DISPUTE SETTLEMENT SYSTEM TRAINING MODULE: CHAPTER 6
The process — Stages in a typical WTO dispute settlement case
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Countermeasures by the prevailing Member (suspension of obligations)
The DSB must grant the authorization to suspend obligations within 30 days of the expiry of the reasonable period of time, unless it decides by consensus to reject the request. This is the third key situation where the DSB decides by “reverse” or “negative” consensus. In other words, the approval is virtually automatic, because the requesting Member alone could prevent any possible consensus against granting the authorization.
If the parties disagree on the complainant’s proposed form of retaliation, arbitration may be requested (Articles 22.6 and 22.7 of the DSU). This disagreement can relate either to the question of whether the level of retaliation is equivalent to the level of nullification or impairment or to the question of whether the principles governing the form of permitted suspension are respected. If the original panelists are available, it is the original panel that carries out this arbitration; otherwise the Director-General appoints an arbitrator. Article 22.6 of the DSU also stipulates that the deadline for completing the arbitration is 60 days after the date of expiry of the reasonable period of time and that the complainant must not proceed with the suspension of obligations during the course of the arbitration.
The arbitrators determine whether the level of the proposed suspension of concessions is equivalent to the level of nullification or impairment. This means that they calculate the approximate value of the trade lost due to the measure found to be (WTO)-inconsistent or otherwise to nullify or impair benefits. If there is a claim that the principles and procedures for cross-retaliation (Article 22.3 of the DSU) have not been followed, the arbitrator also examines that claim (Article 22.7 of the DSU).
The parties must accept the arbitrator’s decision as final and not seek a second arbitration. The DSB is informed promptly of the outcome of the arbitration. Upon request, the DSB grants authorization to suspend obligations provided that the request is consistent with the decision of the arbitrator, except if there is a consensus to reject the request (Article 22.7 of the DSU).
Despite having obtained authorization from the DSB to suspend obligations, a complainant may choose not to proceed with the suspension but rather to use the authorization as a bargaining tool with the implementing Member.
Special rules on countermeasures (SCM Agreement) back to top
Again, special rules exist in the SCM Agreement. In the area of prohibited subsidies, where the respondent has not followed the DSB’s recommendation within the time-period specified by the panel for the withdrawal of the subsidy, the DSB grants authorization to the complaining Member to take “appropriate countermeasures”, unless there is a negative consensus against it (Article 4.10 of the SCM Agreement). The arbitrator under Article 22.6 of the DSU is mandated to determine whether the proposed countermeasures are appropriate (Article 4.11 of the SCM Agreement).
In dispute settlement practice, the standard of “appropriateness” has been found to permit countermeasures that may be higher rather than strictly “equivalent” to the level of nullification or impairment caused by the prohibited subsidy. This appears to permit countermeasures that have a stronger effect in inducing compliance under the SCM Agreement than under the ordinary rules of the DSU.
On actionable subsidies, Article 7.9 of the SCM Agreement provides that the DSB must (unless there is a consensus to the contrary) grant authorization to the complainant to take countermeasures if the subsidy is not withdrawn or the adverse effects removed within six months from the adoption of the report(s). These countermeasures must be commensurate with the degree and nature of the adverse effects determined to exist. In the arbitration pursuant to Article 22.6 of the DSU, the arbitrator determines whether the countermeasures are commensurate with the degree and nature of the adverse effects (Article 7.10 of the SCM Agreement).
“Sequencing” back to top
One of the contentious issues arising in the implementation stage of the dispute settlement system is the relationship between Article 21.5 and Article 22.2 of the DSU. The issue is which of the two procedures, if any, has priority: the compliance proceeding or the suspension of obligations. In other words, the issue is whether the complainant is entitled to request authorization to suspend obligations before a panel (and the Appellate Body) has established pursuant to Article 21.5 of the DSU that there has been a failure to comply with rulings and recommendations of a panel (or the Appellate Body). On the one hand, Article 22.6 of the DSU mandates the DSB to grant the authorization to suspend obligations within 30 days of the expiry of the reasonable period of time (if there is no negative consensus). A possible arbitration on the level or form of retaliation must conclude within 60 days after the expiry of the reasonable period of time. This time is not sufficient to complete the compliance review under Article 21.5 of the DSU (90 days for the panel, plus possible appeal) in order to establish whether there has been full implementation of the DSB recommendations and rulings (i.e. whether there now is WTO-compliance or whether a satisfactory adjustment to a situation of non-violation nullification or impairment has occurred). On the other hand, Article 23 of the DSU prohibits WTO Members from deciding unilaterally whether a measure is inconsistent with the covered agreements or whether it nullifies or impairs benefits.
This conflict came to a head in the EC — Bananas III dispute. In subsequent cases, the parties have usually reached an ad hoc agreement on the sequencing of procedures under Article 21.5 and Article 22. In some cases, the parties have agreed to initiate the procedures under Article 21.5 and Article 22 simultaneously and then to suspend the retaliation procedures under Article 22 (the DSB authorization and the Article 22.6 arbitration) until the completion of the Article 21.5 procedure.1 In other cases, the parties have agreed to initiate the procedures under Article 21.5 before resorting to the retaliation procedures under Article 22 with the understanding that the respondent would not object to a request for authorization of suspension of concessions under Article 22.6 of the DSU because of the expiry of the 30-day deadline for the DSB to grant this authorization.
Attempts to find a solution to the issue of sequencing through an authoritative interpretation or amendment of the DSU have so far been unsuccessful in both past and current DSU review negotiations.