SPEECHES — DG ROBERTO AZEVÊDO

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[Translation of the speech originally delivered in Portuguese]

Remarks by DG Azevêdo - "Dispute resolution and promotion of international trade"

Ladies and Gentlemen,
Good morning.

It is a great pleasure to be here today and an honour to be appointed as patron of the Brazilian branch of the Chartered Institute of Arbitrators (CIArb).

I am extremely grateful to be honoured in this way.

The role of the Institute, and of its dispute resolution mechanisms, is very important.

Negotiated solutions are vital for the effectiveness of regulatory systems - especially in international trade.

These instruments are essential for avoiding any escalation of tensions. They also prevent excessive costs and damage for participants.

I therefore congratulate the CIArb for the work it has done over the years and I wish it every success for the day of work beginning here in Brazil.

The timing is also favourable. Brazil is seeking to increase its share in world trade, conclude new agreements and make its economy more competitive. The work of the CIArb can also contribute - and contribute significantly - on those fronts.

I also believe that the honour I have received today is a sign of strong support for the work of the World Trade Organization.

This support is very welcome. The WTO occupies a key role in the settlement of trade disputes at the global level. In general terms, the WTO is responsible for administering rules that are applicable to 98% of world trade in the 164 Member countries of the Organization.

These rules were negotiated and mutually agreed upon by the Organization's own membership. And it is the Members that monitor and apply the rules with the WTO's support.

With the ever-increasing integration of economies, these efforts are becoming even more crucial. Today, two thirds of goods marketed in the world are manufactured with components from at least two countries. In other words, stability in international trade flows is essential for maintaining the health of the global economy itself.

Clearly, when it is a question of trade flows on this scale, differences inevitably arise. And a very important part of the WTO's work involves, precisely, the settling of disputes.

The WTO provides tools for resolving trade disputes in a transparent and predictable manner. This takes place in accordance with objective procedures that are applied equally to all Members of the Organization. This work helps to depoliticize tensions and prevent the escalation of disagreements.

Just looking at the level of activity in the system is enough to understand its importance to Members.

Our dispute settlement system has already handled nearly 600 disputes since 1995, when the WTO came into being.

Two thirds of WTO Members, including both developed and developing countries, have participated in the system in one way or another over the years.

Brazil is a very active user of this system. The country has been able to promote its interests in important sectors, such as agricultural products, textiles and aircraft, through disputes dealt with at the WTO.

How does this work in practice?

In general terms, there are two strands in arbitration at the WTO:

  • mediation, which is present in areas of negotiation and also in dispute settlement;
  • and arbitration in the strict sense, which takes place through the dispute settlement system. Today I would like to speak about this system first.

This mechanism can only be triggered at the request of the Members concerned. It is worth remembering that the WTO instruments are slightly different from commercial arbitration in the private sector.

At the WTO, disputes are strictly between States. There are no disputes between private entities and the State, as in cases of arbitration related to certain bilateral investment agreements.

Obviously private interests are present but they are defended by governments. There are some striking examples. For example, the case involving Embraer and Bombardier, in which Brazil and Canada were in dispute in defence of their aircraft manufacturers.

Another peculiarity is that arbitration at the WTO, once it has been initiated by one of the parties, is binding. The other party does not have the possibility to reject it.

The first phase involves consultations, in which the parties attempt to reach a solution before initiating actual dispute proceedings.

If consultations are unsuccessful, the dispute enters the panel phase. The panel equates to a first-instance body.

Here the case is analysed by a group of adjudicators, who are generally specialists in the subject matter and can be chosen by the parties or appointed by me in the event of disagreement. Once these adjudicators issue their report, if one of the parties is not satisfied, it can appeal the decision.

Then the dispute goes before the WTO's Appellate Body. This body reviews the case on the basis of specific complaints made concerning strictly legal - not factual - points of the decision.

Here the three-member division is composed from the seven members of the Appellate Body, who have a specific term of office and are selected by the membership of the Organization.

A decision taken by the Appellate Body - the last-instance body at the WTO - is final. A "negative consensus" of Members is required to prevent that. In other words, all 164 WTO Members would have to be opposed to the decision concerned.

I have had the privilege of participating in the work of this system in all roles, except as member of the Appellate Body.

I acted as chief litigator for Brazil. I also served on a number of panels and chaired one of them.

As Director-General, I am involved in the composition of panels and in the administration of the dispute settlement system. I also provide good offices if desired by the parties.

So it is in full awareness of the facts, and even with pride, that I say that this system is essential for the functioning of the global economy.

For example, the existence of this mechanism helped us to restrain protectionist forces in the wake of the financial crisis in 2008.

Members knew what rules were in force. They knew that everyone was subject to the same rules. They knew what their limits were and the possible consequences of infringing them.

The system was put to the test and it proved successful.

However, as with any other system, there is room for improvement in the WTO dispute settlement system. One of the major areas of discussion is the crisis in the Appellate Body.

The Appellate Body is normally composed of seven persons but at present there are only three sitting members, which is the minimum for forming an appeal division. However, the terms of office of two sitting members come to an end in December this year.

In other words, it is highly likely that the WTO Dispute Settlement Body will be unable to function, the system being paralysed whenever a party has recourse to the Appellate Body.

Normally, the WTO membership launches the process for filling these vacancies well in advance.

However, consensus is needed to launch this process. Until now, this has not been possible because of the veto by the United States. The latter argues that the Appellate Body has some fundamental issues that must be resolved before seeking to appoint new members.

According to the United States, the WTO Appellate Body has strayed from the role agreed upon by WTO Members in 1994. Among its main criticisms, the United States claims that the Appellate Body:

  • exceeds the 90-day period for issuing appeal decisions;
  • frequently reviews the panel's factual findings - for example, on aspects of parties' domestic law ("municipal law");
  • issues opinions on issues not necessary to resolve a dispute ("advisory opinions" or "obiter dicta");
  • allows Appellate Body members to complete work on ongoing cases even after the end of their terms of office (Rule 15 of the Working Procedures for Appellate Review);
  • tends to treat previously adopted decisions as binding precedents (instead of recognizing that its decisions apply only and exclusively to the original dispute, without creating "case law"). There is even a certain tension between common law and civil law cultures, which cannot be ignored either in the clearly multicultural setting of the WTO or in situations of arbitration and mediation such as those dealt with by the CIArb.

This last point is a very clear area of tension in Geneva.

According to the WTO Agreements, the outcome of a dispute shall be valid only for the parties to the dispute and only for the case concerned. It shall not constitute a binding precedent for future disputes.

At the same time, the Dispute Settlement Understanding states that predictability is essential. In other words, there might be some expectation of harmonization of Appellate Body decisions over a period of time.

All this has generated a wider debate on how to improve the WTO dispute settlement system. A number of Members see that there is room for improvement and are trying to tackle these issues constructively.

WTO Members have launched a process for discussing this subject, under the leadership of the Chair of the Dispute Settlement Body.

There are various proposals on the table at present. They deal with a range of possible improvements to the system.

All of this is very welcome. However, we are not yet seeing the progress needed to unblock the impasse in appointments to the Appellate Body. And we still do not have enough clarity on how to tackle the problems that have been identified.

The reality is that the situation that may arise in December is already affecting decisions today. Members submitting cases today are not sure what the situation will be at the end of the panel stage.

Members need to have a serious look at possible options and alternatives. And this has to happen now.

The current situation is worrying. But this crisis is also a unique opportunity to modernize and strengthen this vital system.

In a situation of tension, the value of the system is becoming even clearer. And WTO Members are not standing idly by. Apart from discussing solutions for strengthening the dispute settlement system, they are discussing a series of measures for making the Organization more responsive to global challenges.

This includes discussions on how to improve our day-to-day work, for example by increasing transparency and improving notification systems.

And there is a vigorous debate on how to strengthen our negotiating arm. Here there are discussions on agriculture and on how to eliminate subsidies that lead to overfishing.

There are also discussions among groups of Members on other emerging topics in the global economy. These "plurilateral" initiatives are open to all Members that wish to take part - and this is an innovative way of working in Geneva.

In this format, we are holding discussions on electronic commerce (e-commerce), investment facilitation, regulation of services, small and medium-sized enterprises (SMEs) and the economic empowerment of women.

Brazil is an active voice in all these areas - and this makes sense. Ultimately these are very important subjects for the country's economy.

In a way, this crisis has made people realize the value of the system, and has encouraged efforts to strengthen and improve it. Despite recent progress through agreements such as those on trade facilitation and information technology, both said to be worth trillions of dollars, the Organization's software and its rules need to be updated even further.

I am absolutely convinced that these discussions must continue. We must endeavour to perfect the system wherever possible, including so as to adjust to a world affected by structural changes occurring at breathtaking speed.

I advise you all to follow these discussions closely. This may appear to be a distant world but there are many parallels with your own area of activity.

The lessons that we are learning in global and culturally diversified terms can also help to shape decisions in the sometimes more limited settings of mediation and arbitration.

Hence, as patron of the CIArb, and on the basis of the experience that I have gained throughout my career, I would like to finish with a few points that I believe are crucial to successful negotiation or mediation, which I understand also to be an important pillar of the CIArb. I know that I run the risk of offering needless advice to experts in the field - but here goes!

The first point is to know the subject that you are discussing. Having in-depth knowledge of the subject is key to being a good negotiator or facilitating a solution. And the parties will quickly find out whether you really know what you are talking about …

The second point is to hear and understand what the parties want, and to put oneself in the other person's position. Here it is important to listen, above all. A good negotiator is one who knows how to listen, to what is being said and also to what is not being said.

The third aspect involves credibility, acting in good faith.

As professionals, you need to bear in mind that this is not your last negotiation or mediation. And your image and profile arrive at the table ahead of you.

The fourth point is to adapt. You have to be clear that a methodology that works in one type of negotiation may not work in another. You must always be looking for the best way to act and adapt to various cultural environments.

The fifth aspect is to bear in mind that a solution is not found only in the room. Resolving the actual dispute does not mean an end to conflict. We also need to understand the political background to the different positions. Apart from depoliticizing certain more sensitive issues, litigation can lay the foundations for subsequently negotiated agreements. I see this happening extremely often.

Lastly, there is a need for good interpersonal skills, energy and stamina - and a great deal of patience. I believe that these elements in combination facilitate the task of finding negotiated solutions, whatever the instrument used for dispute settlement.

This is just a brief outline of certain aspects of our work, each of which could be the subject of a whole lecture. Unfortunately we do not have time for more detailed discussions today. I am sure that we will have other opportunities.

At times of great tension like the present, negotiators have a key role to play in maintaining the stability and predictability of economic flows.

The complexity, the financial costs and the time required for effective action in a dispute settlement system like that of the WTO are arguments in favour of more streamlined and less expensive mechanisms, precisely like those promoted by the CIArb.

I think this is a fascinating area that still has enormous potential for expansion. I will do everything I possibly can to achieve this goal, while I am still at the WTO or after my second and final term of office comes to an end in less than two years.

So I wish the CIArb here in Brazil - and all of you present here today - every success once again.

I hope that this is the first of many important occasions for the Institute here in Brazil.

Once again, it is a great honour to be here with you all, and I hope that our contact will be even closer in the future.

Thank you very much.

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