation %!rticle ==222&. The operation of the dispute system from ')4> led to the incremental e$olution of proced procedure uress and and case case la# la# *ase *ased d upo upon n accu accumu mula late ted d le"a le"all interpretation and precedent. The linchpin of the !TT system for settlin" trade disputes #as the principle of consensus #hich re/uired all parties to a dispute to accept the outcome of any in$esti"ation. !ny findin"s only *ecame *indin" if a panel report #as accepted *y consensus. Defendants in a case could therefore $eto this ratification procedure and so a$oid complyin" #ith the findin"s. The consensus re/uirement #as one of se$eral #eaknesses of the system leadin" to "ro#in" frustration a*out its failure to resol$e resol$e trade conflict conflictss amon" amon" !T !TT em*ers. em*ers. The principa principall shor shortc tcom omiin"s n"s of the the !T !TT syst system em #ere #ere<< a lack ack of clea clear r o*+e o*+ect ctii$es $es and proc proced edur ures es?? am*i"ui "uity a*out *out the the rol role of consensus, leadin" to ad$erse decisions *ein" *locked? a lack of time constraints, leadin" to delays and uncertainty? and fre/uent delays in and partial non@compliance %Read, 885&. The sur$i$al of the !TT system for almost fifty years o#es much to the its mem*e mem*ersA rsA commitme commitment nt to multil multilatera ateralis lism m and their realisat realisation ion that persistent floutin" of the trade rules and conflict ser$ed to undermine the lon"@term *enefits of a relati$ely li*eral "lo*al trade re"ime. The !TT system #as, to some e-tent, a $ictim of its o#n success in that it #as ori"inally intended to re"ulate the trade of +ust B countries. 2ts 2 ts rules r ules #ere simply simply not desi"ned to deal #ith the massi$e "ro#th of #orld trade in the latter half of the 8th Century. This #as partly fuelled *y trade li*eralisation under the !T !TT :enn :enned edy y and and Tokyo kyo Roun Rounds ds,, a rapi rapidl dly y "ro# "ro#in in" " mem* mem*er ersh ship ip %there %there are no# no# '4> WTO WTO em* em*er ers& s& and and the increasin" $olume and comple-ity of trade conflicts. !ll of these de$e de$elo lopm pmen ents ts plac placed ed incr increa easi sin" n" stres stresse sess and and strai strains ns on an imperfect dispute settlement system. y the start of the Uru"uay 

Dispute Settlement, Compensation 9 Retaliation under the WTO

Round ne"otiations in ')E, the "eneral $ie# amon" !TT em*ers #as that the system for the settlement of trade disputes needed to *e reformed. 2t is important to note that some  per cent of all !TT trade dispute cases ')4@) #ere resol$ed throu"h full or partial compliance. This compliance rate ho#e$er, did fall to ' per cent post@')8 ; a period co$erin" more than half the total num*er of cases %0udec et al ., '))B&. The actual performance of the !TT dispute settlement system can thus *e re"arded as ha$in" *een reasona*ly successful? a $ie# reinforced *y the incorporation of its *asic le"al frame#ork into its successor, the WTO Dispute Settlement Understandin". The WTO Dispute Settle System

The DSU superseded the !TT system from ' (anuary '))5 and is re"arded as *ein" one of the central achie$ements of the Uru"uay Round ne"otiations. The desire for the reform of the !TT dispute settlement system #as made $ery apparent in the unte del 1ste Declaration at the commencement of the Uru"uay Round< To assure prompt and effecti$e resolution of disputes to the *enefit of all contractin" parties, ne"otiations shall aim to impro$e and stren"then the rules and procedures of the dispute settlement process, #hile reco"niFin" the contri*ution that #ould *e made *y more effecti$e and enforcea*le !TT rules and disciplines. 3e"otiations shall include the de$elopment of ade/uate arran"ements for o$erseein" and monitorin" of the procedures that #ould facilitate compliance #ith adopted recommendations. %!TT, ')E&

There #as ho#e$er, no clear consensus as to ho# any ne# system for settlin" trade disputes should *e constructed. The United States sou"ht the creation of a rule@oriented approach %GautomaticityA&, alon" the lines of the 3!T! system, #ith a defined timeta*le for dispute resolution and the potential for cross@retaliation. 2n contrast, the primary o*+ecti$e of most other mem*ers of the O1CD, alon" #ith many de$elopin" countries, #as a system that #ould constrain unilateral action *y the United B


States. The final outcome of the ne"otiations #as the DSU #hich dealt #ith many of the percei$ed #eaknesses of the !TT system as #ell as, at least partially, satisfyin" the differin" o*+ecti$es of its leadin" mem*ers. The ne# negative consensus re/uirement means that the implementation of panel findin"s can no lon"er *e *locked *y respondents, so tri""erin" the ri"ht of plaintiffs to retaliate. !utomaticity is a pi$otal element of the DSU, #hich includes a clearly stipulated timeta*le for the dispute settlement procedures and limited potential for cross@retaliation *et#een sectors. Unilateral action is constrained *y the re/uirements that em*ers a*ide *y the rules and procedures of the DSU and that their national la#s comply #ith their o*li"ations under the WTO. The introduction of the DSU must also *e $ie#ed as ha$in" *een a necessary condition for the successful implementation of the ran"e of re$ised and ne# trade rules, kno#n collecti$ely as the Uru"uay Round !"reements. The more su*stantial le"al frame#ork of the DSU is capa*le of enforcin" the comple- rules of these a"reements *ut this #ould not ha$e *een possi*le under the pre$ious !TT system. 4. T01 :17 !RT2C61S 9 O1R!T23 ROC1DUR1S O T01 WTO D2SUT1 S1TT6113T S7ST1 The DSU is an inte"ral part of the Uru"uay !"reements, runnin" to > !rticles and four !ppendices. This Section outlines the principal operatin" procedures of the WTO dispute settlement system #ith respect to the key articles of the DSU. The Grounds for a Complaint Under the WTO DSU

!TT !rticle ==222, 3ullification or 2mpairment, stood at the centre of the !TT dispute settlement system and its para"raphs continue to define the conditions under #hich $iolation of the WTO rules permit em*ers to seek redress and their means of so doin". There are three specific circumstances identified in !TT !rticle ==222 under #hich WTO em*ers are permitted to make a complaint under the DSU. The standard case is #here 4


a em*er country $iolates the WTO rules and there*y ad$ersely affects other em*ers. The second is Gnon@$iolationA #here harm is caused e$en thou"h there is no specific $iolation of a !TT pro$ision. inally, there is a Gcatch@allA pro$ision. The scope of the application of the article co$ers all of the component multilateral a"reements of the WTO. This means that any em*er country may seek redress #ith respect to any $iolation of the WTO rules *y another. There is no re/uirement to demonstrate that a $iolation has resulted in in+ury since all em*ers are le"ally o*li"ed to conform to the WTO rules. The WTO Complaints Procedure

The primary o*+ecti$e of the WTO DSU system is to settle trade disputes *et#een em*ers *y means of *ilateral consultations and mediation in the first instance. Recourse to the esta*lishment of a formal dispute panel is intended as a last resort #hen all other a$enues of conciliation ha$e *een e-hausted. urther, the pro$isions permit third parties, includin" other em*er countries and the WTO Secretariat, to mediate in a dispute and take part in the consultations. !ny a"reed solution ho#e$er, must *e consistent #ith the WTO !"reements. 2t is only after the failure of the consultation andHor mediation process that a plaintiff may ha$e recourse to the formal dispute pro$isions. Third parties #ith a Gsu*stantial trade interestA in a dispute may also en"a"e in the consultation process, su*+ect to the a"reement of the respondent. The specific "uidelines and timeta*le for consultations to take place are pro$ided in !rticle 4 of the DSU. Consultations are a mandatory condition for a su*se/uent re/uest to *e made to esta*lish a dispute panel. ! respondent has a '8@day limit #ithin #hich to reply to a re/uest for consultations, a ma-imum of B8 days to enter into consultations and a minimum of E8 days to en"a"e in the consultations. 2f a em*er does not meet one or more of these deadlines, a plaintiff may re/uest the esta*lishment of a panel immediately. 2n practice, many parties to disputes often take considera*ly lon"er o$er consultations that the minimum of E8 days %WTO, 884&.

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any trade disputes ne$er "o further than the consultation sta"e, particularly "i$en that WTO em*ers are under an o*li"ation to resol$e their disputes *y this means. The parties to a dispute may also make use ar*itration as an alternati$e method, su*+ect to mutual a"reement. The Establishment of a WTO Dispute Panel

2n the e$ent of that a trade dispute is not resol$ed throu"h consultations, a plaintiff can then proceed to a formal re/uest for the esta*lishment of a dispute panel no earlier than E8 days after the re/uest for consultations. Such a re/uest is su*mitted in #ritin" to the Chair of the Dispute Settlement ody %DS& and sets out *riefly and clearly the "rounds for a complaint. This re/uest forms the le"al *asis for a complaint and its contents define the scope and e-tent of the remit of a dispute panel in$esti"ation and ad+udication. The formal re/uest document is then circulated to all WTO em*ers, so as to inform the respondent to"ether #ith any interested third parties, and included on the a"enda for the ne-t meetin" of the DS. The first time that a re/uest is presented to the DS, a plaintiff has the ri"ht to *lock a panel *ein" set up. Under the ne"ati$e consensus re/uirement introduced in the Uru"uay Round, any such re/uest is automatically accepted at a second DS meetin". Where there is more than one plaintiff in a case or #here se$eral em*ers file similar complaints, !rticle ).' pro$ides for the esta*lishment of a sin"le panel G#hene$er feasi*leA. Co@ plaintiffs ho#e$er, may re/uest the pu*lication of separate reports. !ny third party country #ith Gsu*stantial interestA in a trade dispute also has a ri"ht to make su*missions to and *e heard *y a panel, e$en if they #ere not in$ol$ed in the consultation process. articipation in panel procedures as a third party re/uires the DS to *e notified, in practice #ithin '8 days of the esta*lishment of a panel. 2n the e$ent of nullification or impairment of their *enefits, third parties may also ha$e recourse to the DSU.

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The unctions ! Procedures of WTO Dispute Panels

The functions and procedures of WTO dispute panels are laid out in !rticles >,  and '' to '5 of the DSU. Their primary function is to assist the DS *y makin" an o*+ecti$e assessment of the facts and conformity #ith the rele$ant WTO a"reements. Their Terms of Reference are to e-amine the facts of a trade dispute #ith respect to the complaint as laid out *y the plaintiff in the re/uest for the panelAs esta*lishment. anels are thus re/uired to in$esti"ate the e$idence in the conte-t of the rele$ant pro$isions of the WTO a"reements cited *y the parties of a dispute. They then make recommendations or rulin"s to the DS #ith re"ard to the rele$ant WTO a"reements. The composition of WTO dispute panels is set out in !rticle  of the DSU. ! panel normally has three mem*ers *ut may, in certain cases, ha$e fi$e. The panellists are nominated *y the WTO Secretariat from an indicati$e list that includes the nominees of em*er countries. anellists are re/uired to possess e-pertise appropriate to a case *ut may not *e citiFens of parties or third parties to a dispute. The procedures for dispute panels are set out in !ppendi- B of the DSU, includin" a proposed timeta*le for panel deli*erations %sho#n in WTO, 884&. This timeta*le is, to some e-tent, fle-i*le dependent upon the comple-ity and e$idential needs of particular cases. 2n "eneral, most dispute cases take *et#een ) and ' months from the esta*lishment of a panel to the pu*lication of its report. Dispute panels ha$e the po#er to seek information and technical ad$ice from any appropriate indi$idual or *ody and e$idence may also *e re/uested from an 1-pert Re$ie# roup. !ll anel deli*erations are confidential and non@attri*uta*le. anel procedures normally *e"in #ith the receipt of %often len"thy& #ritten su*missions *y the plaintiff and respondent, #hich are then e-chan"ed. !ny third parties may then make their o#n su*missions. These tend to *e shorter commentaries on specific aspects of a case %WTO, 884&. This is follo#ed *y a closed oral hearin" in$ol$in" all of the parties after #hich the parties e-chan"e #ritten re*uttals to each otherAs le"al >


ar"uments. ! second closed oral hearin" is then held, durin" #hich the partiesA ar"uments and re*uttals are presented. Where e-pert e$idence, usually of a scientific nature is re/uired, additional sets of oral hearin"s may *e held. ! panel then drafts the Gdescripti$eA section of its report outlinin" the ar"uments of each party and summarisin" all of the factual and le"al ar"uments #hich is circulated to the parties for comments and corrections. This is follo#ed *y the circulation of the 2nterim Re$ie#, #hich contains the description of the case alon" #ith a panelAs findin"s and conclusions re"ardin" the le"al $alidity of the complaint. !"ain, the parties are permitted to make comments, re/uest corrections and ask a panel to re$ie# specific points. These amendments and ela*orations are then incorporated to produce a inal anel Report #hich is circulated to all WTO em*ers and pu*lished. The Adoption of Panel Reports

! inal anel Report ; and therefore its recommendations @ has no standin" until it is adopted at a meetin" of the DS. Under he ne"ati$e consensus re/uirement ho#e$er, inal Reports are automatically adopted and their rulin"s *ecome *indin" if they are placed on the a"enda and su*mitted to the DS. ! $ictorious plaintiff may therefore choose not to add a Report to the DS a"enda, in #hich case it #ill not *e adopted. This contrasts #ith the potential of losin" respondents in trade dispute cases to use a $eto under the !TT dispute settlement system #hich ena*led them to *lock the implementation of panel rulin"s indefinitely. Once a anel Report is adopted *y the DS, its recommendations *ecome *indin" on the parties to a dispute. The Role ! unction of the WTO Appellate "ody

! party %*ut not a third party& to a dispute has E8 days after the pu*lication of a inal report to lod"e an appeal. 2n this case the Report is not su*mitted to the DS until the appeal process is completed. !lthou"h respondents and plaintiffs may appeal a"ainst the findin"s of a dispute panel #ith respect to the case in 


/uestion, it is not unusual for parties to re/uest clarification or reinterpretation of particular le"al points #ith respect to their *roader implications for future cases. The !ppellate ody has the po#er to modify or re$erse the findin"s and recommendations of a anel Report follo#in" procedural rules that ha$e *een amended periodically since '))E. The !ppellate ody has se$en mem*ers, three of #hom %the di$ision& are selected to preside o$er an appeal *y rotation. !n appellant has ten days to su*mit its le"al ar"uments concernin" the rele$ant point%s& of la# in a anel Report, follo#ed later *y an oral hearin". The colle"iality of the !ppellate ody is sustained *y sanctionin" deli*erations *et#een the di$ision and its remainin" four mem*ers to ensure +urisprudential consistency and coherence. The o*+ecti$e of the !ppellate ody is to resol$e dispute cases and this may also re/uire it to complete the le"al analysis of a case *y e-aminin" other claims not dealt #ith *y the ori"inal panel. !fter draftin", the !ppellate ody Report is circulated to all WTO em*ers and pu*lished. 2t is also su*mitted to the DS for adoption and the parties to a dispute must accept its recommendations unconditionally in the a*sence of a ne"ati$e consensus. The #mplementation of WTO Panel Decisions

Once a inal or !ppellate ody Report has *een adopted *y the DS, its recommendations and rulin"s *ecome *indin" on the parties to a dispute and the losin" respondent is re/uired to *rin" its trade re"ime into compliance #ith the WTO rules. This normally means the disputed measures that #ere the su*+ect of the ori"inal dispute and found to *e inconsistent #ith the WTO are #ithdra#n. Under !rticle ', Sur$eillance of 2mplementation, losin" respondents ha$e B8 days after the adoption of a Report to inform the DS of their intentions re"ardin" the implementation of anel or !ppellate ody recommendations. While the onus is on G prompt compliance … to ensure effective resolution of disputesA, compliance is re/uired to *e Gwithin a reasonable time A, normally not e-ceedin" '5

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months. The DS is responsi*le for the sur$eillance of the implementation of adopted recommendations and rulin"s. 2n the e$ent that there is dissatisfaction or disa"reement concernin" a respondentAs compliance #ith the recommendations and rulin"s of the DS, a plaintiff has further recourse to the dispute settlement procedures and a ne# anel Report %!rticle '.5&. !ctions under this article are not uncommon and ha$e *een used *y *oth plaintiffs and respondents to esta*lish #hether any re"ulatory chan"es that ha$e *een made are WTO@ compati*le. Other $eans of WTO Dispute Settlement% Arbitration ! $utually A&reed Solutions

The use of dispute panel procedures is the most #ell kno#n means of resol$in" trade disputes *et#een WTO em*ers, primarily *ecause of the pu*licity "enerated *y hi"h profile cases, such as the recent 1U@US *anana and steel disputes. The principal alternati$e to a dispute panel is ar*itration, the procedures for #hich are outlined in !rticle 5 of the DSU. The use of ar*itration is *y mutual a"reement *et#een the parties to a dispute. The outcome of ar*itration must *e WTO@compati*le and is *indin" on the parties. !ny a#ard for nullification or impairment is su*+ect to the same !rticles on compensation and the suspension of concessions as a dispute that follo#s panel procedures. arties to a trade dispute may, at any time, side@step the formal dispute settlement process in fa$our of securin" a mutually a"reed solution. This is normally a *ilateral a"reement ne"otiated *et#een the parties to a dispute. The DSU procedures acti$ely promote ne"otiation and conciliation to a$oid conflict, such that mutually a"reed solutions to disputes are encoura"ed su*+ect to their satisfyin" the need for consistency #ith the WTO rules. 2f such a solution is WTO@incompati*le, the ori"inal respondent could *e $ulnera*le to a dispute action *y ad$ersely affected third parties.

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45.B T01 CO13S!T2O3, SUS13S2O3 O CO3C1SS2O3S !3D R1T!62!T2O3 ROI2S2O3S O T01 WTO The po#er of the DS and therefore a Dispute anel to authorise the suspension of trade concessions *y a plaintiff to a respondent #here there is harm %nullification or impairment& is esta*lished in ara"raph  of !rticle ==222 of !TT '))4. This para"raph effecti$ely *inds em*ers of the WTO to acceptin" the rulin"s of the DS and also, #here appropriate, for the DS to permit sanctions a"ainst countries found to *e actin" contrary to the WTO rules. The 'ature of Compensation( the Suspension of Concessions ! Retaliation

Compensation and the suspension of concessions, i.e. of ost@ a$oured 3ation %3& treatment, to a WTO em*er are intended to *e temporary measures. They are only implemented if the recommendations and rulin"s of the DS are not acted upon #ithin a reasona*le time period. Where compensation and the suspension of concessions are sanctioned *y the DS, a respondent has the alternati$e option of #ithdra#in" from the WTO and its associated treaty o*li"ations #ithin E8 days. 3either compensation nor the suspension of concessions ho#e$er, can *e applied retrospecti$ely. This means that there is no recompense for any harm caused *y an ille"al trade measure prior to and durin" the implementation of dispute procedures. Where nullification or impairment is ruled to ha$e occurred, a respondent may choose either compensation or the suspension of concessions as the form of restitution. Compensation normally takes the form of tariff reductions and is purely $oluntary since the suspension of concessions is the default means of restitution. !ny compensation must satisfy the re/uirement that it is compati*le #ith the pro$isions of the WTO. Compensation is rarely used ho#e$er, *ecause most tariff reductions are not consistent #ith the re/uirement of 3 treatment %WTO, 884&.

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The suspension of concessions is more comple-. 2n the first instance, the "eneral principle is to suspend concessions in the same sector as the $iolation occurred @ i.e. #ithin "oods, ser$ices and trade@related intellectual property ri"hts %TR2s& respecti$ely.. 2f this is not practica*le, then concessions are suspended in other sectors co$ered *y the same a"reement ; i.e. all of the WTO !"reements co$erin" trade in "oods, the eneral !"reement on Trade in Ser$ices %!TS& and TR2s respecti$ely ; and only then *et#een a"reements. These pro$isions are particularly important for smaller de$elopin" countries #here the ad$erse impact of the suspension of e/ui$alent concessions #ithin a sector or an a"reement may *e /uite su*stantial %WTO, 884&. 2n re/uestin" the suspension of concessions, a em*er is re/uired to take into account the trade and its importance to them in the rele$ant sector or under rele$ant the a"reement alon" #ith the *roader economic conse/uences of suspension. The suspension of concessions must *e temporary and may only remain in place until a WTO@inconsistent measure is remo$ed, any harm ceases or there is a mutually a"reed solution. The Grounds for Compensation( the Suspension of Concessions ! Retaliation

The "rounds for compensation, the suspension of concessions and retaliation are dealt #ith under !rticle  of the DSU. 2n the e$ent of an ille"al measure not *ein" *rou"ht into compliance and no satisfactory compensation *ein" a"reed *et#een the parties to a dispute, a plaintiff may re/uest authorisation to suspend concessions to a respondent, This may *e re/uested 8 days after the e-piry of the Greasonable period of timeA. The principal o*+ecti$e of compensation or the suspension of concessions is to induce em*er countries to comply #ith the WTO rules. This puniti$e action results in a tan"i*le loss *y a respondent throu"h the remo$al of its preferential access to the market of a plaintiff. This is incurred in throu"h reduced earnin"s *y e-ports and e-porters in those sectors tar"eted *y the plaintiffAs suspension of concessions. ! plaintiff may "ain from '


increased tariff re$enue *ut its consumers #ill face hi"her prices such that neither side is *etter off as a result of permitted retaliation. 2n some cases, a respondent may choose not to #ithdra# an ille"al trade measure, #hether for lo"istical or other reasons. 2nstead, the pro$ision of compensation is permitted as Ga temporary measure pending the withdrawal of the measure that is inconsistent A. 2n the dispute o$er *eef produced #ith "ro#th hormones *rou"ht *y Canada and the United States, the 1U has refused to remo$e its import restrictions in spite of their *ein" found to *e ille"al *y a WTO panel. 2nstead, the 1U has #illin"ly accepted retaliation on the "rounds that its import restrictions are +ustified *y health fears o$er the lon"@term effects on consumers. !n important procedural dispute arose in the second WTO *anana case *et#een the 1U and the United States o$er the relati$e primacy and se/uencin" of compliance and compensation %!rticles ' and  of the DSU&. The United States #ished to retaliate immediately #hile the 1U ar"ued that this could only *e done if its ne# trade measures for *ananas #ere found not to comply #ith the WTO rules. This matter #as e$entually referred to the WTO eneral Council for clarification. !n ar*itration panel ho#e$er, ruled that an !rticle '.5 rulin" #as not a pre@ re/uisite for action under !rticle .E. This decision has ne$er *een adopted since neither the 1U nor the United States desired this le"al precedent to *ecome esta*lished in WTO case la# *ecause of its *roader implications for dispute settlement. The $a&nitude of Compensation( the Suspension of Concessions ! Retaliation

The ma"nitude of any compensation or suspension of concessions is re/uired to *e e/ui$alent to the le$el of harm %nullification or impairment& that is caused *y any ille"al measure. The DS authorises the suspension of concessions automatically under the ne"ati$e consensus rule unless the respondent o*+ects, in #hich case the matter is referred to ar*itration, normally to the ori"inal panel.

'B


!n o*+ection can *e lod"ed a"ainst the suspension of concessions *y a respondent on t#o "rounds< that the proposed le$el of suspension is "reater than the nullification or impairment incurred? or that the procedures contained in !rticle  ha$e not *een adhered to. 2f a dispute o$er compensation is referred to ar*itration, then concessions cannot *e suspended in the meantime. The only concern of the ar*itrator is #hether suspension of concessions is e/ui$alent to the nullification or impairment and has *een carried out in accord #ith the procedures in the article. The ar*itratorAs decision is final and there is no recourse to a second ar*itration. 2n the *eef hormone dispute, ar*itration esta*lished that the annual $alue of trade affected *y these measures #as CJ''.B million for Canada and J''E. million for the United States. This represents only a small fraction of the total $alue of the transatlantic *eef trade. 2n the *anana dispute, the initial claim for the suspension of concessions *y the United States #as for J58 million *ut this #as reduced to J')'.4 million after ar*itration. 2n the same dispute, the !r*itration anel a#arded 1cuador sanctions #orth J8'.E million, su*stantially "reater than the annual $alue of its imports from the 1U. 2n the case of the recent steel dispute, the 1U estimated that the lost $alue of its trade concessions as a result of US restrictions on steel imports #as some JB *illion %K.48> *illion& per annum. Retaliatory )ists of Products for the Suspension of Concessions

The procedure for implementin" the suspension of concessions includes the dra#in" up and pu*lication of a retaliatory list of products to *e tar"eted *y a plaintiff. ! respondent may o*+ect to the list if there is dispute o$er the $alue of the harm or that the products co$ered do not conform to the sectoral re/uirements. Retaliation *y Canada and the United States in the *eef hormones dispute specifically tar"eted key 1U a"ricultural e-ports, particularly from rance, #ith the US retaliatory tariffs set at '88 per cent. 2n addition, the United States has also threatened to escalate its retaliation *y Gcarouselin"A, i.e. rotatin" '4


the products on its retaliatory list e$ery '8 days. This #ould increase the uncertainty faced *y 1U e-porters to the United States. Carouselin" is not ille"al under the WTO rules *ut its use #ould *e e-pected to result in le"al action *y the 1U. 2n the *anana dispute, the United States made it kno#n that it retaliatory tar"ets included e-ports of lu-ury cashmere products from Scotland. 2n the recent steel dispute, the 1U proposed a GshortA retaliatory list #orth some JB)8 million and a Glon"A list #orth JE5 million. 2n addition to tar"etin" imports of US steel products, these lists tar"eted sensiti$e e-ports from politically key mar"inal states in the 884 US residential 1lection. urther Readin& on the DSU and WTO Trade Disputes

The *est source of information a*out the WTO DSU is A Handbook on the WTO Dispute Settlement System %884&. This pro$ides a full discussion of the procedures and operation of the DSU, the interpretation of its articles and recent de$elopments. ! comparati$e o$er$ie# of the performance of the !TT and WTO dispute settlement systems can *e found in GTrade Dispute Settlement echanisms< the WTO Dispute Settlement Understandin" in the Wake of the !TTA %Read, 885&. ore "eneral analyses of the WTO, includin" the DSU, can *e found in The olitical !conomy of the World Trading System %0oekman and :ostecki, 88'& and The "egulation of #nternational Trade %Tre*ilcock and 0o#se, ')))&. Up to date documentation for e$ery case dealt #ith under the DSU is a$aila*le on the WTO #e*@site at http

the 'nited States %erdikis and Read, 885&. The *anana and *eef hormones cases are also discussed in Transatlantic !conomic Disputes% the !'( the 'S $ the WTO %etersmann and ollack, 88B&.

45.5 ! CR2T2NU1 O T01 WTO S7ST1 O TR!D1 D2SUT1 S1TT6113T !lmost all of the B88@plus trade disputes that ha$e arisen since the inception of the DSU ha$e *een resol$ed in accord #ith WTO disciplines. The num*er of completed cases is no# sufficient for se$eral critical issues of concern to *e identified relatin" the operation and application of the WTO dispute settlement system. The #illin"ness of the #orldAs stron"est and most influential economies to adhere to an a"reed set of multilateral trade rules must *e seen as a positi$e indication of not only the health of the "lo*al economy *ut also of the effecti$eness of the DSU and international economic relations in "eneral. This $ie# is supported *y the leadin" role played *y the DSU in resol$in" recent ma+or trade disputes *et#een the 1U and the United States in *ananas and steel. 3e$ertheless, /uestions still remain concernin" the scope of the WTO trade rules and the effecti$eness of the DSU. "ias in the Use ! Outcomes of the DSU

The WTO dispute settlement system has *een accused of *ein" *iased a"ainst de$elopin" countries in that it fa$ours the leadin" industrialised countries. The 1U and the United States, in particular, are seen as ha$in" created and usin" the DSU to achie$e their o#n o*+ecti$es *y $irtue of their international economic and political le$era"e, "reater resources and retaliatory po#er. The DSU ho#e$er, is a more effecti$e system for settlin" disputes *ecause the dependence of the !TT system on positi$e consensus #as $ulnera*le to pressure. 1mpirical analyses of WTO dispute cases indicate that the industrialised countries ha$e *een the primary complainants and 'E


respondents althou"h the 32Cs are no# makin" increasin" use of it. The 1U and the United States ho#e$er, ha$e *een the most fre/uent liti"ants? trade disputes *et#een them account for 48 per cent of all complaints '))5@88. 3one of the least@ de$eloped countries #ere in$ol$ed in any cases at all. 3ormalisin" accordin" to the share of "lo*al trade su""ests that there is little e$idence of systematic *ias in the use of the DSU. 1$en if there is no *ias in the use of the DSU, the le$era"e and resources of the industrialised countries may mean that they are more likely to #in dispute cases. The hi"h success rate of the DSU su""ests that it has *een more effecti$e in resol$in" trade disputes than the !TT system. This issue is complicated *y the fact that many disputes do not result in formal complaints and not all complaints result in panel reports. There is some e$idence to indicate that WTO em*ers #ith "reater economic and political le$era"e are more likely to achie$e a mutually a"reed settlement @ resol$in" or droppin" complaints prior to the issuin" of a panel report @ #hile #eaker em*ers rely more upon the +udicial process of the DSU. The empirical literature on the performance of the !TT and DSU systems is re$ie#ed in Read %885&. The unction ! Composition of WTO Panels

Some concern has *een e-pressed a*out the function and composition of WTO anels, particularly the reliance of the DSU procedures on part@time non@professional panellists. The "reater effecti$eness of the DSU has meant the rapid "ro#th of *oth the $olume and comple-ity of dispute cases. Dou*ts ha$e arisen a*out the competence of part@time panellists, "i$en the rules@ *ased le"al foundations of the dispute settlement procedures and the hea$y #orkload. !s a conse/uence, the 1U has proposed that the WTO should create a permanent or standin" *ody of /ualified and e-perienced panellists.

'>


Automaticity

There is a concern, arisin" partly as a conse/uence of the mis"i$in"s a*out panellists, that panels and the WTO !ppellate ody are e-ceedin" the scope of their remit. That is, that they are interpretin" some of the WTO !"reements in a manner that affects the ri"hts of em*ers, positi$ely or ne"ati$ely, #ithout their consent. The Transparency of the Panel and Appellate Systems

! further concern relatin" partly to automaticity and the functions of panels and the !ppellate ody is that their procedures lack transparency. ecause e$idence and #ritten su*missions to panels are "enerally confidential until the pu*lication of anel Reports, the WTO system has *een accused of e-cessi$e secrecy. reater transparency is unlikely to ha$e an ad$erse impact upon the system althou"h it is opposed *y many de$elopin" countries. The #mplementation of Panel Recommendations and Se*uencin&

There is some de*ate a*out the relati$e primacy of !rticles '.5 and .E of the DSU, hi"hli"hted *y the WTO *anana case. The former pro$ides for referral *ack to a panel #here there is disa"reement a*out compliance #ith a rulin" #hile the latter pro$ides for automatic retaliation in such a case. The DSU currently pro$ides no indication of #hich !rticle should take precedence althou"h lo"ic su""ests that the suspension of concessions should a#ait a decision on the consistency of a re$ised measure. The Participation of De+elopin& Countries in the DSU

!lthou"h the DSU !rticles pay special attention to the needs of de$elopin" countries, their participation continues to *e constrained *y a lack of financial and intellectual resources necessary to fi"ht dispute cases, #hether as plaintiffs or '


respondents. The failure of least@de$eloped countries to use the system at all "i$es some cause for concern. While this reflects the small num*er of least@de$eloped em*ers of the WTO and their small share of "lo*al trade, their $ulnera*ility to retaliatory action means that positi$e e$idence is needed to demonstrate that they are not failin" to make appropriate use of the DSU. 'ational So+erei&nty ! the Democratic Deficit

The WTO dispute settlement system raises important issues relatin" to the competin" demands of its em*er countriesA o*li"ations under international a"reements and their domestic democratic mandates. opular dis/uiet #ith the WTO, amon" other international a"reements, is *y no means confined to the anti@"lo*alisation mo$ement. There is a "ro#in" feelin" in many em*er countries, *oth de$eloped and de$elopin", that the WTO is Gusurpin"A the democratic process *y enforcin" e-ternally imposed rules on so$erei"n states. 2n the past, the recourse of national "o$ernments to international a"reements has *een seen as a means to side@step domestic constituencies opposed to trade li*eralisation. ! democratic deficit has emer"ed ho#e$er, *et#een policy@makers con$inced of the lon"@term *eneficial effects of such commitments and national electorates, some part of #hich remain sceptical of such *enefits. The WTO rules do impose constraints upon the e-ercise of its po#ers desi"ned specifically to preser$e the so$erei"nty of the nation state. 3e$ertheless, national "o$ernments may *e faced #ith a crisis of credi*ility in the face of su*stantial domestic opposition to the o*li"ations re/uired *y the WTO amon" others. !t its mildest, this mi"ht lead to the adoption of a policy of non@compliance #hile possi*le outri"ht re+ection of the WTO could mean a re$ersion to unilateralism #ith its attendant pro*lems. Critical current factors in this apparent deficit relate to national concerns a*out the interfaces *et#een the international trade rules and en$ironment and consumer food health and safety issues ; so@called process and product method %& issues. The percei$ed strict interpretation of the rules on trade *y the WTO ')


to the ne"lect of *roader issues of "reat concern to consumers has en"endered further scepticism o$er and a*o$e those related to trade li*eralisation. !lthou"h the consideration of  issues at the WTO remains incomplete, incremental pro"ress in the interpretation and esta*lishment of appropriate le"al "rounds for trade restrictions on en$ironmental and health "rounds has *een made in se$eral recent dispute cases. !ny fundamental reform of the WTO ho#e$er, remains in the hands of its em*ers. Ac,no-led&ements

Department of 1conomics, 6ancaster Uni$ersity ana"ement School, U:. The author is "rateful for critical supporti$e comments made *y ill :err and 3ick erdikis. References !TT %')E&, )inisterial Declaration, unta del 1ste, ene$a< !TT. 0oekman, .., and :ostecki, .. %88'&, The olitical !conomy of the World Trading System , O-ford< O-ford Uni$ersity ress, nd edition. 0udec, R., :ennedy, D., and S"ar*ossa, . %'))B&, G! statistical profile of !TT dispute settlement cases, ')4@'))A, )innesota *ournal of +lobal Trade, $ol. , no. ', pp. '@ 5. erdikis, 3., and Read, R. %eds.& %885&, The WTO $ the "egulation of #nternational Trade% "ecent Trade Disputes &etween the !uropean 'nion $ the 'nited States , Cheltenham< 1d#ard 1l"ar. etersmann, 1@U., and ollack, .!. %88B&, Transatlantic !conomic Disputes% the !'( the 'S $ the WTO, O-ford< O-ford Uni$ersity ress. Read, R. %885&, GTrade dispute settlement mechanisms< the WTO Dispute Settlement Understandin" in the #ake of the !TTA, in erdikis, 3., and Read, R. %eds.&, The WTO $ the "egulation of #nternational Trade% "ecent Trade Disputes &etween the !uropean 'nion $ the 'nited States , Cheltenham< 1d#ard 1l"ar, pp. 4'@E>. Tre*ilcock, .(., and 0o#se, R. %')))&, The "egulation of #nternational Trade, 6ondon< Routled"e,  nd edition. 8


WTO %')))&, The ,egal Te-ts% the "esults of the 'ruguay "ound of )ultilateral Trade .egotiations , Cam*rid"e< Cam*rid"e Uni$ersity ress. WTO %884&, A Handbook on the WTO Dispute Settlement System , Cam*rid"e< Cam*rid"e Uni$ersity ress.

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Dispute Settlement( Compensation ! Retaliation under the WTO

Robert Read

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Chapter 45 for aisford, (., 9 :err, W.!. %eds.&, Handbook on Trade olicy ,

Cheltenham< 1d#ard 1l"ar, 885.

B

Dispute Settlement in wto

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