dispute settlement mechanism under world trade organisation (wto)

CASIRJ Volume 6 Issue 8 [Year - 2015] ISSN 2319 – 9202

International Research Journal of Commerce Arts and Science http://www.casirj.com Page 39

DISPUTE SETTLEMENT MECHANISM UNDER WORLD TRADE

ORGANISATION (WTO)

Nitesh Kumar Srivastava Ph.d Scholar

Amity University NOIDA, Uttar Pradesh

INTRODUCTION:

The history of the World Trade Organization begins in 1994, but the

transformation of the world trade regulation occurred over the entire forty seven year GATT

operation (from 1947 to 1994)4. Nevertheless, the 1994 WTO Treaty was very important

because it led to the institutionalization of the GATT, and it established the foundation for a new

organization with legal personality, the World Trade Organization. Before this

institutionalization, no administrative machinery existed: yet in 1947, GATT articles XXII and

XXIII established that if a violation of an agreement occurs, the contracting parties had to

mutually settle any disputes without the possibility to apply before a court or another dispute

settlement body. The Interim Commission of the ITO provided the administrative services, and

the intergovernmental meetings between the contracting parties were responsible for direction

and oversight.

The GATT system was like a club, in which contracting parties mutually recognized principles

and rules and settled their disputes diplomatically7. In 1952, panels were introduced for the first

time, and consequently, the disputes were assigned to these impartial bodies with the exclusion

of the litigant parties. The use of panel proceedings marked an important shift in the GATT

dispute settlement history, even if, for a long time period, the member states were reluctant to

show a significant amount of confidence in this new legal mechanism.

The introduction of panel practise constituted an effort to give WTO members more objectivity

in dispute resolution and to strength their legal obligations. During the Tokyo Round, some

proposals were made from the United States to improve the panel procedural rules and to

increase the predictability of the dispute settlement system. However, most of the limits of the

prior GATT system remained, and the Understanding Regarding Notification, Consultation,

Dispute Settlement and Surveillance, adopted on November 28, 1979, did not bring about a real

system reform. Nevertheless, from this moment up until the Uruguay Round, the question of the

nature of the dispute settlement system became the crucial issue in the debate on the World

Trade Organization. Two opposite directions were emerging: on one hand, the supporters of

procedural legalism wanted to strength the system’s juridification process, with more formalized

procedural rules, the introduction of a general duty to give reasons, modified appointment

mechanisms for panellists and so on; on the other hand, supporters of the diplomacy paradigm

tried to obtain more procedural flexibility and proposed to facilitate political and diplomatic

assessment of the disputes.

The basic rules and procedures of dispute settlement under the World Trade

Organization (WTO) are the same for all member countries. Nevertheless, there is substantial



concern that the trading interests of certain types of members, such as small or developing

countries, may be underrepresented in dispute settlement activity. A bias in participation activity

may stem from the current system of self-representation requiring that countries have sufficient

resources to both monitor and recognize relevant WTO violations and to fund legal proceedings

in cases in which their rights have been violated. Furthermore, the self-enforcing nature of the

system requires complainant countries have the retaliatory capacity to threaten to impose

economic costs on respondents that fail to comply with WTO panel rulings. dispute settlement

activity may be skewed against the confrontation of trading partners with whom a country has a

special political relationship - either through reliance on a foreign government for development

assistance or through membership in a common preferential trade agreement. If these and other

incentives affect litigation behavior, poor and/or powerless countries may not participate even in

the dispute settlement activity critical

ly important to their trading interests.1 Thus, while all WTO members have equal access to the

system in principle, use of the dispute settlement provisions may reflect an “institutional bias”;

i.e., that poor and/or powerless members do not participate because of the incentives generated

by the rules and procedures of the institution. This paper empirically investigates whether such

determinants affect participation in the formal WTO dispute settlement process in practice.

IMPORTANCE OF THE DSB:

The best international agreement is not worth very much if

its obligations cannot be enforced when one of the signatories fails to comply with such

obligations. An effective mechanism to settle disputes thus increases the practical value of the

commitments the signatories undertake in an international agreement. The fact that the Members

of the WTO established the current dispute settlement system during the Uruguay Round of

Multilateral Trade Negotiations underscores the high importance they attach to compliance by all

Members with their obligations under the WTO Agreement. Settling disputes in a timely and

structured manner is important. It helps to prevent the detrimental effects of unresolved

international trade conflicts and to mitigate the imbalances between stronger and weaker players

by having their disputes settled on the basis of rules rather than having power determine the

outcome. Most people consider the WTO dispute settlement system to be one of the major results

of the Uruguay Round. After the entry into force of the WTO Agreement in 1995, the dispute

settlement system soon gained practical importance as Members frequently resorted to using this

system.

FUCTIONS OF THE DSB:

Providing security and predictability to the multilateral trading system

A central objective of the WTO dispute

settlement system is to provide security and predictability to the multilateral trading system

(Article 3.2 of the DSU). Although international trade is understood in the WTO as the flow of

goods and services between Members, such trade is typically not conducted by States, but rather

by private economic operators. These market participants need stability and predictability in the

governing laws, rules and regulations applying to their commercial activity, especially when they

conduct trade on the basis of long-term transactions. In light of this, the DSU aims to provide a

fast, efficient, dependable and rule-oriented system to resolve disputes about the application of

the provisions of the WTO Agreement.



Preserving the rights and obligations of WTO Members

Typically, a dispute arises when one

WTO Member adopts a trade policy measure that one or more other Members consider to be

inconsistent with the obligations set out in the WTO Agreement. In such a case, any Member that

feels aggrieved is entitled to invoke the procedures and provisions of the dispute settlement

system in order to challenge that measure. If the parties to the dispute do not manage to reach a

mutually agreed solution, the complainant is guaranteed a rules-based procedure in which the

merits of its claims will be examined by an independent body (panels and the Appellate Body). If

the complainant prevails, the desired outcome is to secure the withdrawal of the measure found

to be inconsistent with the WTO Agreement. Compensation and countermeasures (the

suspension of obligations) are available only as secondary and temporary responses to a

contravention of the WTO Agreement (Article 3.7 of the DSU).

Clarification of rights and obligations

Under WTO to clarification of right and

obligations of the member through interpretation of the case.

DISPUTE SETLLEMENT PROCESS UNDER WTO:

When a country encounters a

trade measure that seemingly violates the WTO Agreement, the first action would normally be to

raise the matter directly with the trading partner in question. In many cases, informal bilateral

consultations may resolve the problem. However, if the issue can not be settled informally, the

Complainant has the right to bring the matter to the WTO for adjudication. The formal process

takes its beginning when a country requests consultation at the WTO. The request includes a

brief description of the measure(s) concerned and the legal grounds for the complaint. The

Respondent is obliged to reply to the request within ten days, and to grant

opportunity to consult, in order to resolve the dispute amicably, within thirty days. Should the

Respondent refuse to consult on the matter, the Complainant can request the establishment of a

panel after thirty days. Otherwise, the consultation period is set to sixty days to allow the parties

sufficient time to sort out their differences bilaterally. Should a settlement be reached, it must be

notified to the Dispute Settlement Body (DSB) and the relevant Councils and Committees (Art

3.5 DSU) in order to ensure that it does not violate any provisions of the WTO Agreement to the

disadvantage of other Members. If within sixty days no solution can be reached, and unless

parties to the dispute agree to an extension of the consultation period, the Complainant can

proceed to the adjudication stage (Art. 4.3 DSU). The adjudication stage starts with a formal

request for a panel inquiry into the matter. Panels will be automatically established the second

time such a request appears on the agenda of the DSB (Art. 6 DSU). The composition of the

panels will be agreed by the parties or, in case parties cannot agree within 20 days, will be

decided by the WTO Director-General (Art. 8.7 DSU). The panel proceedings consist of written

submissions and oral hearings where the parties are provided two or more opportunities to

present their case before the panelists, and to rebut the legal and factual arguments of the other

side. The panelists, with the assistance of the staff of the Legal Division of the WTO, will then

issue a report, including the ruling. This report should be circulated within six months after the

initiation of the panel (Art. 12.8 DSU), or exceptionally within nine months (Art. 12.9 DSU),

unless the parties to the dispute request a suspension of the proceedings (Art. 12.12 DSU). Once


International Research Journal of Commerce Arts and Science http://www.casirj.com 2

issued, panel reports must be adopted within sixty days (Arts. 16.1 and 16.4 DSU), unless one or

both sides decide to appeal against the rulings to the Appellate Body (AB). The mandate of the

AB is limited to reviewing the legal arguments of the panel report. The Appellate Body must

issue its report within sixty, and in exceptional circumstances, within ninety days (Art. 17.5

DSU). The report must be presented before the DSB for adoption within thirty days from its

circulation (Art. 17.14 DSU), and will be adopted unless it is unanimously rejected (the winning

party being part of the unanimous vote). Respondents found guilty of violating the rules will be

accorded a "reasonable period of time" to bring inconsistent measures into compliance with their

WTO obligations, not exceeding fifteen months (Art. 21.3c DSU). At the end of this period there

are two possibilities. If the Respondent takes no action towards compliance, the Complainant can

request authorization to take countermeasures (Art. 22.2 DSU), which will be granted within ten

days (Art. 22.6 DSU). These measures have to be "equivalent to the level of nullification or

impairment" (Art. 22.4 DSU), and thus do not allow for any form of punitive damages. On the

other hand, if the Respondent did take some action towards compliance, but the actions are

deemed unsatisfactory by the Complainant, recourse must be made within ninety days to the

original panel, if possible, to rule on the adequacy of implementation (Art. 21.5 DSU). As

evidenced by the description above, all WTO Members have a right to seek adjudication for their

trade grievances. However, there may be other impediments that hold back certain Members

from exercising this right. First, the legal proceedings are often lengthy, and may involve

considerable costs.6 Second, small countries may be discouraged from bringing complaints if

their prospects of enforcing rulings in their favor are bleak because of limited retaliatory power,

especially since there is no mechanism for collective punishment of recalcitrant Respondents. Or,

small developing countries may exercise self-constraint in picking their fights in order not to

jeopardize privileges they depend on, including development aid and unilateral trade preferences.

WTO structure

All WTO members may participate in all councils, committees, etc, except

Appellate Body, Dispute Settlement panels, and plurilateral committees.

CHART 1

Disputes in the WTO are essentially about broken promises. WTO members have agreed that if

they believe fellow-members are violating trade rules, they will use the multilateral system of

settling disputes instead of taking action unilaterally. That means abiding by the agreed

procedures, and respecting judgements. A dispute arises when one country adopts a trade policy

measure or takes some action that one or more fellow-WTO members considers to be breaking

the WTO agreements, or to be a failure to live up to obligations. A third group of countries can

declare that they have an interest in the case and enjoy some rights. A procedure for settling

disputes existed under the old GATT, but it had no fixed timetables, rulings were easier to block,

and many cases dragged on for a long time inconclusively. The Uruguay Round agreement

introduced a more structured process with more clearly defined stages in the procedure. It

introduced greater discipline for the length of time a case should take to be settled, with flexible

deadlines set in various stages of the procedure. The agreement emphasizes that prompt

settlement is essential if the WTO is to function effectively. It sets out in considerable detail the

procedures and the timetable to be followed in resolving disputes. If a case runs its full course to

a first ruling, it should not normally take more than about one year 15 months if the case is



appealed. The agreed time limits are flexible, and if the case is considered urgent (e.g. if

perishable goods are involved), it is accelerated as much as possible. The Uruguay Round

agreement also made it impossible for the country losing a case to block the adoption of the

ruling. Under the previous GATT procedure, rulings could only be adopted by consensus,

meaning that a single objection could block the ruling. Now, rulings are automatically adopted

unless there is a consensus to reject a ruling — any country wanting to block a ruling has to

persuade all other WTO members (including its adversary in the case) to share its view.

Although much of the procedure does resemble a court or tribunal, the preferred solution is for

the countries concerned to discuss their problems and settle the dispute by themselves. The first

stage is therefore consultations between the governments concerned, and even when the case has

progressed to other stages, consultation and mediation are still always possible.

WTO Dispute Settlement Understanding

The Understanding on Rules and Procedures

Governing the Settlement of Disputes (DSU) continues past GATT dispute practice, but also

contains features aimed at strengthening the prior system. The DSU provides for integrated

dispute settlement under which the same rules apply to disputes under virtually all WTO

agreements, subject to any special or additional rules in an individual agreement. The WTO

Dispute Settlement Body (DSB), created under the DSU and consisting of representatives of all

WTO Members, administers WTO dispute settlement proceedings. While the DSB ordinarily

operates by consensus (i.e., without objection), the DSU reverses past consensus practice at

fundamental stages of the process. Thus, unless it decides by consensus not to do so, the DSB

will establish panels; adopt panel and appellate reports; and, where WTO rulings have not been

implemented and if requested by a prevailing party, authorize the party to impose a retaliatory

measure. The DSU also sets forth deadlines for various stages of the proceedings and improves

multilateral monitoring of the implementation of adopted rulings.

Given that panel reports would otherwise be adopted automatically, WTO Members have a right

to appeal a panel report on legal issues. The DSU creates a standing Appellate Body to carry out

this added appellate function. The Appellate Body has seven members, three of whom serve on

any one case. Dispute settlement under the WTO is primarily Member-driven, that is, it is up to

the parties to a dispute to decide whether or not to take particular actions available to them, e.g.,

to request a panel if consultations fail, to request authorization to impose countermeasures

against a noncomplying member, or to impose such measures even if the DSB has authorized

them. As stated in Article 3.7 of the DSU, the preferred outcome of a dispute is “a solution

mutually acceptable to the parties and consistent with the covered agreements.” Absent this, the

primary objective of the process is withdrawal of a violative measure, with compensation and

retaliation being avenues of last resort.

As of the date of this report, 405 complaints have been filed under the DSU, with approximately

one-half of these resulting in the establishment of a panel. In some of these proceedings,

however, the panel process was discontinued due to a settlement of the dispute or for other

reasons. To date, 131 original panel reports have been publicly circulated. Some panels have also

issued an additional report or reports under Article 21.5 of the DSU determining whether the

defending Member complied in a particular dispute. About two-thirds of the original panel

reports were appealed. Approximately one-half of the 405 WTO complaints involve the United

States as complaining party or defendant. The United States Trade Representative (USTR)



manages U.S. participation and is the chief representative of the United States in the WTO,

including in WTO disputes. The DSU was scrutinized by WTO Members under a Uruguay

Round Declaration, which called for completion of a review within four years after the WTO

Agreement entered into force (i.e., by January 1999). Members did not agree on any revisions in

the initial review and continued to negotiate on dispute settlement issues during the current WTO

Doha Development Round of multilateral trade negotiations, doing so on a separate track

permitting an agreement to be adopted apart from any overall Doha Round accord. In 2008, the

chairman of the dispute settlement negotiations prepared a consolidated draft legal text based

mainly on Member proposals, which Members agreed to use in their negotiations.3 The United

States has proposed such revisions as greater Member control over the process, guidelines for

WTO adjudicative bodies, and increased transparency, e.g., open meetings and timely access to

submissions and final reports. Other Member proposals include, inter alia, a permanent roster of

panelists, enabling the Appellate Body to remand decisions to panels for further proceedings,

rules for sequencing and the termination of retaliatory measures (see below), tightened time

frames, enhanced third-party rights, and special treatment for developing country disputants.

STEPS IN A WTO DISPUTE:

Following are the stages in a DSU proceeding, with the applicable DSU articles for each:

Consultations (Article 4)

Consultation under Article XXII and Article XXIII, respectively

Regarding the difference between the two provisions, consultation under Article XXII covers

any matter affecting the operation of GATT, while the coverage of consultation under Article

XXIII is limited to certain matters. Specifically, Article XXIII provides that a contracting party

may make representations or proposals to another contracting party if the former party considers

that any benefit accruing to it directly or indirectly under GATT is being nullified or impaired or

that the attainment of any objective of GATT is being impeded as the result of:

(a) the failure of another contracting party to carry out its obligations under GATT, or

(b) the application by another contracting party of any measure, whether or not it conflicts

with the provisions of GATT, or

(c) the existence of any other situation.

Thus, disputes over “nullification or impairment of any benefit otherwise to accrue under

GATT” may be brought to consultation under Article XXIII. Another point of difference

between the two concepts of consultation is the participation of a third country; it is permitted

only with respect to consultations under Article XXII. Similar differences can be seen in the

relation between Article XXII and Article XXIII of GATS.

2) Consultation under Article 4 of DSU

The DSU specifies that it adheres to the principles of the management of disputes applied under

Articles XXII and XXIII of GATT (paragraph 1, Article 3 of DSU). Article 4 of DSU provides

for consultation procedures and rules and specifies that each party should give sympathetic

consideration to any representations made by another party and should provide adequate



opportunity for consultation. It provides that the parties which enter into consultations should

attempt to obtain satisfactory adjustment of the matter concerned.

According to the DSU (paragraph 4, Article 4), a request for consultations shall be

effective when such request is submitted in writing, gives reasons for the request, including

identification of the measures at issue and an indication of the legal basis for the complaint and is

notified to the DSB (Dispute Settlement Body of WTO). It provides that the party to which a

request is made shall reply within 10 days after the date of its receipt and shall enter into

consultations in good faith within a period of no more than 30 days after the date of receipt of the

request, with a view to reaching mutually satisfactory solution (paragraph 3, Article 4 of DSU).

WTO Members other than the consulting parties are to be informed in writing of requests for

consultations, and any Member that has a substantial trade interest in consultations may request

to join in the consultations as a third party. It is also provided that the party to which the request

for consultations is addressed may reject the said third party’s desire to join in the consultations

when the party considers that “the claim of substantial trade interest is not well-founded”

(paragraph 11, Article 4 of DSU).

Good Offices, Conciliation and Mediation (Article 5)

Good offices, conciliation and mediation

are procedures that are undertaken voluntarily if the parties to the dispute so agree. Proceedings

involving good offices, conciliation and mediation, and in particular positions taken by the

parties to the dispute during these proceedings, shall be confidential, and without prejudice to the

rights of either party in any further proceedings under these procedures. Good offices,

conciliation or mediation may be requested at any time by any party to a dispute. They may

begin at any time and be terminated at any time. Once procedures for good offices, conciliation

or mediation are terminated, a complaining party may then proceed with a request for the

establishment of a panel. When good offices, conciliation or mediation are entered into within 60

days after the date of receipt of a request for consultations, the complaining party must allow a

period of 60 days after the date of receipt of the request for consultations before requesting the

establishment of a panel. The complaining party may request the establishment of a panel during

the 60-day period if the parties to the dispute jointly consider that the good offices, conciliation

or mediation process has failed to settle the dispute. If the parties to a dispute agree, procedures

for good offices, conciliation or mediation may continue while the panel process proceeds. The

Director-General may, acting in an ex officio capacity, offer good offices, conciliation or

mediation with the view to assisting Members to settle a dispute.

PANEL PROCEDURES:

Establishing a Dispute Panel (Articles 6):

Article XXIII of GATT provides that if no

satisfactory adjustment is effected through consultations between the contracting parties

concerned, the dispute concerned may be referred to the DSB (Dispute Settlement Body, or

“Contracting Parties” under the former GATT) with respect to alleged “nullification or

impairment of any benefit otherwise to accrue under GATT” as mentioned above. The WTO

dispute settlement mechanism does not differentiate consultations under Article XXII from those

under Article XXIII of GATT. If consultations fail to settle a dispute within 60 days after the



date of receipt of a request for consultations, the complaining party may submit a written request

to the DSB for the establishment of a panel (paragraph 7, Article 4 of DSU). It is provided that

such written request should indicate whether consultations were held, identify the specific

measures at issue and provide a brief summary of the legal basis of the complaint sufficient to

present clearly the problem of inconsistency with trade agreements in question (paragraph 2,

Article 6 of DSU). As a rule, decisions of the DSB are made by consensus, but the so-called

“negative consensus method” is applied to the issues of “establishment of panels” (paragraph 1

of Article 6), “adoption of reports of a panel or Appellate Body” (paragraph 4 of Article 16 and

paragraph 14 of Article 17) and “compensation and the suspension of concessions” (paragraph 6

of Article 22), the requested action is approved unless all participating Member countries present

at the DSB meeting unanimously object. As far as the DSB’s establishment of a panel is

concerned, paragraph 2, Article 6 of DSU specifies that “a panel shall be established at the latest

at the DSB meeting following that at which the request first appears as an item on the DSB’s

agenda, unless at that meeting the DSB decides by consensus not to establish a panel.” Parties

other than the complaining party which requested the establishment of a panel are entitled to

block the panel establishment but only once (paragraph 1, Article 6 of DSU). This veto is most

frequently employed by the respondent. Therefore, in most cases, a panel is established at the

second DSB meeting at which the request appears as an item on the DSB’s agenda. Any Member

that desires to be joined in the panel procedure as a third party because of having a substantial

interest in the matter concerned is required to express such desire at the time of the establishment

of a panel or within 10 days after the date of the panel establishment.

Article 7: Terms of Reference of Panels:

Panels shall have the following terms of reference unless

the parties to the dispute agree otherwise within 20 days from the establishment of the panel:

“To examine, in the light of the relevant provisions in (name of the covered agreement(s)

cited by the parties to the dispute), the matter referred to the DSB by (name of party) in

document ... and to make such findings as will assist the DSB in making the

recommendations or in giving the rulings provided for in that/those agreement(s).”

Panels shall address the relevant provisions in any covered agreement or agreements cited by the

parties to the dispute. In establishing a panel, the DSB may authorize its Chairman to draw up

the terms of reference of the panel in consultation with the parties to the dispute, subject to the

provisions of paragraph 1. The terms of reference thus drawn up shall be circulated to all

Members. If other than standard terms of reference are agreed upon, any Member may raise any

point relating thereto in the DSB.

Composition of Panels Article 8:

Once a panel is established, the next step is to select panelists.

Selection of panelists is conducted through proposals by the WTO Secretariat on panelists

(paragraph 6, Article 8 of DSU). Generally, the Secretariat summons the disputing parties and

hears their opinions concerning desirable criteria for selecting panelists, such as home country,

work experience and expertise.



Then, the Secretariat prepares a list of nominees (generally six persons) providing their names

and brief personal record, and show the list to both parties. It is provided that citizens of the

disputing parties or third parties joined in the panel procedure may not serve on a panel

concerned with that dispute, unless the parties to the dispute agree otherwise (paragraph 3,

Article 8 of DSU). It is also provided that either disputing party “shall not oppose nominations

except for compelling reasons” (paragraph 7, Article 8 of DSU). However, since the definition of

a compelling reason is not very strict, frequently nominations made by the WTO Secretariat are

not accepted by either party, and sometimes this happens several times. Also, it is provided that

if there is no agreement on the panelists within 20 days after the date of the establishment of a

panel, the Director-General, upon request of either party, shall determine the composition of the

panel after consulting with the parties to the dispute (paragraph 7, Article 8 of DSU).

Article 11: Function of Panels :

The function of panels is to assist the DSB in discharging its

responsibilities under this Understanding and the covered agreements. Accordingly, a panel

should make an objective assessment of the matter before it, including an objective assessment

of the facts of the case and the applicability of and conformity with the relevant covered

agreements, and make such other findings as will assist the DSB in making the recommendations

or in giving the rulings provided for in the covered agreements. Panels should consult regularly

with the parties to the dispute and give them adequate opportunity to develop a mutually

satisfactory solution.

Making written submissions:

After the composition of a panel is determined, the panel meets to

determine the timetable for the panel process and the working procedures it will follow

throughout the dispute. Then, after three to six weeks from the establishment of the panel, the

complainant provides the panel a written submission containing all facts relating to the issue

concerned and its claims. The respondent also provides a written submission to the panel in two

to three weeks after the receipt of the complainant’s written submission (paragraph 12 of

Appendix 3 of DSU). Although there is no rule specifying the composition of a written

submission, in many cases they are composed of five parts: 1) introduction; 2) facts behind the

complaint; 3) procedural points at issue; 4) claims based on legal grounds; and 5) conclusion.

Regarding the disclosure of the written submissions, it is provided (in paragraph 3, Appendix 3

of DSU) that “deliberations of a panel and documents submitted to it shall be kept confidential.

Nothing in the DSU shall preclude a party to a dispute from disclosing statements of its own

positions to the public.” Thus, disputing parties may disclose their own written submissions to

the public. Actually, the United States and EU disclose many of their written submissions to the

public, and Japan also releases some of its written submissions to the public on websites.

Panel meeting:

A panel generally meets two times. Meetings of a panel are held in the WTO

building, instead of a special facility such as a court. Traditionally, a panel meets in closed

session, just like other meetings of WTO. Generally, panel meetings last one to three days. The

first meeting of a panel is supposed to be held in one to two weeks after the receipt of the written

submission submitted by the respondent (paragraph 12, Appendix 3 of DSU). This first



substantive meeting is to begin with a briefing made by the chairman of the panel on how to

proceed with the meeting. Then, the compalinant and the respondent, respectively, give oral

statements regarding their own written submissions. This is followed by questioning by the panel

and in some cases a question-and-answer session between the disputing parties. Next, a third

party session is held, where oral statements and a question-and-answer session occurs. As a rule,

the presence of third parties is permitted only at these third party sessions, and third parties may

not be present at substantive meetings. The second substantive meeting of a panel is supposed to

be held after two to three months since the first substantive meeting. The second meeting focuses

mainly on counter-arguments against claims of the other party made during the first substantive

meeting. Unlike the first substantive meeting, third parties are not permitted to attend the second

substantive meeting. Unless otherwise agreed between the disputing parties, third parties may not

make written submissions or obtain written submissions submitted by the disputing parties.

Panel Proceedings (Articles 12, 15, Appendix 3)

After considering written and oral

arguments, the panel issues the descriptive part of its report

(facts and argument) to the disputing parties. After considering any comments, the panel submits

this portion along with its findings and conclusions to the disputants as an interim report.

Following a review period, a final report is issued to the disputing parties and later circulated to

all WTO Members. A panel must generally provide its final report to disputants within six

months after the panel is composed, but may take longer if needed; extensions are usual in

complex cases. The period from panel establishment to circulation of a panel report to WTO

Members should not exceed nine months. In practice, panels have been found to take more

than13 months on average to publicly circulate reports.

Interim report Following the second substantive meeting, the panel issues an interim report to the

disputing parties. The interim report describes the findings and conclusions of the panel. An

interim report provides the first opportunity for disputing parties to tell whether their arguments

are supported by the panel or not. Disputing parties are entitled to submit comments or submit a

request for the panel to review and correct technical aspects of the interim report for correction.

Final panel report The DSU provides (in paragraph 9 of its Article 12) that the period in which the

panel conducts its examination, from the date that the composition and terms of reference of the

panel have been agreed upon until the date the final report is issued to the disputing parties,

“shall not exceed six months as a general rule.” When the panel considers that it cannot issue its

report within six months, it is supposed to inform the DSB in writing of the reasons for the delay

together with an estimate of the period within which it will issue its report (paragraph 9, Article

12 of DSU). The recent trend is that cases requiring an examination period exceeding six months

are increasing because of the difficulty in confirming facts due to the existence of a highly

technical matter or difficult interpretations of a legal matter at issue. Generally, a final panel

report is issued shortly after the disputing parties comment on the interim report, first to

disputing parties and then to all Members in the three official languages of the WTO (English,

French and Spanish). A panel report contains, in its conclusion, the judgment reached by the

panel as well as recommendations regarding correction of the measures in question. This



conclusion is referred to the DSB, where the “negative consensus method” is applied for the

adoption of the panel report. The DSB adopts the “recommendation and rulings”, which are

legally binding the parties concerned. Adoption of a panel report is supposed to be completed

between 21 and 60 days after the date the report has been circulated to the Members (paragraphs

1 and 4 of Article 16 of DSU).

Appeal (review by the Appellate Body)

A standing Appellate Body shall be established by

the DSB. The Appellate Body shall hear appeals from panel cases. It shall be composed of seven

persons, three of whom shall serve on any one case. Persons serving on the Appellate Body shall

serve in rotation. Such rotation shall be determined in the working procedures of the Appellate

Body The DSB shall appoint persons to serve on the Appellate Body for a four-year term, and

each person may be reappointed once. However, the terms of three of the seven persons

appointed immediately after the entry into force of the WTO Agreement shall expire at the end

of two years, to be determined by lot. Vacancies shall be filled as they arise. A person

appointed to replace a person whose term of office has not expired shall hold office for the

remainder of the predecessor's term. The Appellate Body shall comprise persons of recognized

authority, with demonstrated expertise in law, international trade and the subject matter of the

covered agreements generally. They shall be unaffiliated with any government. The Appellate

Body membership shall be broadly representative of membership in the WTO. All persons

serving on the Appellate Body shall be available at all times and on short notice, and shall stay

abreast of dispute settlement activities and other relevant activities of the WTO. They shall not

participate in the consideration of any disputes that would create a direct or indirect conflict of

interest. Only parties to the dispute, not third parties, may appeal a panel report. Third parties

which have notified the DSB of a substantial interest in the matter pursuant to paragraph 2 of

Article 10 may make written submissions to, and be given an opportunity to be heard by, the

Appellate Body. As a general rule, the proceedings shall not exceed 60 days from the date a

party to the dispute formally notifies its decision to appeal to the date the Appellate Body

circulates its report. In fixing its timetable the Appellate Body shall take into account the

provisions of paragraph 9 of Article 4, if relevant. When the Appellate Body considers that it

cannot provide its report within 60 days, it shall inform the DSB in writing of the reasons for the

delay together with an estimate of the.

Procedures for Appellate Review

Working procedures shall be drawn up by the Appellate Body in consultation with the Chairman

of the DSB and the Director-General, and communicated to the Members for their information.

The proceedings of the Appellate Body shall be confidential. The reports of the Appellate Body

shall be drafted without the presence of the parties to the dispute and in the light of the

information provided and the statements made. Opinions expressed in the Appellate Body report

by individuals serving on the Appellate Body shall be anonymous. The Appellate Body shall

address each of the issues raised in accordance with paragraph 6 during the appellate proceeding.

The Appellate Body may uphold, modify or reverse the legal findings and conclusions of the

panel.



Adoption of Appellate Body Reports

An Appellate Body report shall be adopted by the DSB and unconditionally accepted by the

parties to the dispute unless the DSB decides by consensus not to adopt the Appellate Body

report within 30 days following its circulation to the Members.This adoption procedure is

without prejudice to the right of Members to express their views on an Appellate Body report.

Adoption of Panel Reports/Appellate Review (Articles 16, 17, 20)

Within 60 days after a panel

report is circulated to WTO Members, the report is to be adopted at a DSB meeting unless a

disputing party appeals it or the DSB decides by consensus not to adopt it. Within 60 days of

being notified of an appeal (extendable to 90 days), the Appellate Body (AB) must issue a report

that upholds, reverses, or modifies the panel report. The AB report is to be adopted by the DSB,

and unconditionally accepted by the disputing parties, unless the DSB

decides by consensus not to adopt it within 30 days after circulation to Members. The period of

time from the date the panel is established to the date the DSB considers the panel report for

adoption is not to exceed nine months (12 months where the report is appealed) unless other wise

agreed by the disputing parties.

Implementation of Panel and Appellate Body Reports (Article 21)

In the event that the

WTO decision finds the defending Member has violated an obligation under

a WTO agreement, the Member must inform the DSB of its implementation plans within 30 days

after the panel report and any AB report are adopted. If it is “impracticable” for the Member to

comply immediately, the Member will have a “reasonable period of time” to do so. The Member

is expected to implement the WTO decision fully by the end of this period and to act consistently

with the decision after the period expires.10 Compliance may be achieved by withdrawing the

WTO-inconsistent measure or, alternatively, by issuing a revised measure that modifies or

replaces it. Under the DSU, the “reasonable period of time” is: (1) that proposed by the Member

and approved by the DSB; (2) absent approval, the period mutually agreed by the disputants

within 45 days after the report or reports are adopted by the DSB; or (3) failing agreement, the

period determined by binding arbitration. Arbitration is to be completed within 90 days after

adoption of the reports. To aid the arbitrator in determining the length of the compliance period,

the DSU provides a non-binding guideline of 15 months from the date of adoption. Arbitrated

compliance periods have ranged from six months to 15 months and one week. The DSU

envisions that a maximum 18 months will elapse from the date a panel is established until the

reasonable period of time is determined. Where there is disagreement as to whether a Member

has complied—i.e., whether a compliance measure exists, or whether a measure that has been

taken is consistent with the WTO decision in the case—either disputing party may request that a

compliance panel be convened under Article 21.5. A compliance panel is expected to issue its

report within 90 days after the dispute is referred to it, but it may extend this time period if

needed. Compliance panel reports may be appealed to the WTO Appellate Body and both reports

are subject to adoption by the DSB.



Compensation and Suspension of Concessions (Article 22)

If the defending Member fails to comply

with the WTO decision within the established compliance period, the prevailing Member may

request that the defending Member negotiate a compensation agreement. If such a request is

made and agreement is not reached within 20 days after the compliance deadline expires, or if

negotiations have not been requested, the prevailing Member may request authorization from the

DSB to retaliate, i.e., suspend concessions or obligations owed the non-complying Member

under a WTO agreement. Generally, a Member should first try to suspend concessions or

obligations in the same trade sector as the one at issue in the dispute (Art. 22.3(a)). If this is “not

practicable or effective,” the Member may then seek to suspend concessions in another sector

under the same WTO agreement (Art. 22.3(b)). If, however, suspending concessions in other

sectors under the same agreement is not “practicable or effective” and “the circumstances are

serious enough,” the Member may seek to suspend concessions or obligations under another

WTO agreement, or “cross-retaliate” (Art. 22.3(c)). Retaliation most often involves the

suspension of GATT tariff concessions, i.e., the imposition of

tariff surcharges, on selected products from the non-complying Member. In some cases,

however, the non-compliant Member may not be a major exporter of goods to the prevailing

Member or some or all of the goods that are exported are considered to be critical to the

prevailing Member’s economy.

DISPUTE SETTLEMENT BODY

The Dispute Settlement Body (DSB) of the World Trade

Organization (WTO) makes decisions on trade disputes between governments that are

adjudicated by the Organization. Its decisions generally match those of the Dispute Panel.

INSTITUTIONAL STRUCTURE

The DSB is, in effect, a session of the General Council of the

WTO: that is, all of the representatives of the WTO member governments, usually at

ambassadorial level, meeting together. It decides the outcome of a trade dispute on the

recommendation of a Dispute Panel and (possibly) on a report from the Appellate Body of WTO,

which may have amended the Panel recommendation if a party chose to appeal. Only the DSB

can make these decisions: Panels and the Appellate Body are limited to making

recommendations. The DSB uses a special decision procedure known as 'reverse consensus' or

'consensus against' that makes it almost certain that the Panel recommendations in a dispute will

be accepted. The process requires that the recommendations of the Panel (as amended by the

Appellate Body) should be adopted "unless" there is a consensus of the members against

adoption. This has never happened, and because the nation 'winning' under the Panel's ruling

would have to join this reverse consensus, it is difficult to conceive of how it ever could. Once it

has decided on the case, i.e., whether the complaint had been shown to be right or wrong, the

DSB may direct the 'losing' Member to take action to bring its laws, regulations or policies into

conformity with the WTO Agreements. This is the only direction that emerges from a WTO

dispute. There is no concept of "punishment" or even restitution. The DSB will give the losing

party a "reasonable period of time" in which to restore the conformity of its laws etc.



LEGAL FEEECT

Recommendations and rulings of the DSB

After the DSB adopts a report of a panel (and the

Appellate Body), the conclusions and recommendations contained in that report become binding

upon the parties to the dispute. The DSU states that, when the parties cannot find a mutually

agreeable solution, the first objective is normally to secure the withdrawal of the measure found

to be inconsistent with the (WTO) Agreement (Article 3.7 of the DSU). In a successful violation

complaint, the panel (and the Appellate Body) has found an inconsistency with the WTO

Agreement and has expressed this finding in its conclusions. The panel (and the Appellate Body)

then concludes by recommending that the Member concerned bring its measure into conformity

with WTO law (Article 19.1 of the DSU). Article 21.1 of the DSU adds that prompt compliance

with the recommendations or rulings of the DSB is essential in order to ensure the effective

resolution of disputes. The DSU clearly stipulates that compensation and suspension of

concessions (countermeasures) are only temporary alternatives that fall short of resolving the

dispute (Articles 3.7, 21.6 and 22.1 of the DSU). The only permanent remedy is for the losing

party to “bring its measure into conformity” with the relevant covered agreements, as provided in

Article 19 of the DSU. Moreover, for the reasons explained below, the term “recommendation”

in Article 19.1 and the phrase “recommendation and ruling” should not be understood to give the

party discretion as to whether to follow the recommendation.

Legal status of adopted/ unadopted reports in other disputes

A dispute relates to a specific matter and takes place between two or more specific Members of

the (WTO). The report of a panel or the Appellate Body also relates to that specific matter in the

dispute between these Members. Even if adopted, the reports of panels and the Appellate Body

are not binding precedents for other disputes between the same parties on other matters or

different parties on the same matter, even though the same questions of WTO law might arise.

As in other areas of international law, there is no rule of stare decisis in WTO dispute settlement

according to which previous rulings bind panels and the Appellate Body in subsequent cases.

This means that a panel is not obliged to follow previous Appellate Body reports even if they

have developed a certain interpretation of exactly the provisions which are now at issue before

the panel. Nor is the Appellate Body obliged to maintain the legal interpretations it has

developed in past cases. The Appellate Body has confirmed that conclusions and

recommendations in panel reports adopted under GATT 1947 bound the parties to the particular

dispute, but that subsequent panels were not legally bound by the details and reasoning of a

previous panel report.

CRITICISM

Some groups, such as the Center for International Environmental Law, have criticized the

dispute settlement process for its lack of transparency and democratic accountability, as well as

for a perceived insensitivity to environmental and social standards. The increasing use of the

system by developing countries, however, is one indicator of its institutional success. But, the

dispute settlement process is very costly for the developing countries. Most of the time, they

have to call upon the assistance of the law firms of major developed countries which charge



heavy fees. The developing countries would therefore not be as prompt and willing to initiate the

dispute settlement process for exercise of their rights as would a developed country. Hence there

is a basic imbalance in rights and obligations between a developing country and a developed

country, because of a vast differential between the capacities of these two sets of countries to

invoke the enforcement process. There are several other handicaps for the developing countries

in the system. The relief granted by the system is generally very much delayed, as it may take up

to about 30 months from the time the dispute settlement process was started. And this delay may

be very detrimental to the developing countries. With weak trade linkages in their external

economy, they are likely to suffer irreparable damage by the time they get full remedy. And in

really difficult cases, the only remedy they may get is in the form of permission to retaliate

against the erring country. Obviously, such a remedy is impractical, because a developing

country will naturally hesitate to take retaliatory action against a developed country in view of

the economic and political costs involved.

CONCLUSION:

Dispute settlement in the World Trade Organization (WTO) is carried out

under the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes

(DSU). In effect since January 1995, the DSU provides for consultations between disputing

parties, panels and appeals, and possible retaliation if a defending party fails to comply with a

WTO decision by an established deadline. Automatic establishment of panels, adoption of panel

and appellate reports, and authorization of requests to retaliate, along with deadlines and

improved multilateral oversight of compliance, are aimed at producing a more expeditious and

effective system than had existed under the General Agreement on Tariffs and Trade (GATT).

To date, 405 complaints have been filed, approximately half involving the United States as

complainant or defendant. Expressing dissatisfaction with WTO dispute settlement results in the

trade remedy area, Congress, in the Trade Act of 2002, directed the executive branch to address

dispute settlement in WTO negotiations. WTO Members have been negotiating DSU revisions in

the currently stalled Doha Development Round of trade negotiations but no final agreement on

the DSU has been reached. Use of the DSU has revealed procedural gaps, particularly affecting

the compliance phase of a dispute. These include a failure to coordinate procedures for

requesting retaliation with procedures for tasking a WTO panel with determining whether a

defending Member has complied in a case and the absence of a procedure for withdrawing trade

sanctions imposed by a complaining Member where the defending Member believes it has

fulfilled its WTO obligations. As a result, disputing Members have entered into bilateral

agreements permitting retaliation and compliance panel processes to progress on an agreed

schedule and have initiated new dispute proceedings aimed at removing retaliatory measures.

BIBLIOGRAPHY

Books

1 Koul A.K, “Guide to the WTO and GATT Economic, Law and Politics”, Satyam Law

International,Edition2nd,2010

2 Bhandari Surendra, “WTO and Developing countries”, Deep & Deep Publication Pvt.Ltd,2007



3 Rao M.B& Manjula Guru, “WTO Dispute Settlement and Developing Counties”,Lexis Nexis

Butterworths,2004

4. Myneni S.R, “International Trade Law”, Allahabad Law Agency,2010

Articles:

1. THE WTO DISPUTE SETTLEMENT SYSTEM: HOW HAVE DEVELOPING

COUNTRIES FARED? William J. Davey

2. Dispute Settlement procedures under WTO problems of developing country access to wto

dispute settlement by kristin bohl*

3. Dispute Settlement in the World Trade Organization (WTO): An Overview by,Jeanne J.

Grimmett

4.The Domain of WTO Dispute Resolution byJoel P. Trachtman

5.The Effectiveness of WTO Dispute Settlement: An Evaluation of Negotiation Versus

Adjudication Strategies byChristina L. Davis

Internet Source:

1.www.wto.org

dispute settlement mechanism under world trade organisation (wto)

Documents