WTO dispute settlement
No credible rules-based system can exist without an efficient and effective Dispute Settlement Mechanism ("DSM"). In turn, an efficient and effective DSM provides security and predictability to the multilateral trading system.
Mindful of the serious shortcomings of the GATT dispute resolution, during the Uruguay Round negotiations several countries pushed for far-reaching changes which eventually found their way into the WTO Dispute Settlement Understanding. In its 20+ years of existence, the WTO DSM has become the most powerful global dispute resolution mechanism.
The WTO DSM was established to solve disputes arising between the members in an effective manner. Any dispute relating tothe covered agreements must be resolved through the WTO DSM. Unilateral action to resolve a dispute is inconsistent with the WTO principles.
The European Union decided to protect it shipbuilding industries with subsidies during the dispute settlement proceeding it had initiated against Korea. Korea complained before the WTO DSM, alleging that the European Union had taken a unilateral action not permitted by the WTO. The panel decided that:
“[Article 23.1 of the Dispute Settlement Understanding imposes] a general obligation on WTO Members not to act unilaterally when seeking the redress of a violation of an obligation under the WTO Agreement. The Panel found that the European Communities had adopted [the challenged measure] in response to what it considered to be a violation by Korea of its obligations under the Subsidies and Countervailing Measures Agreement and that the Communities was seeking to induce Korea to remove its allegedly WTO-inconsistent subsidies. Accordingly, the Panel concluded that the European Communities had acted inconsistently with Article 23.1.”
The goals of WTO DSM are:
- To secure compliance with the covered agreements
- To preserve the rights and obligations of Members under the covered agreements
- To clarify existing provisions of the covered agreements
- To ensure affirmative resolution of dispute and withdrawal of inconsistent measures
The preferred outcome of the dispute settlement is a mutually acceptable solution by parties. Thus, parties are free to negotiate and come to a solution in any phase of the dispute.
The main body of the WTO administering disputes is Dispute Settlement Body ("DSB"). The DSB is the General Council in another disguise. It consists of all WTO members. The DSB:
- Hosts consultations
- Establishes panels
- Approves the appointment of Appellate Body Members
- Adopts panels and Appellate Body reports
- Maintains surveillance on implementation
- Authorizes retaliatory measures
The DSB adopts panel and Appellate Body ("AB") reports with the negative consensus rule. It means that a report is adopted unless every Member participating in the DSB meeting votes against it.
The WTO DSM decides on important issues having influence in the flow of world trade, public health and safety measures and technical standards members are using, the environment, etc. The following table presents some landmark cases:
As of August 2018, there are a number of very important cases under examination. One of them is the appeal of the Tobacco Plain Packaging panel report. This dispute was brought by various tobacco-producing countries against Australia. The challenged measure was adopted on public health grounds, in line with the position of the World Health Organisation. Read more Another important dispute under review concerns the transit ban imposed by Russia on Ukrainian goods, including goods exported to Azerbaijan. Russia claims that this measure is justified on national security grounds. While the panel is examining this case, various countries have brought separate cases against measures adopted by Gulf countries and US, which are also justified on national security grounds.
The procedure in a nutshell
The main procedural stages are as follows:
If parties do not reach an agreement during the consultations, the complaining country may request the establishment of a panel. From that moment onwards, only the complaining country can effectively stop the proceeding.
Once the panel is established, it has to be composed. 3 trade experts are chosen to resolve the dispute.Panellists may not be from a country party to the dispute, unless both sides agree. They are chosen by the parties or the WTO Director General. The WTO secretariat supports the panel members. The panel proceedings involve a written part (presentation of submissions and replies to questions) and an oral part (hearing). The proceeding concludes with the circulation of the panel report, which can be appealed.
The Appellate Body is the second instance of the WTO DSM. It is a standing body consisting of 7 members serving 4 year terms (renewable for 4 more years). Each appellate review is conducted by 3 AB members. The AB has its own secretariat for the support it in the appellate process. The AB may uphold, modify or reverse appealed panel decisions. The appellate procedure also includes written and oral parts. The AB circulates a report.
After the issuance of the report(s), they are placed in the agenda of the DSB for adoption. While they may not be adopted, this has only very rarely happened.
After adoption, the implementation phase starts. The losing country must implement the ruling within a reasonable period of time. Implementation can be achieved in many ways, for instance an inconsistent measure may be repealed. Or, it may be amended to correct the inconsistencies. In the latter case, however the country that won the dispute may disagree with the consistency of the corrected measure and can request a panel to review it.
Where the losing country does not take any corrective measures, or where an amended measure continues to be inconsistent with a member’s WTO obligations, the complaining member can request the DSB to authorize the adoption of countermeasures. Countermeasures can be applied only until the moment when the losing party stops with its WTO inconsistent behaviour. Some famous disputes that ended with countermeasures being authorised include Foreign Sales Corporations (losing party: the United States), the civil aircraft cases between Brazil and Canada and the bananas case (losing party: the European Union).
Some salient facts and figures
More information on the WTO Dispute Settlement Mechanism