HONG KONG WTO MINISTERIAL 2005: BRIEFING NOTES
DISPUTE SETTLEMENT Force of argument, not argument of force
The WTO’s “Understanding on Rules and Procedures Governing the Settlement of Disputes” (Dispute Settlement Understanding or DSU) contains detailed steps and timetable for resolving disputes between member governments.
> Director-General’s letter to journalists
> The Doha Development Agenda
> Market access, non-agricultural products
> Intellectual property (TRIPS)
> Trade facilitation
> Rules: ad, scm including fisheries subsidies
> Rules: regional agreements
> Dispute settlement
> Trade and environment
> Small economies
> Trade, debt and finance
> Trade and technology transfer
> Technical cooperation
> Least-developed countries
> Special and differential treatment
> Implementation issues
> Electronic commerce
> Members and accessions
> Statistics, Textiles and Clothing
> Statistics, Facts and Figures
> Jargon buster, Country groupings
> Jargon buster, An informal guide to ‘WTOspeak’
It was negotiated during the Uruguay Round, and is a legally-binding agreement committing member governments to settle their disputes in an orderly and multilateral fashion. It is the first such system for settling trade disputes between governments. When the Uruguay Round ended in April 1994 at the Marrakesh Ministerial Conference, ministers agreed that their governments would complete a full review of this new system by January 1999, and to decide whether to continue, modify or terminate it. During the review several members proposed possible improvements and clarifications to the agreement. But even after extending the review to July 1999, members did not reach an agreed conclusion.
All member governments share the conviction that the dispute settlement system has served them well since it started operating in January 1995. More than 330 disputes have been filed under the system since then, of which some 130 have gone through a full legal examination. Most of the rest have been settled without litigation, to the mutual benefit of the disputing countries. All of them have been handled without any lingering acrimony. It is this quasi-judicial characteristic — a blend of political flexibility and legal integrity — which makes this a unique process for settling international disputes peacefully through force of argument rather than through argument of force.
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The Doha mandate
The Doha Ministerial Declaration mandates negotiations on improvements and clarifications of the DSU. It states that the negotiations will not be part of the single undertaking — i.e. that they will not be tied to the success or failure of the other negotiations mandated by the declaration. The Doha mandate also set a deadline of May 2003. In July 2003, the General Council extended the deadline to May 2004. A further extension was agreed by the General Council in the context of the “July package” on 1 August 2004 without setting a new deadline.
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Developments since Doha to May 2004
As a measure of the DSU’s pivotal role in the whole multilateral trading system of the WTO, more member governments have participated actively in these talks than in any other negotiation (except agriculture) under the Doha mandate. Well over 80 WTO members have subscribed to more than 40 proposals, each of which contains several suggested changes, covering virtually all stages of the dispute settlement system.
Some of the proposed changes address housekeeping issues such as how to deal with inactive cases which remain dormant for several years without any indication that the complaining countries want to pursue these any further. In such cases countries would be expected to formally withdraw their complaints. Other proposals seek to introduce new stages such as the possibility of remanding, or referring, the case back to the original panel if a factual issue arises at the appellate stage which had not been examined by the panel. Several proposals contain suggestions for enhancing the special and differential treatment of developing and least-developed countries.
The issue on which there is, perhaps, the most widespread support for change is the procedural issue of “sequencing”. The issue arises from a lack of clarity in the Dispute Settlement Understanding’s text as to the order in which two phases of the procedure should occur when a member believes that another has failed to comply fully with the final rulings.
Conversely, the issue on which members are, perhaps, the most strongly divided is external transparency — what kind of access the public might have to panel proceedings or their input into the procedure by means of amicus curiae briefs (see explanation below).
On 16 May 2003, the chairman of the negotiations circulated a draft legal text under his own responsibility. The text contained members’ proposals on a number of issues, including: enhancing third-party rights; introducing an interim review and “remand” (referring a case back to a panel) at the appeals stage; clarifying and improving the sequence of procedures at the implementation stage; enhancing compensation; strengthening notification requirements for mutually-agreed solutions; and strengthening special and differential treatment for developing countries at various stages of the proceedings.
According to the chairman, a number of other proposals by members were not included in his text due to the absence of a sufficiently high level of support. These proposals covered issues such as accelerated procedures for certain disputes; improved panel selection procedures; increased control by members on the panel and Appellate Body reports; clarification of the treatment of amicus curiae briefs; and modified procedures for retaliation, including collective retaliation or enhanced surveillance of retaliation.
Members continued to discuss the chairman’s text until the end of May 2003. Some felt that the text captured the essential elements for a final agreement; others felt that there were serious omissions in the text. All members, however, expressed a readiness to continue work beyond 31 May 2003 towards an agreement.
At its meeting on 24 July 2003, the General Council agreed to extend negotiations from 31 May 2003 to 31 May 2004.
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Current status of negotiations
Although all proposals are still on the table, during the last year or so, active negotiations have centered on the following issues:
Third-party rights: Under the current DSU rules, it is possible for members, under certain conditions, to join in consultations in a dispute in which they are not the complaining or responding party, to become third-parties at the panel stage, and to become third-participants in the appellate stage. Members are generally supportive of enhanced third-party rights, provided that an adequate balance between the rights of main parties and third-parties is maintained.
Remand authority: At present, the Appellate Body’s function is limited to the examination of issues of law and legal interpretation developed by panels, and it is not empowered to make factual findings. This can lead to difficulties if a factual issue arises at the appellate stage which had not been examined by the panel. The issue therefore arises as to whether the Appellate Body should have the possibility to remand the case back to the panel.
Sequencing: The word “sequencing” is shorthand for the procedural steps and time-periods needed to deal with a situation where the complaining country claims that the defending country has not implemented the rulings.
- Article 21.5 states that where
the two parties disagree whether the rulings have
been implemented or not, a panel examines the dispute
reports within 90 days.
- Article 22.2 states that if the defending country fails to implement, the complaining country can ask the Dispute Settlement Body to authorize it to retaliate. Article 22.6 states that, within 30 days from the end of the reasonable period of time for implementation, the Dispute Settlement Body authorizes the complaining country to retaliate.
So, there are two key steps with their own time-periods: 90 days for a panel to examine whether a ruling has been implemented; and 30 days for Dispute Settlement Body to authorize retaliation. The wording of the Dispute Settlement Understanding does not specify whether these steps have to come one after the other. Hence, according to the current wording of the agreement, it seems that the 30-day period for the Dispute Settlement Body to authorize retaliation runs out before the panel has examined whether the defending country has implemented or not.
Post-retaliation: The issue arises from the fact that the DSU does not provide any specific procedure for the removal of an authorization to retaliate, once the member concerned has complied, or claims to have complied, with the rulings.
Composition of panels: The DSU currently provides for disputes to be examined by panelists selected on an ad hoc basis for each case, in consultation with the parties. This process can often cause delay. Negotiators are discussing the possibility of a permanent roster of individuals, retained on a full-time basis, from which panelists would be drawn for each case to speed up the process and to reinforce the independence of panels and quality of their reports.
Time savings: Some negotiators have proposed ways of streamlining the procedures, while others are concerned that the procedures already impose a tight schedule and that any shortening of timeframes would prejudice developing countries ability to effectively defend their rights.
Additional guidance to WTO adjudicative bodies: Proposals have been submitted relating to the manner in which the Appellate Body and panels carry out their functions, and aimed at increasing the level of member-control over the content of rulings of these bodies.
Transparency: Dispute settlement proceedings are confidential to the main parties and, where appropriate, third parties to a dispute. Transparency means opening up the dispute settlement proceedings either to the public (i.e. external transparency) or to WTO members other than those who are already parties to the dispute (i.e. internal transparency). Some developed countries have proposed opening dispute settlement proceedings, while a number of developing countries have opposed such proposals.
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Some terms frequently used in DSU negotiations
Implementation (DSU Articles 21 & 22): After the Dispute Settlement Body has adopted the final rulings in a case, the defending country has to implement these rulings by changing or completely removing its trade measure which has been ruled illegal.
Reasonable period of time (DSU Article 21.3): If the defending country cannot comply with the rulings immediately, it is given a “reasonable period of time” to implement the rulings. This period of time is either agreed mutually between the two parties, or, failing that, it is decided by an arbitrator. Article 21.3(c) states that a guideline for the arbitrator should be that the reasonable period of time “should not exceed 15 months from the date of adoption”.
Determination of compliance (DSU Article 21.5): Article 21.5 addresses a situation where the two parties disagree whether the rulings have been implemented or not. It states that such a dispute “shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel” which has 90 days to report its findings. The panel is referred to as a “compliance panel” — i.e. it examines whether the defending country has complied with the rulings.
Besides referring to “these dispute settlement procedures” and a 90-day panel, Article 21.5 does not specify any other elements or time-periods for determining compliance. However, normal procedures under the Dispute Settlement Understanding also include a 60-day period for consultations, a possibility of two Dispute Settlement Body meetings before a panel is established, a possibility of appeal of the panel findings, and a 2-3 months appeal process — together, they add up to more than 90 days.
Compensation (DSU Articles 3.7, 22.1, & 22.2): Compensation can be negotiated between the two parties in a dispute if the defending country fails to comply with the rulings within the reasonable period of time for implementation. Articles 3.7 & 22.1, however, state that compensation is a temporary measure pending full implementation. Article 22.2 allows 20 days, from the end of the period of implementation, to conclude negotiations. If the negotiations conclude unsuccessfully, the complaining country is allowed to request authorization from the Dispute Settlement Body to retaliate.
Suspension of concessions or other obligations (DSU Articles 3.7, & 22): This is commonly referred to as “retaliation” or “sanctions”. A concession is, for example, an importing country’s legal commitment not to raise its customs duty on an import above a certain agreed level of tariff. A suspension of this concession would mean that the importing country would raise the tariff. An obligation is, for example, a country’s legal responsibility to provide protection for intellectual property rights, such as patents and copyrights etc. A suspension of this obligation would mean that the country would be free of its legal responsibility to provide such protection. According to the Dispute Settlement Understanding, suspension of concessions or other obligations should be used as a last resort by the complaining country subject, of course, to authorization by the Dispute Settlement Body (Art.3.7), and is a temporary measure pending full implementation (Art.22.1).
Cross-retaliation (DSU Article 22.3): The phrase “cross-retaliation” does not appear in the Dispute Settlement Understanding, but is shorthand to describe a situation where the complaining country retaliates (i.e. suspends concessions or other obligations) under a sector or an agreement which has not been violated by the defending country. The circumstances under which cross-retaliation can be authorized are explained in the agreement’s Article 22.3. In preparing its request for authorization by the Dispute Settlement Body to suspend concessions or other obligations (i.e. to retaliate), the complaining country should first seek to retaliate in the same sector where the violation has occurred. If that is not practicable or effective it can seek to retaliate in another sector but under the same agreement where the violation has occurred. And if that is also impracticable or ineffective it can seek to retaliate under another agreement.
Carousel: Among the procedures and disciplines for retaliation, the Dispute Settlement Understanding does not contain any obligation on the retaliating country to submit a list of products targeted for sanctions. Nor does the agreement contain any mention of whether or not the retaliating country can change its selection of targeted products. The word “carousel” refers to the possibility of changing the targeted products as and when the country wants, so long as it stays within the authorized level of retaliation.
Amicus curiae briefs: Amicus curiae means “friend of the court” or “disinterested adviser”.