Dr.

Ram Manohar Lohia National Law

University

PUBLIC INTERNATIONAL LAW I

FINAL DRAFT

Topic:

WTO and Dispute Settlement Mechansims

SUBMITTED TO: SUBMITTED BY:

Mr. Vipul Vinod Shweta
Asst. Professor Roll no. 133
Public International Law 4th semester, section B
B.A. LL.B. (Hons.)
TABLE OF CONTENTS:
 ACKNOWLEDGEMENT

 INTRODUCTION

 WTO OVER GATT

 PROCEDURE TO BE FOLLOWED BY DSB

 CASE ANALYSIS

 CRITICISM

 CONCLUSION

 BIBLIOGRAPHY
 ACKNOWLDEGEMENT
I have been taught the subject of Public International law by our Respected Lecturer, Mr.

Vipul vinod who helped me all through in the accomplishment of this project. My sincere

thanks to the Respected Lecturer, who helped me to gather the various sources which I could

give final shape to the topic under study. He not only provided me a platform to compile but

also guided me at all levels.

I, also thank the members of the library staff and computer section for the cooperation in

making available the books and accessing the internet even during their free time.

I hope that the project in its present form shall be received by all.
 INTRODUCTION

Economy of a nation depends heavily on the trade and commercial activities within and
outside its jurisdictions. Jurisprudence of trade in the classical era was that there should be no
restriction and there was no state to control the affairs over trade. But with the industrial
revolution, it was felt by majority nations that the trade between two individuals having
consequence in the income of the nation as whole and needs to be regulated with their own
laws and external agencies. Trade between two individuals belongs to a same nation can be
regulated by the law of that particular nation. But with regard the commercial transactions
between nations, there was no uniform mechanism or a body to systemize the international
trade, particularly when it comes a dispute between the parties or states. Immediately after the
World War II, negotiations between large counts of nation were initiated in the year 1944 at
Bretton Woods to form a body and treaty to coordinate international trade and successfully
concluded with the preparation of multilateral treaty with the General Agreement on Tariffs
and Trade in the Geneva meetings, 1947 and the GATT provisionally came into effect from
January 1, 1948. At the same time the attempt to establish an international body called
International Trade Organization was completed with the charter but failed to exist as it was
not adopted by the United States of America’s congress which was an important arm intended
in creating such an international body. From then, GATT was the only international
instrument administering international trade until 1995 when World Trade Organization was
established.1

One of the important purposes for the establishment of GATT agreement was settling
any kind of trade disputes arising between nations. This article will discuss the provisions and
the procedures under GATT and WTO regarding international trade dispute settlement.
Discussion in the first part would be on the evolution of GATT and the emergence of the
international body WTO for settling disputes and the agreements under it. Second part will
give a brief overview of the Dispute Settlement Understanding followed by the WTO Dispute
Settlement Body in deciding trade disputes. In the third part, cases decided by the DSB will be
analysed with a special focus on the disputes which has involved developing countries. Then
in the last part some criticism of the DSB process will be looked into.

1
Safia Gupta, “From GATT to WTO”, available at: http://legalserviceindia.com/article/l378-From-GATT-to-
WTO.html (Visited on September 12, 2011).
 WTO OVER GATT:

GATT Dispute Settlement Scheme:

Main objective of the GATT was to limit the tariff charges and facilitating free trade
for the benefit of all the GATT contracting parties. Under the GATT, there was a procedure
for settlement of disputes in consensus mode, intended to provide an alternative measure to
retaliation, under two provisions.2 Article XXII allows for consultation among the disputed
nations and Article XXIII provides for panels comprising of all the contracting parties to
investigate and present its recommendations to resolve the conflict. Retaliation can also be
recommended under Article XXIII but it has occurred only once in the GATT history, almost
all the parties agree to windup the policies in question. In the beginning, disputes under the
GATT procedure were decided by rulings of the chairman of the council and later on disputes
were referred to the working parties which comprise of all the interested party’s
representatives. Then all these procedures were replaced by a new process of establishing an
independent expert panel consists of three or five experts who are not associated to the
disputed parties.3 The report of the expert panel will sent for approval to the GATT council
and once the recommendations of the panel got approved, it will become binding on the
parties. This evolution of GATT dispute settlement process was the basis for the foundations
for WTO Dispute Settlement Mechanism.

In spite of the salient features of the DSP under GATT, it was not effectively
enforceable due to many reasons like positive consensus and retaliation measures which are
not possible in all the cases. The defects in the GATT underwent eight rounds of multilateral
trade negotiations to reduce tariffs and other barriers to international trade, but none of them
were succeeded in restoring the faith in world trading system.The seventh round of
multilateral trade negotiations named as Tokyo round (1973-79) concentrated on a new way of
promoting free trade by reducing non-tariff barriers. Tokyo round had a significant role in
reducing the blocking of

2
Mitsuo Matsushita, Thomas J. Schoenbaum and et. al., The World Trade Organization- Law, Practice and Policy
5 (Oxford University Press, New York, 2nd edn., 2006).
3
Historic Development of WTO Dispute Settlement System, available at:
http://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c2s1p1_e.htm#txt4 (Visited on March 14,
2011).
consensus by a single party in the dispute settlement process. The inborn defects in the GATT
dispute settlement process led to number of problems in the mid-80s and the need for
improving and strengthening the process was felt by almost all nations.

Establishment of WTO and its Specific Objectives:

In addition to the non-tariff barrier reduction method introduced in the Tokyo round,
dispute settlement was also included and given higher importance in the later negotiation
called Uruguay round(1986-94) which was the last round of GATT multilateral negotiations
concluded with the creation of a new body to regulate and administer international trade. The
final act of the Uruguay round singed in the ministerial meeting at Marrakesh transformed the
GATT in to new international organization called WTO came into being from 1 st January
1995. The new WTO had its notable feature of creating a new procedure for adjudicating legal
disputes under GATT and WTO with a dispute settlement procedure. WTO established with
four main tasks under the agreement:

i) to provide a forum for negotiations among members both to current matters and
any future agreements,

ii) to administer the system of dispute settlement,

iii) to administer the trade policy review mechanism, and

iv) to cooperate as needed with the IMF and the World Bank.

Settling trade disputes between the members is the primary objective of the WTO. For this
purpose the Uruguay round established a new system of dispute settlement with the
Understanding on Rules and Procedures Governing the Settlement of Disputes, in short the
Dispute Settlement Understanding. The concept of Appeal was introduced in the dispute
settlement under WTO in order to have an effective decision making authority called
Appellate Body.
Dispute Settlement Understanding:

The scheme of the DSU is to be an overall framework for the resolution of disputes in
field of international trade under WTO.4 The understanding consists of 27 articles providing
the rules and procedures to be followed by the Dispute Settlement Body in interpreting and
enforcing all the covered agreements that make up the WTO. DSU itself under Article 3.1
provides for the application of Article XXII and XXIII of the GATT 1947.General provisions
contained under Article 3 of the understanding addresses a set of objectives of the dispute
settlement mechanism under WTO. It says that the dispute settlement system of the WTO is
the central pillar of the multilateral trading system and the decision or rulings of the DSB shall
be aimed at achieving a satisfactory settlement of the disputes in accordance with the
provisions of the understandings and the covered agreements. Furthermore, Article 3.2
provides for the application of customary rules of interpretation of public international law to
clarify the provisions of the understandings and the covered agreements. But the link between
article 31 and 32 of the Vienna Convention and the interpretation requirement stated in Article
3.2 of the understanding is now almost eliminated in the WTO law. In November 2001, at the
Doha Ministerial Conference, member governments agreed to negotiate to improve and clarify
the DSU, which was compelled in the 1994 decision itself to review the DSU after five years.

Under Article 2 of the understanding, the general council has to establish a DSB which is
responsible for the administration of entire mechanism. DSB is composed of the ambassadors
from all the member countries representing their nation. The conclusion reached by the DSB
should be done only by consensus among the members, but not like the positive consensus as
in GATT. This new procedure under the understanding eliminates the blocking possibility
through a procedure known as ‘reverse consensus’. It is the sole authority responsible for
establishing panel, appellate body and implementing the findings or recommendation of the
panel or appellate body. DSU explicitly establishes in the text itself the procedure for
implementation of the reports of the panel or the recommendation of the appellate body. It
addition, it clearly establishes a choice for an obligation to implement the findings and the
matter shall be kept under surveillance until the necessary implementation. Article 3.7 of the
DSU warns the member countries to be prudent while invoking the DSB procedures and they
should consider whether such action under the procedure would be fruitful and the aim of the
mechanism is to secure positive solution to a dispute. Only when any positive solution is not
possible, a member can invoke the dispute settlement procedures. WTO members have filed
over 427 complaints in just fifteen years. The detailed procedures to be followed by the DSB
will be briefly explained under the following heads.

4
M B Rao and Manjula Guru, WTO Dispute Settlement and Developing Countries 38 (Lexis Nexis, New Delhi,
2004).
 PROCEDURE TO BE FOLLOWED BY DSB
Generally a dispute arises when it seems to a member government that another member
government is violating an agreement or commitment under WTO. The dispute settlement
mechanism proceeds through three main stages i) Consultation, ii) Formal Litigation and iii)
Necessary Implementation. Settling dispute is the responsibility of the DSB and it is the sole
authority to do four main functions:

i) establish a panel of experts to consider the case,

ii) to accept or reject the report(findings) of the panel,
iii) to accept or reject the results of an appeal,
iv) to retaliate the parties which has failed to comply with the rulings.

Consultation and Mediation:

The formal proceeding starts, before taking over any action, when a member country requests
bilateral consultation at the WTO under article 4. This discussion process is to provide an
opportunity to the parties to the dispute to negotiate themselves to see if they can settle their
differences amicably. This is a private process and there will be no secretariat or other
member’s involvement. But additional (third) parties can join the consultation proceedings
with the consent of the respondent. Strict time period should be maintained during the
consultation. Once the process started after joinder of third parties, the parties should complete
their consultation within 60 days and if it fails to settle the disputes between parties, the parties
can ask the WTO director general to mediate or try to help in any other way.46% of the
disputes filed before the DSB resolved among the parties themselves in this consultation
process itself.

Establishment of Panel:

Complainant can request the DSB to establish the panel of experts to decide the case when
there is no response from the respondent on their request for consultation within 10 days or the
consultation process did not reach any solution within 60 days. A panel of experts should be
appointed by the DSB within 45 days and the panels should consists of three or five persons,
well qualified governmental or non-governmental individuals, including persons who have
served on or presented a case to a panel, picked from a list of persons suggested by the
members of the WTO. Generally the panel should start hearings on the basis of written
submission made by the parties. The procedures to be followed by the panels are given under
Article 12, which mandates the panel to afford enough opportunity to the parties by framing a
suitable time table to make their submissions. The third parties should also be given hearing
opportunity by the panel and they can make their written submissions to the panel. The panel
may seek information and technical advices from any appropriate individual or body when
scientific and technical issues were raised by the parties. It should send its interim reports and
should send its final report the parties and all the members of the DSB within 60 days of its
establishment and in case of urgency, the deadline may be shortened to three months. The
panel discussions are highly confidential and the reports shall be drafted by the panel even
without the parties. If there is no consensus among the members against the findings of the
panel, DSB must adopt the panel’s report within 60 days of its submission. The panel,
officially, helps the DSB in making rulings or recommendations. The panel’s findings have to
be based on the agreements cited.

Report of the Appellate Body:

Any party to a dispute, but not the third party, can appeal the report of the panel, even
both the parties can appeal to the Appellate Body. An appeal is limited to issues of law
covered in the panel report and legal interpretations developed by the panel. Factual findings
and conclusions of the panel cannot be appealed. Each appeal is to be heard by a three member
division from a permanent seven member Appellate Body. Permanent members of the AB are
appointed by the DSB for a fixed term of four years, who are not affiliated to any government
and at the same time broadly representing the range of WTO membership. They have to be
persons with demonstrated expertise in law, international trade and the subject matter of the
covered agreements.

The procedure to be followed by the AB should be drafted by the AB itself in

consultation with the Chairman of the DSB and the Director General. This AB can uphold,
modify or overturn the legal findings of the panel but they cannot re examine the existing
evidence or examine a new issue. As like the panel’s proceedings, AB hearings are also
confidential and AB can draft its final report in the absence of parties. The proceedings of the
AB should be completed within 60 days and in certain cases additional 30 days shall be
permitted. On submission of the AB’s report, the DSB has to adopt or reject it within 30 days.
Rejection is possible only when the DSB decides by a consensus not to adopt the report.
Unless otherwise agreed by the parties to the dispute, the period from establishment of the
panel to adoption or rejection of the report of the panel or the AB by the DSB shall as a
general rule not exceed nine months if the panel report is not appealed, and twelve months if
the report was appealed.
Once adopted, the report will become the recommendation or rulings of the DSB and the same
can advise the party concerned to bring their policies in conformity with the agreement, if they
are found to be inconsistent with that covered agreement. In order to ensure transparency, all
the written submissions made by the parties to the panel or the AB shall be treated as
confidential only available to the parties, but the parties themselves can disclose any
statements or their position to the public. Furthermore even a party to a dispute cannot disclose
any details or any information which was designated as confidential by the party submitted it.
Necessary Implications:

Once the case is decided in favour of the complainant the DSB may accord the losing
party(respondent) a reasonable period of time, not exceeding fifteen months, to bring their
inconsistent laws, regulations, policies into conformity with the WTO agreements.5 This is the
possible way or direction emerging from a WTO dispute and there is no concept of
punishment or even restitution, but the trade sanction can be imposed only in exceptional
cases. On the expiry of twentieth day of the ‘reasonable period’, the winning party may
request the DSB for retaliation measures to induce action on the part of the losing party. This
is very rare as almost all the WTO members voluntarily fulfill their obligation as per the DSB
decisions in time. The DSB must grant the authorisation to impose trade sanctions (suspension
of concessions or compensation) within 30 days of the expiry of the time limit given to the
losing party.
Furthermore, when a losing party brings is laws into conformity with the concerned
agreement, it can choose how to implement the decision and the DSB should monitor how the
adopted rulings are being implemented. The losing party has no obligation to follow the way
of implementation suggested by the winning party.

5
Swapneshwar Goutam, “WTO & Development in Developing Countries Perspective”, available at:
http://legalserviceindia.com/article/l425-WTO-&-Development-In-Developing-Countries-Perspective.html
(Visited on October 2, 2011).
 CASE ANALYSIS

Cases Filed by Less Developed Countries:

Developing countries account for seventy five percent of the WTO membership and are
increasingly able to use their power to influence negotiations traditionally dominated by
developed countries. Seven out of eleven most frequent complainants in the dispute settlement
process are developing countries and they have filed 40% of the total complaints. From the
introduction of the dispute settlement mechanism under WTO the less developed, particularly
the developing nations actively performed in the process. Canada, Brazil, Indian and Mexico
are noted as frequent complainants and third parties while USA and EU are the most frequent
users of the mechanism. The first case filed before the WTO DSB was by Singapore against
Malaysia on prohibition of imports of polyethylene and polypropylene which was settled on
mutual agreement between the parties on March 1995. The second case filed by Venezuela
and Brazil which was an important one on developing nation’s perspective is US Gasoline
case relating to some provisions of the USA’s Clean Air Act which imposes standards for
reformulated and conventional gasoline. But the fact was that USA’s policy measures
restricted imported gasoline and treated it in a less favoured manner. The panel’s report was in
favour of the complainants but in the appeal, the AB has slightly modified the panel’s
reasoning and held the measures taken by USA is not justifiable. Brazil has participated as a
complainant in more than 25 cases and most of them are against USA, EU and Canada.

Another important cases, which was initially succeeded by Malaysia along with India,
Pakistan and Thailand against USA is the US- Shrimp Case, in which the USA’s guidelines
restricting certain countries from importing shrimp were questioned. Both the panel and the
AB concluded that the measure at issue, the import prohibition on shrimp and shrimp products
was inconsistent with the GATT provisions. The same issue was, later on, held not in
contravention to the agreement on considering the provisions on preservation of natural
resources. Though the ruling was not complied with by the USA, it was noted in the WTO
report that the compliance proceedings completed without finding of non-compliance. Some
other countries like Indonesia, Philippines, Thailand, Argentina and Mexico have also filed
many cases against the developed fronts and failed in most of them. Another success of the
developing countries over the developed nations is the Chicken Cuts case. This case was filed
by Thailand and Brazil against the EU on their measures relating to tariff classification
imposing duties on frozen boneless chicken cuts and the same measures were held violative of
GATT articles. Korea’s case on imposing additional duty on their Dynamic RAMs by Japan in
the year 2007 was held in consonance with the Agreements.

Cases Filed against LDC:

Developed economies like USA and EU are the nations which are very well using the
dispute settlement mechanism under WTO to enforce their economic rights. As noted earlier,
USA and EU are accepted as the most frequent users of the system. Starting from its first case
on Korean measures concerning the test and inspection of agricultural products, USA has filed
98 cases as a complainant of which about 50% of the cases against LDCs. As like USA,
European Union has filed 85 cases as a complainant with most of them against LDCs.
Canada’s Aircraft case against Brazil’s export financing programme was a good example for
the privileges enjoyed by the wealthier nations in the DSB proceedings, where Brazil was held
violated the Agreement on Subsidies and Countervailing Measures. Indonesia Autos case is
another good example for the national treatment obligations, where finally Indonesia was
asked by the DSB to stop providing luxury tax exemption or import duty exemption to home
car companies.

Argentina’s provisional and definitive safeguard measures on imports of footwear, was held
inconsistent with the Agreement on Safeguards. In Korea Beef case also the measures taken
by Korea to restrict the beef imports from Australia and USA on the domestic support
programme was concluded as against GATT agreement and the measures accorded less
favoured treatment to the imported beef. Statistics shows that more than 40% of the cases were
filed by the developing countries and in about 35% of the cases they are the defendants. It was
observed by some scholars that, comparing the WTO dispute settlement mechanism, success
rate of developing countries over developed defendants are more under the GATT settlement
process.

India in DSB:

India as a member of WTO has filed 19 cases before the DSB and involved in the
consultation process of 72 cases as a third party. There were 20 cases filed against India till
date. First case was filed by India on different import regimes for automobiles followed by
Poland and a mutually agreed solution was reached between the parties during the consultation
process itself. First case filed in the DSB against India was by the USA in the year 1996 on
India’s product patent stand. India was ruled to implement, in the patent laws, the mailbox rule
and Exclusive Market Right for pharmaceutical and agricultural chemical product patents. So
many cases have been filed by USA and EU against India regarding the patents regime
followed by India. Another important case filed against India by USA and EU is India Autos
case regarding the measures taken by India to impose certain restriction to use imported
components on automobile industry in order to encourage domestic products was held
violation of Article XI of the GATT. Similar case was filed by the USA on India’s quantitative
import restrictions to protect balance of payments under GATT. The case was decided by the
DSB in favour of USA stating that India's monetary reserves were adequate, and, thus, India's
Balance of Payments measures were not necessary to forestall the threat of, or to stop, a
serious decline in its monetary reserves within the meaning of Article XVIII and India had
violated Art. XVIII. This observation clearly shows the biased nature of the dispute settlement
system in favour of the wealthier nations.
Many other cases brought by the developed nations against India like case on additional
import duty imposed by India on alcoholic beverages, patent case by EU were decided against
India. On the other hand, cases filed by India like, shrimp case, steel plate case and
textile case were also decided not in favour of India. One recent case filed by India against the
EU, particularly Netherlands, is the case on seizure of generic drugs manufactured in India in
transit. This case is on the repeated wrongful seizure of generic drugs originating in India
while transiting through ports and airports in Netherlands on patent infringement grounds. The
consultation process was started with third parties like Canada, China, Ecuador, Japan and
Turkey. The consultation process succeeded and the EU had accepted their seizure of generic
drugs was wrong and their members will amend their rules soon and India said it will
withdraw the case when EU ratifies that amendment.

CRITICISM

Critic contends that the smaller countries in WTO exercise very little influence in the
dispute settlement mechanism and despite the WTO was aimed at protecting the developed
countries. The poorest countries in the WTO system are almost completely disengaged from
enforcement of their market access rights through formal dispute settlement litigation. It was
observed by some scholars that disputes filed by USA and EU appear to have ended with the
defendant making the desired policy changes more frequently under WTO. The reason for this
difference was very well analysed by a scholar and the reasons given by him for the poor
performance of LDC in WTO dispute settlement are the lack of legal and political capacity in
international trade and the fear of political or trade reprisal of the LDCs. The reason for low
success rate of the LDCs are also analysed in the same study and the reasons were pointed on
the LDCs concerns regarding experts, the need to hire experts for research and testimony to
support their cases.
Two other major issues attached with the WTO dispute settlement process are on
transparency and the right of private parties in the mechanism. Some scholars have
emphasised on need for the participation of public and non-governmental organisations in the
dispute settlement process in order to provide a way for the weaker economies to approach
DSB and to attain better achievement in the liberalised and priviatised global trade. Several
ways have been recognized by experts in which a private non-governmental party might
participate in the system like rights to observe, rights to submit amicus briefs, and rights to
bring lawsuits directly.

Opening the disputes procedures to public scrutiny and public participation was addressed by
the USA in 1998 itself in the ministerial meeting. At the same time it was observed by some
other scholars that the public access to documents and hearings will have some negative
impact on the legitimacy of WTOs legal rulings. Regarding the biased nature of WTO against
developing countries, the main cause for this situation is that the developing countries are far
less likely than richer countries to induce a settlement before the ruling is issued.63 It was
observed by an expert, Breuss that the system has a tendency to lead WTO members to shoot
in their own feet via protectionary measures.

In addition there were some arguments on the involvement of third parties in the
dispute settlement process which would complicate the dispute settlement and would make the
process more costly with more voices and issues.Another argument was regarding the powers
of AB, to ignore certain issues raised by the parties, given under Article 17.12 of the
understandings.
 CONCLUSION

WTO established with the primary objective to promote free trade and stimulate
economic growth and the DSU under the WTO is providing an effective mechanism to enforce
the trade agreements which experience any violation by its member governments. The
mechanism itself has its own positive and negative features. The Uruguay round and Doha
declarations were focused primarily on the involvement of LDCs in the dispute settlement
process. The understanding itself under many provisions gives some superior status for the
LDCs to equally use the process, like Article 12.10 and 24 regarding time extension given for
the developing countries in consultation process. But the reality learned from the decided
disputes under the DSU clearly shows that the process does not manage the universal economy
impartially. It generally focuses on the commercial interest of the profit making companies
rather than the economic growth of all nations.

Though it is having many inherent defects, as an organization to encourage trade and

economic growth the WTO and the DSM are very well operating towards the stimulation of
trade and economic progress. Regarding the developing countries participation in the panel
process, by the end of 2010, 63 percent of the serving panelists were from developing
countries.6 Due to active participation of and the experience gained by certain developing
countries like India, Brazil, Argentina, Thailand, now there is a little shift in the mechanism.
Nations started understanding their rights and obligations under the WTO agreements. At
present, ignoring all the issues, the WTO DSB proceedings must be made in an impartial and
more transparent manner keeping in view the economic progress and interest of the humanity
rather than having 100% focus on trade.

6
Analysis of WTO DSB developments by Frederick Agah, the then Chairman of the DSB (2010-11), available at:
http://www.wto.org/english/tratop_e/dispu_e/speech_agah_4mar10_e.htm (Visited on September 12, 2011).
 BIBLIOGRAPHY:

1. Ian Hurd, International Organisations, CUP, New York, 2011.

2. Volker Ritterberger and Bernard Zangl, International Organization, Palgrave

macmillan, new York, 2006.

3. Anne O. Krueger, The WTO as an International Organization, O.U.P, New Delhi,2003.

4. MB Rao and Manjula Guru, WTO Dispute Settlement and Developing Countries,

Lexis Nexis Buttersworth, New Delhi, 2004.

Web Sources:
 http://wikipedia.org 
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 http://wto.org 
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 http://legalserviceindia.com 
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 http://ehow.com 
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 http://ssrn.com 