Introduction to the WTO dispute settlement system

1.3 Functions, objectives and key features of the dispute settlement system

Although the dispute settlement system is intended to uphold the rights of aggrieved Members and to clarify the scope of the rights and obligations, which gradually achieves higher levels of security and predictability, the primary objective of the system is not to make rulings or to develop jurisprudence. Rather, like other judicial systems, the priority is to settle disputes, preferably through a mutually agreed solution that is consistent with the WTO Agreement (Article 3.7 of the DSU). Adjudication is to be used only when the parties cannot work out a mutually agreed solution. By requiring formal consultations as the first stage of any dispute, the DSU provides a framework in which the parties to a dispute must always at least attempt to negotiate a settlement. Even when the case has progressed to the stage of adjudication, a bilateral settlement always remains possible, and the parties are always encouraged to make efforts in that direction (Articles 3.7 and 11 of the DSU).

The DSU emphasizes that prompt settlement of disputes is essential if the (WTO) is to function effectively and the balance of rights and obligations between the Members is to be maintained (Article 3.3 of the DSU). It is well known that, to be achieved, justice must not only provide an equitable outcome but also be swift. Accordingly, the DSU sets out in considerable detail the procedures and corresponding deadlines to be followed in resolving disputes. The detailed procedures are designed to achieve efficiency, including the right of a complainant to move forward with a complaint even in the absence of agreement by the respondent (Articles 4.3 and 6.1 of the DSU). If a case is adjudicated, it should normally take no more than one year for a panel ruling and no more than 16 months if the case is appealed (Article 20 of the DSU). If the complainant deems the case urgent, consideration of the case should take even less time (Articles 4.9 and 12.8 of the DSU).

These time-frames might still appear long, considering that time for implementation will have to be added after the ruling. Also, for the entire duration of the dispute, the complainant may still suffer economic harm from the challenged measure; and even after prevailing in dispute settlement, the complainant will receive no compensation for the harm suffered before the time by which the respondent must implement the ruling.

However, one must take into account that disputes in the WTO are usually very complex in both factual and legal terms. Parties generally submit a considerable amount of data and documentation relating to the challenged measure, and they also put forward very detailed legal arguments. The parties need time to prepare these factual and legal arguments and to respond to the arguments put forward by the opponent. The panel (and the Appellate Body) assigned to deal with the matter needs to consider all the evidence and arguments, possibly hear experts, and provide detailed reasoning in support of its conclusions. Considering all these aspects, the dispute settlement system of the WTO functions relatively fast and, in any event, much faster than many domestic judicial systems or other international systems of adjudication.

WTO Members have agreed to use the multilateral system for settling their WTO trade disputes rather than resorting to unilateral action (Article 23 of the DSU). That means abiding by the agreed procedures and respecting the rulings once they are issued — and not taking the law into their own hands.

If Members were to act unilaterally, this would have obvious disadvantages that are well known from the history of the multilateral trading system. Imagine that one Member accuses another Member of breaking WTO rules. As a unilateral response, the accusing Member could decide to take a countermeasure, i.e. to infringe WTO obligations with regard to the other Member (by erecting trade barriers). Under traditional international law, that Member could argue that it has acted lawfully because its own violation is justified as a countermeasure in response to the other Member’s violation that had occurred first. If, however, the accused Member disagrees on whether its measure truly infringes WTO obligations, it will not accept the argument of a justified countermeasure. On the contrary, it may assert that the countermeasure is illegal and, on that basis, it may feel justified in taking a countermeasure against the first countermeasure. The original complainant, based on its legal view on the matter, is likely to disagree and to consider that second countermeasure illegal. In response, it may adopt a further countermeasure. This shows that, if the views differ, unilateral actions are not able to settle disputes harmoniously. Things may spiral out of control and, unless one of the parties backs down, there is a risk of escalation of mutual trade restrictions, which may result in a “trade war”.

To prevent such downward spirals, the DSU mandates the use of a multilateral system of dispute settlement to which WTO Members must have recourse when they seek redress against another Member under the WTO Agreement (Article 23.1 of the DSU). This applies to situations in which a Member believes that another Member violates the WTO Agreement or otherwise nullifies or impairs benefits under the WTO Agreements or impedes the attainment of an objective of one of the agreements.¹

In such cases, a Member cannot take action based on unilateral determinations that any of these situations exist, but may only act after recourse to dispute settlement under the rules and procedures of the DSU. Whatever actions the complaining Member takes, it may only take them based on the findings of an adopted panel or Appellate Body report or arbitration award (Article 23.2(a) of the DSU). The Member concerned must also respect the procedures foreseen in the DSU for the determination of the time for implementation and impose countermeasures only on the basis of an authorization by the DSB (Article 23.2(b) and (c) of the DSU). This excludes unilateral actions such as those described above.

By mandating recourse to the multilateral system of the WTO for the settlement of disputes, Article 23 of the DSU not only excludes unilateral action, it also precludes the use of other fora for the resolution of a WTO-related dispute.

The dispute settlement system is compulsory. All WTO Members are subject to it, as they have all signed and ratified the WTO Agreement as a single undertaking², of which the DSU is a part. The DSU subjects all WTO Members to the dispute settlement system for all disputes arising under the WTO Agreement. Therefore, unlike other systems of international dispute resolution, there is no need for the parties to a dispute to accept the jurisdiction of the WTO dispute settlement system in a separate declaration or agreement. This consent to accept the jurisdiction of the WTO dispute settlement system is already contained in a Member’s accession to the WTO. As a result, every Member enjoys assured access to the dispute settlement system and no responding Member may escape that jurisdiction.

Notes:

1. On these causes of action, see the section on the Types of complaints and required allegations in GATT 1994.  back to text

2. Single undertaking means that the WTO Agreement had to be signed in its totality (except for Agreements signed in Annex 4 known as plurilateral agreements). Signatories were not allowed to sign only individual parts of the entire package.  back to text