Dispute settlement in the World Trade Organization

Dispute settlement or dispute settlement system (DSS) is regarded by the

A former WTO Director-General characterized the WTO dispute settlement system as "the most active international adjudicative mechanism in the world today."[3] Chad P. Bown of the Peterson Institute for International Economics and Petros Mavroidis of Columbia Law School remarked on the 20th anniversary of the dispute settlement system that the system is "going strong" and that "there is no sign of weakening".^[4] The dispute settlement mechanism in the WTO is one way in which trade is increased.^[5][6][7][8]

Since 2019, the WTO's dispute settlement mechanism has been de facto paralysed due to the United States vetoing the appointment of judges to the WTO's Supreme Appellate Body, and without a functioning Appellate Body, no final rulings can be made. This has since severely impacted the effectiveness of the WTO.^[9][10][11] This action has been criticised by many countries, including China, Australia and Mexico, who in 2022 pushed for a proposal to restart the appointment of judges, and was once again blocked by the United States.^[12]

Dispute Settlement Understanding

Prompt compliance with recommendations or rulings of the DSB is essential in order to ensure effective resolution of disputes to the benefit of all Members.

— World Trade Organization, Article 21.1 of the DSU

In 1994, the WTO members agreed on the Understanding on Rules and Procedures Governing the Settlement of Disputes or Dispute Settlement Understanding (DSU) (annexed to the "Final Act" signed in Marrakesh in 1994).^[13] Pursuant to the rules detailed in the DSU, member states can engage in consultations to resolve trade disputes pertaining to a "covered agreement" or, if unsuccessful, have a WTO panel hear the case.^[14] The priority, however, is to settle disputes, through consultations if possible. By January 2008, only about 136 of the nearly 369 cases had reached the full panel process.^[2]

The operation of the WTO dispute settlement process involves the parties and third parties to a case and may also involve the DSB panels, the

Members may express their views on the report of the Appellate Body, but they cannot derail it. The DSU states unequivocally that an Appellate Body report shall be adopted by the DSB and unconditionally accepted by the parties, unless the DSB decides by consensus within thirty days of its circulation not to adopt the report.[26] Unless otherwise agreed by the parties to the dispute, the period from establishment of the panel to consideration of the report by the DSB shall as a general rule not exceed nine months if there is no appeal, and twelve months if there is an appeal.^[27]

The Secretariat has an influential role on dispute settlements. The Secretariat selects panelists, exercises financial control, writes an initial issues paper for adjudicators, provide economic expert advice, participate in internal deliberations and draft the actual ruling.^[28]

WTO Appellate Body

The WTO Appellate Body of judges was first established in 1995. While a full complement consists of seven judges, the Appellate Body can hear an appeal with a minimum of three. The full term for an Appellate Body judge's appointment lasts four years with the a possibility of a reappointment for a second term.^[29]

By July 2018, there were only four judges remaining, as others had completed their 4-year terms and the term for one of these judges ends later in 2018. According to an article by the Waterloo, Ontario-based independent think tank Centre for International Governance Innovation (CIGI)—supported by the Canadian federal government, the Office of the United States Trade Representative, which is seeking WTO reforms, has blocked any re-appointments.^[29]

The Appellate Body is designated with a level of authority, pertaining to procedural issues. The Appellate Body has been met with much criticism, as it is said to have the potential to threaten the balance and exacerbate existing inequalities. The Appellate Body has accomplished several significant reforms; broadened access of third parties in appellate proceedings, opened the door to amicus curiae submissions by private individuals, and endorsed private counsels to represent governments.^[30]

According to a 2022 study, the creation of the Appellate Body and the manner of its evolution was largely unanticipated by WTO member states.^[31]

Compliance

The DSU addresses the question of compliance and retaliation. Within thirty days of the adoption of the report, the member concerned is to inform the DSB of its intentions in respect of implementation of the recommendations and rulings. If the member explains that it is impracticable to comply immediately with the recommendations and rulings, it is to have a "reasonable period of time" in which to comply. This reasonable amount of time should not exceed 15 months.^[32] If no agreement is reached about the reasonable period for compliance, that issue is to be the subject of binding arbitration; the arbitrator is to be appointed by agreement of the parties. If there is a disagreement as to the satisfactory nature of the measures adopted by the respondent state to comply with the report, that disagreement is to be decided by a panel, if possible the same panel that heard the original dispute, but apparently without the possibility of appeal from its decision. The DSU provides that even if the respondent asserts that it has complied with the recommendation in a report, and even if the complainant party or the panel accepts that assertion, the DSB is supposed to keep the implementation of the recommendations under surveillance.^[33]

Compensation and retaliation

If all else fails, two more possibilities are set out in the DSU:

• If a member fails within the "reasonable period" to carry out the recommendations and rulings, it may negotiate with the complaining state for a mutually acceptable compensation. Compensation is not defined, but may be expected to consist of the grant of a concession by the respondent state on a product or service of interest to the complainant state.^[34]
• If no agreement on compensation is reached within twenty days of the expiry of the "reasonable period", the prevailing state may request authorization from the DSB to suspend application to the member concerned of concessions or other obligations under the covered agreements.^[34] The DSU makes clear that retaliation is not favored, and sets the criteria for retaliation.^[35] In contrast to prior GATT practice, authorization to suspend concessions in this context is semi-automatic, in that the DSB "shall grant the authorization [...] within thirty days of the expiry of the reasonable period", unless it decides by consensus to reject the request.^[36] Any suspension or concession or other obligation is to be temporary. If the respondent state objects to the level of suspension proposed or to the consistency of the proposed suspension with the DSU principles, still another arbitration is provided for, if possible by the original panel members or by an arbitrator or arbitrators appointed by the Director-General, to be completed within sixty days from expiration of the reasonable period.^[36]

While such "retaliatory measures" are a strong mechanism when applied by economically powerful countries like the United States or the United Kingdom or organisations like the European Union, when applied by economically weak countries against stronger ones, they can often be ignored.^[37] Whether or not the complainant has taken a measure of retaliation, surveillance by the DSB is to continue, to see whether the recommendations of the panel or the Appellate Body have been implemented.^[38]

Developing countries

Like most of the agreements adopted in the Uruguay Round, the DSU contains several provisions directed to developing countries.

Since Donald Trump took office back in 2016, he has been complaining that the WTO was "biased against the US" and even threaten to pull US out of WTO.[46]^[47] However, US. Economists Jeffry Frieden and Joel Trachtman found that the United States wins the vast majority of disputes it brings against other countries, winning "more than the average when it is complainant".^[48]

Nonetheless, Washington started to block the appointment of new judges to the WTO's Appellate Body.^[49][50][51] In December 2019, the appellate body of the World Trade Organization, which is considered the supreme court for international trade, lost the ability to rule on dispute cases because it lacks quorum necessary to hear appeals.^[9] The panel is supposed to have seven judges but the US has blocked all the replacements and thus has paralyzed the WTO dispute settlement mechanism.^[52][11] Without a functioning Appellate Body to make a final ruling, any case that is appealed will be forced to be halted.^[53][54]

Timing of trade disputes

In their 2017 article published in the Journal of International Economics, the authors examined WTO disputes filed by the United States between 1995 and 2014. They developed a theoretic model to explain the regularity with which incumbent presidential candidates filed trade disputes involving industries in swing states in the year prior to presidential elections.^[55]

See also

• List of WTO dispute settlement cases
• Mexican Avocado Dispute
• Beef Hormone Dispute
• Trade barrier

Notes