Issues covered by the WTO’s committees and agreements

DISPUTE SETTLEMENT: JONATHAN T. FRIED

2013 In WTO Dispute Settlement

Reflections from the Chair of the Dispute Settlement Body
Jonathan T. Fried Ambassador and Permanent Representative of Canada to the WTO


 

At the end of my tenure as Chair of the WTO Dispute Settlement Body, I would like to offer my personal reflections on developments in dispute settlement over the past year.

It is customary to begin such a review by acknowledging the remarkable achievement that formal dispute settlement in the WTO represents. With nearly 20 years of experience, we can say with confidence that the dispute settlement system provides “security and predictability to the multilateral trading system”, and facilitates — for the most part, and certainly in relative terms — the “prompt settlement” of disputes.

The credit for this success is due not only to the wisdom of the original architects — individuals like Julio Lacarte Muro — but also to the ongoing efforts of many others — including practitioners in governments and private firms, analysts in esteemed academic institutions, and the dedicated staff of the Secretariat who provide the essential institutional support.

The architecture of the dispute settlement system draws on many years of GATT panel experience, and wisely anticipated the increasing legalization, formalization, and judicialization of the process that disputing parties came to demand. The architects of the WTO’s DSU thus meticulously set out a pre-determined path for a typical WTO dispute, from the initial request for consultations through to notifications of compliance.

Once a trade dispute formally becomes a WTO dispute, it comes within the oversight of the DSB, even as many of its intermediate stages occur outside of the sight or even direct authority of that Body. But the year I served as DSB Chair allowed me to observe enough different disputes at different stages to be able to share some reflections about the strengths and weaknesses of the system. So as I conclude my tenure, allow me to survey the developments and controversies associated with the major stages in the lifecycle of a WTO dispute

As I was reminded on several occasions during my Chairmanship, it would be presumptuous of me to speak for the DSB in drawing conclusions about the effectiveness of this lifecycle. But I hope that I may be permitted to offer some personal suggestions on how this otherwise well-functioning system can be made even better.

Annexed to these remarks are a set of tables and charts that provide a detailed overview of how 2013 compares to previous years at each stage of the dispute settlement process.

 

Consultations

As I indicated, a trade dispute becomes a formal WTO dispute once consultations have been requested under Article 4 of the DSU. The number of requests for consultations in a given year is therefore one of the first indicators of the level of litigiousness among members. In 2013, the number of consultation requests was actually down slightly from 2012, although it remained high by historical standards.

But whereas consultations are usually one of the last seemingly bilateral acts prior to formal dispute settlement proceedings, the DSB was reminded on one occasion in 2013 how even that act is subject to at least a degree of multilateral oversight. The circumstances involved a dispute against Indonesia on horticultural products, in which several Third Parties complained to the DSB that they had effectively been excluded from the consultations to which Indonesia had formally accepted them. There was an important exchange of views in the DSB about third party participation in consultations, but the DSB did not — and was not asked to — intervene. However, the situation did confirm how readily Members will hold disputing parties to the expectations of the collective DSU membership.

While this incident confirmed the importance that Members place on consultations, we have increasing evidence that consultations are in any event less likely to serve the role of facilitating early resolution that they did in the early years of the WTO. In particular, 2013 resumed the recent trend of very few disputes being resolved through mutually agreed solutions. It would therefore appear that once started, disputes are likely to proceed through to full panel proceedings.

 

The Panel Stage — Establishment

If consultations fail to resolve the matter, the next stage is panel establishment, one of the most important functions of the DSB.  Following the trend set in consultations, the number of panels established in 2013 returned to a ten-year high of 12, after several years of constant growth since a low of three in 2008. Just as notable as the number of requests, however, was that 2013 witnessed more disputes involving Members with relatively little or no previous dispute settlement experience — such as Cuba, Indonesia, Panama, Russia, and Viet Nam. And more Members that have not traditionally had to assume the role of respondent found themselves in this position — such as Australia, Colombia, Pakistan, Peru, and Ukraine.

As the number of requests from non-traditional parties has risen, requests for panels to be conducted in Spanish have also risen. While this is surely to be seen as positive evidence of the accessibility of the system, it has consequences for subsequent stages of the dispute, in particular the availability of qualified panelists.

One reassuring trend is that developing countries continue to request panels in almost equal numbers as developed countries. While there has been much discussion of late regarding perceived barriers to access, the figures on participation suggest that the barriers are perhaps not as insurmountable as previously thought.

Given the importance of panel establishment — and in particular its automaticity — it is perhaps not surprising that during my tenure no subject generated interventions from more delegations than the one about the timing of a second panel request. It started with a suggestion — in the context of one of the panel requests in the plain packaging disputes against Australia — that the text of DSU Article 6. 1 requires the second request to be made at the DSB meeting immediately following that at which the first request was made. Despite the elaborate justification put forward by the proponent of this interpretation, most delegations that intervened considered that the DSB had no option but to establish the panel on the second request, regardless of its timing relative to the first request.

While there was a further question about whether the DSB could itself decide the correct interpretation, the outcome of the discussion was that there was indeed a valid request before the DSB, and that in accordance with the plain language of Art.  6. 1 of the DSU, given there was no consensus not to establish the panel, the panel had to be established.  And so it was. The outcome of the debate leads me to believe that this question will not likely return to the floor of the DSB in the near future, but it might be prudent to clarify the text of Article 6. 1 on this point to remove any residual ambiguity.

Along the same lines, on another occasion the DSB was confronted with uncertainty around the application of Article 9 on the management of multiple disputes relating to the same issue. While Article 9. 1 expresses a preference for single panels in such circumstances, it is silent on how to balance the various considerations in determining the feasibility of a single panel, and it provides no guidance at all on the DSB’s role in making such a determination. 

The circumstances around separate disputes brought by Japan and the EU against China for the same anti-dumping duties are illustrative. The DSB did not provide a definitive answer, but instead established the panel under Article 6, thereby avoiding the question. In my view, further discussion of this issue might be helpful in clarifying how to address such situations.  

 

The Panel Stage — Composition

Once a panel is established, the dispute moves out of the direct oversight of the DSB as other actors take over the next stages, starting with panel composition. While the number of panel requests in 2013 was only one greater than in 2012, the number of panels composed almost doubled — to 11 — the number composed in the previous year. All but two of these had to be composed, at least in part, by the Director-General.

The difficulty in obtaining agreement of the parties on the composition of panels is exacerbated by the prohibition in Article 8. 3 against nationals of Third Parties participating in the dispute serving as panelists in that dispute. And as the number of disputes grows, and in particular the number of Third Parties grows, the available pool shrinks. This effect is magnified by the fact that those with the most experience in dispute settlement — a requirement often imposed by parties — are the nationals of Members that are frequently Third Parties. While some disputing parties apparently have agreed to waive the general prohibition, as permitted by Article 8. 3, not all do. Members may wish to consider ways to expand the roster of available candidates.

 

The Panel Stage — Proceedings and Preliminary Rulings

Once a panel is composed and the Working Procedures are circulated to the parties, the various stages proceed mostly out of the sight of the DSB and non-disputing Members. Occasionally though, certain issues are brought back to the attention of the DSB, even prior to the circulation of a final panel report. One issue that has been discussed with growing frequency in recent years is the issuance of preliminary rulings. In 2013, several delegations raised concern about what they perceive to be a lack of uniformity in the issuance of such rulings. They raised questions about the systemic consequences of preliminary rulings, the timing of their circulation and how to ensure the appropriate participation of Third Parties. The DSU is silent on preliminary rulings, and while ad-hoc approaches agreed by the disputing parties by definition reflect their interests, there is no assurance that such solutions take into account the interests of non-disputing parties or of the system overall.

With or without recourse to preliminary rulings, there does seem to be a sense that panel proceedings are taking longer than they used to, for a variety of reasons, such as the time the parties take to agree on panelists (or to refer the matter to the Director General), the complexity of the cases and the time needed by the disputing parties, and the panel itself, to properly address the issues, and various procedural hurdles.

A few additional words are in order about the nature of the cases subject to WTO dispute settlement. Put simply, there is an astonishing and unparalleled diversity and complexity of issues that are now brought before panels. In 2013, we saw disputes in areas ranging from animal protection measures and export controls on natural resources, to questions on import licensing and conservation of fisheries resources, and from anti-dumping duties on steel, shrimp, diamond saw-blades, and X-ray equipment, to aircraft subsidies. Even though the result may be slightly longer procedures, ultimately the quantitative growth and substantive diversification of WTO dispute settlement can only be seen — on balance — as a sign of the good health of the system.

And two parallel and complementary processes continue to consider ways to improve the panel process. First, the DSB in Special Session has before it a number of proposals for DSU reform to reduce the length of the panel process. Secondly, we have already benefited from the process of informal consultations — initiated by former Deputy Director-General Alejandro Jara and taken over by his successor Karl Brauner — to enhance the efficiency of panels. No doubt there will be further developments flowing from each of these initiatives.

 

The Appeal

Once a panel circulates its final report, it is of course subject to appeal, which I understand continues to happen in about two-thirds of disputes.  2013 was a notably slow year for appeals, with only one Appellate Body Report adopted. But given the number of panels established and composed in the same period, this surely only reflects the calm before the storm. And I share the view of the Chairman of the Appellate Body, set out in his Annual Report, that the membership should redouble its efforts to achieve consensus on a replacement for retiring Appellate Body Member, David Unterhalter, as it will be important for the Appellate Body to have a full contingent to face the anticipated tsunami of appeals. 

Even with a full contingent, during my tenure it became increasingly apparent that the capacity of panels and the Appellate Body — and their respective Secretariats — to ensure continued high quality and timely outcomes is seen to be increasingly under strain. I thus as DSB Chair engaged in wide-ranging consultations on the so-called “workload” question. While the catalyst was continued concern about the Appellate Body’s ability to meet its 90-day deadline for circulating reports, it became clear that similar capacity challenges were faced throughout the dispute settlement system. As a result of these consultations, additional resources have been earmarked for dispute settlement. These may eventually be supplemented with additional procedural fixes that provide more certainty in managing the caseload.  

 

Compliance

Once the panel and, where heard, Appellate Body Report have been adopted by the DSB, a dispute moves toward the compliance phase, which brings it once again directly under the surveillance of the DSB. 

One issue that returned to the DSB this year during this phase was that of “sequencing”, long thought to have been resolved through “Sequencing Agreements”. The issue was actually brought to the attention of the DSB by Third Parties that had been excluded from 22. 6 arbitration proceedings on the level of suspension of concessions in the Clove — Cigarettes dispute; proceedings that will — in all likelihood — include findings on compliance. While views differed on the nature and severity of the sequencing problem, the debate drew attention to the systemic consequences of our continued failure to find a permanent solution in the DSU to the issue of sequencing.

 

Surveillance

It will not surprise those of you who attend DSB meetings that I leave the DSB with the same level of concern I had when I assumed the Chair about our collective failure to do justice to one of the most important roles accorded to the DSB. Multilateral surveillance of implementation of the recommendations and rulings of the DSB is one of the unique features of this system, designed to foster compliance in a positive spirit, with a spotlight shining on non-compliance in front of other members, but accompanied by an open and standing invitation to find mutually agreeable solutions. 

Yet it seems to me that Members have generally failed to make full use this function. I made some suggestions over the past year on how to improve the surveillance item on the DSB agenda, and we have in fact seen some improvement. But it is worth considering whether more could be done.

This perceived weakness of the DSB’s surveillance function is perhaps part of a more fundamental institutional weakness of the DSB in fulfilling its function of “administering” the DSU. At almost every stage that I have reviewed in the lifecycle of a WTO dispute, systemic issues have arisen that could have benefited from more decisive action by the DSB.  At almost every stage, the DSB was unable or unwilling to decide on solutions to specific problems. Instead, where the rules allow for automatic action, the DSB acted quickly and without fail. But where the outcome was not prescribed by the DSU, the DSB fostered a healthy debate but then “takes note of the statements”, and leaves for another day and another forum the identification of a solution.

The question becomes how the DSB could do more — even in informal mode — to promote debate and the formulation of solutions to systemic problems. It is not hard to imagine a more robust two-way interaction between the DSB and the DSB in Special Session, for example. If this latter body could make concrete progress on its bold agenda of long-standing issues, it could move on to contemporary problems with a view to recommending solutions to the DSB.

Collective discussion would also help to respond to the reality that some case-specific solutions and practices adopted by disputing parties in a particular case may not fully reflect the collective interest, or will, of the membership. After all, it was non-disputing parties that raised in the DSB many of the systemic issues I have highlighted. This is not particularly surprising. Disputing parties will almost always prefer to discuss procedural issues in confidence with the panel. Third parties often have no recourse other than to bring the matter to the DSB, a forum where the interests of disputants and the membership intersect.

Lest the foregoing comments leave any doubt about my appreciation for what the DSB has accomplished, let me immediately dispel any such notions. To the contrary, it is precisely because of the unprecedented effectiveness of the WTO dispute settlement system that the issues of 2013 take on significance. On any objective review of activity during 2013, the conclusion must that the dispute settlement system remains one of the most productive and effective systems of international dispute adjudication. 

It retains the confidence of Members — both developed and developing — who continue to have recourse to it to resolve all manner of trade differences. That these Members continue to use the system even in the face of increasing complexity — and presumably cost — suggests that this system — long regarded as the “jewel in the crown” of the WTO — is entering a new stage of maturity. It is therefore incumbent upon us — the Members, the practitioners and the analysts — to make this next stage in the development of the system as productive and effective as the last.

* * * * *

It has been a great honour to Chair the DSB, especially in such an eventful year, and I trust that the Body will continue from strength to strength in 2014 under the thoughtful guidance of my successor.

I would like to conclude my reflections with an observation about legal issues at the WTO more generally, based on our engagement in the lead-up to the Bali Ministerial Conference. 

Bali is quite rightly seen as an historic moment for the WTO, and a very welcome sign that multilateral compromise and law-making is still possible. But the outcome in Bali also underscores the importance of considering legal form, as well as substance. While the Agreement on Trade Facilitation was ultimately incorporated into the WTO legal system through an amendment to Annex 1A of the WTO Agreement, this was not the obvious choice from the beginning.  And it was also not immediately obvious whether the other instruments that were gavelled in Bali would take the form of Decisions, Declarations or Understandings. 

The question, of course, is what difference, if any, does form make? Are they all legally binding, regardless of their form? And are they all legally enforceable? While many delegations had able legal advice on this question, my sense is that not all delegations did. 

Of course, form should not come at the expense of substance, and the content of new treaties will and should continue to dominate discussion among Members. But, though perhaps not as exciting, procedural matters — well, matter. The most precisely drafted Agreement is not worth much if the Members are not clear on how it is to be made operative in the WTO system, and how it affects their legal rights and obligations. If, as I am sure we all firmly hope, the Bali success resuscitates the Doha Development Agenda, we should have a forum where legal issues that do not involve dispute settlement can be discussed by WTO members. Other than the General Council itself, at present such questions are left to the Council or Committee charged with responsibility for the substantive subject involved. Should the WTO have a Committee on Legal Affairs? Should the DSB mandate be expanded? I leave these questions to my successor — and to the legal community.

I take this opportunity to thank the Members for their cooperation and support throughout the year.

 

FIGURE 1: NUMBER OF ITEMS IN AGENDA ITEM 1
(SURVEILLANCE OF IMPLEMENTATION OF RECOMMENDATIONS ADOPTED BY THE DSB) IN 2013

 

FIGURE 2: NUMBER OF REQUESTS FOR CONSULTATION, 2004-2013

 

FIGURE 3: NUMBER OF PANELS ESTABLISHED, 2004-2013

 

FIGURE 4: NUMBER OF PANELS COMPOSED

 

FIGURE 5: NUMBER OF PANELS COMPOSED BY THE DIRECTOR-GENERAL, 2004-2013

 

FIGURE 6: NUMBER OF MUTUALLY AGREED SOLUTIONS NOTIFIED, 2004-2013

 

FIGURE 7: COMPLAINTS UNDER WTO AGREEMENTS, 2013

 

FIGURE 8: MEMBERS WITH THE HIGHEST NUMBER OF SERVING PANELISTS, 1995-2014

 

FIGURE 9: PROCEEDINGS BY YEAR

 

FIGURE 10: MOST ACTIVE COMPLAINANTS AND RESPONDENTS

Member

No of cases initiated

Member

No of cases defended

US

106

US

121

EC / EU

90

EC / EU

92

Canada

33

China

31

Brazil

26

India

22

Mexico

23

Argentina

22

India

21

Canada

17

Argentina

20

Japan

15

Japan

19

Brazil

15

Korea

16

Mexico

14

Thailand

13

Korea

14

 

FIGURE 11: DEVELOPED AND DEVELOPING COUNTRIES AS COMPLAINANTS

 

FIGURE 12: DEVELOPED AND DEVELOPING COUNTRIES AS RESPONDENTS

 

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