The World Trade Organization and dispute settlement: too much for litigation.

Author:Gagne, Gilbert
Position:The Impact of International Law on Canadian Law
 
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INTRODUCTION

The World Trade Organization (WTO) was established in 1995 as a result of the Uruguay Round of multilateral trade negotiations that lasted from 1986 to 1994. It superseded the General Agreement on Tariffs and Trade (GATT), effective since 1948, which, despite its informal origins, had gradually evolved into an international organization in all but name. (1) Yet, the incremental development of the GATT led to a cluster of agreements, some with differing purposes, memberships, and dispute settlement arrangements. In this regard, if successive GATT negotiations had significantly expanded the scope of international trade provisions, the Uruguay Round formally transformed the GATT into a permanent institution, the WTO, in charge of overseeing trade relations among its members. The text of the WTO Agreement establishes a legal framework which ties together the various trade pacts negotiated under the GATT and includes institutional and procedural rules governing the activities of the organization. (2) The GATT/WTO has been the main international institution established to promote order and cooperation in world trade relations. It is the only organization which provides a worldwide set of rules--of rights and obligations voluntarily accepted by its states parties--governing international trade. More than 95 per cent of world trade today takes place within the GATT/WTO regime.

In the course of the Uruguay Round, states agreed on strengthened mechanisms and, in particular, on a new Dispute Settlement Understanding (DSU), (3) to help ensure overall compliance with international trade provisions. The agreements on the WTO and the DSU were negotiated in tandem, as dispute settlement is a critical function in the application of rules. The idea of the WTO was all about organizational structure and dispute settlement. The WTO and the DSU were both necessary to preserve and enhance the integrity of the world trading regime that had been built incrementally from the 1940s to the 1990s. (4)

Yet, there is an imbalance between the strong, legalistic, binding DSU, on the one hand, and the comparatively weak, cumbersome, political rule-making and negotiating machinery, on the other. (5) Despite specific provisions for certain decisions to be taken either by simple, two-thirds or three-fourths majority, under the formula of one-state-one-vote, the WTO, like the GATT before it, has shied away from formal voting. Decisions are usually made by consensus, i.e., when no member present at a meeting formally objects to a proposed decision, as stipulated in Article IX of the WTO Agreement. Nevertheless, WTO members have been able to adopt some key decisions by consensus. (6) Even though the WTO Agreement contemplated that new provisions, amendments, and even new agreements could be negotiated at any time, members have also continued the GATT practice of negotiating new rules in the framework of broad, multilateral trade rounds, so that only one amendment has been negotiated and adopted since 1995. (7)

As a result, WTO members might have come to think that progress can be made through enforcement and that litigation is a faster, more convenient way to resolve difficult issues. This stands in contrast with the WTO as a forum for genuine international trade cooperation and rule-making and prevents a more broad-based participation of all stakeholders in the formulation of international trade rules. (8) But, more importantly, all of the WTO's three main functions--multilateral negotiations and rule-making; monitoring and surveillance of the implementation of its rules; and dispute settlement--are now in a state of decline, albeit at differing speeds and to varying degrees. As the Doha negotiations unfolded, there would have been a serious underestimation of the importance of the monitoring, surveillance and implementation functions, while dispute settlement is at risk of seeing its standing eroded. (9)

With regard to dispute settlement, three main problems stand out. First, the dispute settlement mechanism (DSM) since the WTO's inception has encountered some issues over the standard of review and significant delays at almost all stages of the process. Second, the judicial activism of WTO adjudicating bodies has raised criticism, notably in light of their application of the interpretation rules of public international law and the ensuing results, sometimes leading to their behaving more as lawmakers than judges. Third, in view of growing overlap between trade regulations and those in such areas as labour standards and the environment, known as the trade linkage debate, the DSM has found itself trying to reconcile trade with other concerns beyond the WTO's mandate. Such problems may destroy the faith of WTO members in the DSU. (10)

This article contends that too much trust has been put on dispute settlement, with possible serious consequences for the WTO. In turn, the issues and problems with the dispute settlement process are compounded as the other main functions of the WTO have not assumed the roles expected of them. This is so particularly in view of the near stalemate in the Doha Round" and the fact that no authoritative interpretation of WTO provisions has ever been adopted by member states to keep WTO adjudicating bodies in check.

In a first part, the provisions and procedures for dispute settlement under the GATT and later the WTO are discussed, beginning with some preliminary considerations. This is followed, in a second part, by an analysis of the implementation of the DSU, notably through some statistics; issues and problems; key disputes that served as tests for the WTO; and, finally, the trade linkage debate. Some concluding remarks ensue.

GATT/WTO DISPUTE SETTLEMENT PROVISIONS AND PROCEDURES

  1. Some Considerations on Dispute Settlement

    The key implementing or enforcement mechanism in the GATT/WTO regime has revolved around dispute settlement procedures, which seek to solve conflicts that may arise between states. This means that apart from the notification to the WTO of trade measures by state governments and reviews of their trade policies, WTO interventions are essentially limited to cases of complaints brought to its attention. Obviously, a rarity of disputes may not necessarily reflect widespread rule observance, (12) but rather states' reluctance to object to others' measures, either because they use similar ones or they fear stimulating counterclaims or detrimental consequences in non-trade areas (e.g., defence cooperation or continued aid flows). In the same logic, a great number of conflicts may not be attributable to a large disregard for international trade provisions, but a desire of members to ensure strict compliance with WTO rules.

    A DSM, especially a strengthened one under the WTO, can also act as a deterrent against litigation and play a crucial role in pressing states to solve their differences, sometimes in the course of the dispute settlement process, through a mutually agreed solution (MAS). Yet, disputes could still be addressed outside WTO auspices. Trade conflicts between major powers sometimes escalated irrespective of the GATT and were resolved bilaterally. In cases of bilateral solutions, disputes may be settled without due regard to international trade provisions. The WTO DSU, then, must not be confused with a 'real' enforcement mechanism as, for the most part, 'enforcement' of GATT/WTO rules has taken the form of self-discipline or retaliation. (13)

    The evolution of the procedures and provisions for GATT dispute settlement are first discussed in order to better grasp the key elements of the strengthened DSM under the WTO, before turning to its implementation.

  2. The Evolution of GATT Dispute Settlement

    An important element of the GATT/WTO framework consists of its provisions for consultation, conciliation, and dispute settlement, as contained in Articles XXII and XXIII of the GATT. States are required to consult with other member countries, particularly when one member feels that benefits due to it are 'nullified or impaired' by the conduct of another. (14) In case bilateral consultations fail to settle the problem, GATT/WTO may offer its good offices and act as conciliator. Should the dispute still not be solved, an ad hoc panel of three neutral experts examines the factual and legal aspects of the conflict, helps the parties find a solution acceptable to both sides, and if no such solution could be attained, makes findings and recommendations for adoption by the GATT/WTO Council. Panel reports, as for virtually all decisions in GATT, were adopted by consensus, i.e., when they did not raise objections from any state. When the reports were adopted, in case the recommendations were not carried out, the GATT Council could, as a last resort, authorize retaliation by allowing the impaired party to withdraw trade concessions to the offending member.

    If the GATT dispute settlement process was initially a relatively informal one, it became more formal with the use of objective panels from the late 1950s onward. Before that, disputes were considered in broader working parties composed of government representatives. Increasingly, panel reports focused on more precise and concrete issues of 'violations' of treaty obligations. At the end of the Tokyo Round in 1979, an understanding on dispute settlement was adopted, (15) which comprised the concepts and procedures which had developed in the previous decades. (16)

    There was some initial resistance, including within the Secretariat, to make dispute settlement evolve towards a 'rules-based' system from those who saw GATT primarily as a forum for negotiation. Such views echoed the contrast between the perception and treatment of the GATT in the United States and Europe, the former viewing it as largely a legal regime, whereas the latter dealt with GATT as a diplomatic and political system. Over time, these differences lessened in favour of a...

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