GATT-WTO Dispute Settlement

Mechanism

Structure of the WTO Agreement

Annex 1 Annex 2 Annex 3 Annex 4

Dispute Trade Policy Plurilateral

1A: GATT
Settlement Review Agreements
1B: GATS Understanding Mechanism

1C: TRIPs
GATT 1947:

 Nearly 50 years of dispute settlement under the

GATT 1947.
 Still no specific procedure or provision for
settlement of disputes.
 No provision for establishment of Tribunals for
settling questions of law or interpretation.
 But even then;
GATT 1947 resolved many disputes through
around Nineteen Clauses which obligated the
contracting parties to consult in specific instances .
 What is a ‘Dispute’ ?
 Disputes in the WTO are essentially about
broken promises. WTO members have agreed
that if they believe fellow-members are violating
trade rules, they will use the multilateral system
of settling disputes instead of taking action
unilaterally. That means abiding by the agreed
procedures, and respecting judgments.

 A dispute arises when one country adopts a trade

policy measure or takes some action that one or
more fellow-WTO members considers to be
breaking the WTO agreements, or to be a failure
to live up to obligations.
 Objectives

 Article 3.2 of the DSU

•Security and predictability in international trade ;

•Preserving Members’ rights and obligations ;

•Peaceful settlement of disputes.

•Clarifying the existing provisions.

 Outcome ?
 Article 3.7 of the DSU

•Positive solution to a dispute;

•Preferred outcome: Mutually acceptable solution

•Withdrawal of measures inconsistent with the

covered agreements
 ...and if no mutually agreed
solution reached ?
 Panel proceedings

 (Appellate Body review)

 Inconsistent measures...

Measure
1. Withdrawal

2. Compensation / Suspension of concessions

 Article XXII and XXIII deal with provisions
regarding dispute settlement in GATT.
 Art. XXII made consultations, a basis for
GATT’s dispute settlement procedure.
 Art. XXIII says, the complainant must show
that either;
1. Benefits accruing to him under GATT are being
nullified or impaired; or
2. Attainment of any objectives of GATT is being
impeded; and that;
 such nullification or impairment is a result of
either:
1. breach of obligations by respondent;
2. application of any conflicting measure by
respondent;
3. existence of any other situation.

 Over the years, some semblance of formality

was added to the dispute settlement process in
1979 when Tokyo Round adopted an
‘Understanding on Notification, Consultation,
Dispute Settlement and Surveillance’.
 Complainants
Others
(developing), 90
US, 93

Others
(developed), 34

Korea, 14 EC, 81
Argentina, 15
Mexico, 21
India, 18 Canada, 33
Brazil, 24
  Main actors in the WTO
Dispute Settlement System

Art.2 DSU establishes Dispute Settlement Body(DSB)

•Administers the WTO Dispute Settlement System
•Establishes panels
•Adopts panel and Appellate Body reports
•Maintains surveillance of implementation
•Non-implementation? Authorizes retaliatory measures

The panel 3 – 5 panelists, ad hoc body

Standing body of 7 members, 4-year

The Appellate Body term

WTO and AB Secretariat Assist panels and the

Appellate Body
 How the Dispute Settlement System works ?

The Dispute Settlement Body,

All Members

Establishes No appeal? DSB adopts

DSB adopts the reports
the report

Panel Report Appellate Body

 Recourse to WTO dispute settlement:
Who?
Only WTO Members (153 as of November 2009)

NOT NGOs, individuals (although may lobby

governments – indirect access)

Appellate Body:
 No DSU provision requiring “legal interest”

 Members have a broad discretion whether or not to

bring a case
 Recourse to WTO dispute settlement:
Regarding what?

 Appendix 1 to the DSU

Disputes under the following agreements must be resolved
pursuant to the DSU:
WTO Agreement
Multilateral Trade Agreements (GATT 1994 + 12 other
agreements on trade in goods)
GATS

TRIPS

DSU

(Plurilateral Trade Agreements)

Kinds of Jurisdiction:

 Compulsory jurisdiction

 Members obliged to bring disputes under the Covered

Agreements to WTO dispute settlement
 Accession: Consent to accept jurisdiction

 Exclusive jurisdiction

 No other fora
 No unilateral action
 Main Stages:
Consultations
60 days

Panel review Good offices,

6 – 9 months conciliation and
mediation
possible at any
AB review moment
60 – 90 days

Adoption of report by the DSB

Implementation
 ...Consultations
 Article 4 of the DSU

 Diplomatic method of settling the dispute

 Confidential – No intervention by the Secretariat

 “Without prejudice to the rights of any Member in further legal

proceedings”

As of April 2010:
! 406 requests for consultations !
 Third parties joining consultations
 Article 4.11 of the DSU
Request filed under  Article XXII of the GATT

Substantialtrade interest
 Notification to the consulting Parties and the DSB

 Within 10 days of the circulation of the original request

(WT/DSXXX/1)
Respondent decides:

 Substantial interest? No review, but the Member can

separately request consultations
DSB informed about the decision to accept
 GATT(1994), WTO & Dispute Settlement

 Principle: the settlement of disputes shall be ‘rule oriented’

and not ‘power oriented’.

 Art. 2 of DSU: establishment of DSB.

 DSU = 27 Articles + 4 Appendices

 DSU is often referred to as the ‘jewel in the crown’ of WTO.

 DSU confers compulsory jurisdiction to DSB, hence

transforming GATT 1947’s ‘soft law’ status to GATT
1994’s ‘stringent law mechanism’.
Functions of DSB:
1. Power to establish panels;
2. Adopt panel reports;
3. supervisory powers;
4. Implementation of recommendations and rulings;
5. Authorizing sanctions on failure in complying
with dispute settlement decisions.

 The General Council of WTO serves as DSB.

 But, DSB has its own chairman and follows its
own separate procedure.
 Good Offices, Conciliation &
Mediation

Art. 5 : Failure of Consultation

Within 60 days

WTO members may approach DSU’s Good Offices,

Conciliation or Mediation services

* Good Offices, Conciliations & Mediation available before

setting up of Panel, and not afterwards.
 Panel establishment

 Article 6 of the DSU

• Establishment of a panel
• Established by the DSB by negative consensus (2 nd
DSB meeting, defendant cannot block  Article 6.1
of the DSU)
• Strict requirements for the request for the
establishment of a panel (Article 6.2 of the DSU)
Request for the establishment
of a panel
In writing

Addressed to the DSB

•Indicate whether consultations were held

•Identify the specific measures at issue
•Brief summary of the legal basis claims

Article 6.2 of the DSU and specific dispute

settlement provisions

to Members as document WT/DSXXX/X

 Panel composition
 Article 8 of the DSU
 No permanent panels / panelists, ad hoc
 Secretariat proposes nominations, parties can oppose for
compelling reasons;
 3 or 5 panelists;
 Well-qualified government and/or non-governmental individuals;
 Dispute involving developing country: atleast 1 panelist shall be
from a developing country.
 Art. 10 : dispute involving interest of 3rd party may be heard by
panel.

As of April 2010:
! 148 panels composed (88 by the DG) !
 Functions of Panels
1. To enquire into the facts of the case;
2. To assess relevant elements for a decision on the
measures;
3. To submit a proposal for such a decision;

 The panel reports donot have legal force behind them.

 The panel reports then go to the ‘contracting parties’
where mediating and political aspects are re-
considered and the panel report if gets adopted,
achieves legal force.
 Due to the lack of legal sanction behind behind ‘panel reports’, the
dispute settlement mechanism of GATT 1947 is often termed as
‘soft law’.

 An eminent result of which was ‘blocking’ of unfavorable panel

reports by the contracting parties.

 This consequent ‘blocking’ of panel reports was later overcome by

‘Montreal rules’, 1989.

 ‘Montreal Rules’ were applied on trial basis from May 1, 1989 till
conclusion of ‘Uruguay Round’ in 1994.

 ‘Montreal Rules’ placed ‘time limits on consultations’ and

provided for ‘automatic establishment of panels’.
 Panel proceedings
1. First written submissions of the parties

Appendix
2. [Third party submissions]
3 DSU –
3. First substantive meeting with the parties and third
General parties - Third party session
working 4. Written rebuttals of the parties
procedures
5. Second substantive meeting with the parties
6. Descriptive part of the report to the parties

7. Parties’ comments on the descriptive part

8. Interim review
9. Final report issued to parties
10. Final report circulated to all Members
 Adoption of Panel Reports
Procedure of GATT Procedure of GATT
1947 1994
( Faulty) (Improved)

GATT 1947:
• Panel Reports to be adopted only by Consensus;
• possibility of ‘blocking’ of unfavorable panel reports.

GATT 1994:
DSU changed the procedure;
• Interim review of pros and cons of dispute;
• Parties may ask for review of interim report or its
parts.
 Appellate Body
 .
Established in 1995, under Art. 17 of DSU;
innovation of WTO dispute settlement system

A standing body of 7 Members. 4-year term,

renewable once.
Requirements:
•Authority and expertise in international
trade law;
•“Unaffiliated with any government”;
•Impartiality, broad representativeness.

*Appointed by the DSB on consensus, based on

nominations by WTO Members
 What can be appealed?
 Article 17.6 of the DSU of
s ue
Is law

 Appeals limited to “issues of law covered in the panel

report and legal interpretations developed by the panel”;

 No factual findings by the Appellate Body;

 Panels’ factual findings: In principle, outside the scope

of appellate review.
 Role of third parties in Appellate
hearings

 Only those Members that were third parties on the panel

stage;

 Cannot appeal;

 Right to file written submissions and to participate in the

oral hearing.
 Adoption of Panel /
Appellate Body reports

The DSB adopts:

• Panel Report (as upheld/modified/
reversed) ;
• Together with the Appellate Body Report;
• By negative consensus.

•Within 30 days from circulation of AB Report

•(60 days from circulation of Panel Report if no
appeal)
 Implementation Mechanism
Art. 21 : Mechanism for surveillance of implementation of
recommendations and rulings of Panel & Appellate Body
Reports.

* If Recommendations/Rulings of Panel
or Appellate Body are not
implemented; the winning party is
entitled to :
• seek compensation; and/or
• request the Authority to suspend
Concessions previously made to the
offending member.
 CASES
BANANA DISPUTE:

The recent ‘Banana dispute’ has thrown up problems relating

to Articles 21, 22 and 23 of the DSU.

FACTS: The dispute involves the EU's regulatory regime for

imported bananas, enacted in 1993.
 Prior to 1992 each of the 12 EU member states had its own
banana import regime. Germany operated on a free market
system and had no import restrictions. The other 11 members
imposed a 20% tariff, and 6 members (France, Italy, Portugal,
Spain, Greece, and the UK) also applied quotas on bananas
produced in Central and South America. These latter restrictions
were designed to protect the EU market from bananas produced
in former EU territories and in ACP countries (developing
countries in Africa, the Caribbean and the Pacific). As part of its
1992 integration program the EU established, an EU-wide
banana trade regime.
 Complaints made by Ecuador, Guatemala, Honduras, Mexico and
the US. The complainants alleged that the EC's regime for import,
sale and distribution of bananas is inconsistent with GATT
Articles I, II, III, X, XI and XIII as well as provisions of the
Import Licensing Agreement, the Agreement on Agriculture, the
TRIMs Agreement and the GATS.

 Panel established on 8 May 1996.Panel found that the EC's banana

import regime, and licensing procedures for import of bananas,
were inconsistent with GATT.

 Following an appeal by the EC, the Appellate Body mostly upheld

the Panel's findings. In September 1997, the Appellate Body
report and the modified Panel report were adopted by the DSB.
Subsequently, the Arbitrator settled the reasonable period for
implementation to be the period from 25 September 1997 to 1
January 1999.
 The dispute entered another phase when the complainants
questioned the WTO-consistency of the measures introduced by
the EC. On 15 Dec. 1998, EC requested the establishment of a
panel to determine that its implementing measures must be
presumed to conform to WTO rules unless challenged.

 About the same time, Ecuador also requested the re-establishment

of the original panel to examine whether the EC measures are
WTO-consistent.

 DSB agreed on 12 Jan. 1999 to reconvene the original panel to

examine both Ecuador's and the EC's requests. On 14 Jan. 1999,
the US, pursuant to Art. 22.2 of DSU, requested authorization from
the DSB for suspension of concessions to the EC in an amount of
US$520 million. At the same time, the original panel determined
that the EC bananas regime was still not fully WTO-compatible.
Republic of Korea - Measures Affecting Imports of
Fresh, Chilled and Frozen Beef, complaint by the US

 This dispute, dated Feb. 1999, is in respect of an alleged Korean

regulatory scheme that discriminates against imported beef by,
confining sales of imported beef to specialized stores, limiting the
manner of its display, and otherwise constraining the
opportunities for the sale of imported beef.
 US contended that these restrictions apply only to imported beef,
thereby denying national treatment to beef imports, and that the
support to the domestic industry amounts to domestic subsidies
that contravene the Agreement on Agriculture.
 US alleged violations of Articles II, III, XI, and XVII of GATT
1994; Articles 3, 4, 6, and 7 of the Agreement on Agriculture; and
Articles 1 and 3 of the Import Licensing Agreement. A panel was
established in May 1999. Australia, Canada and New Zealand
reserved their third-party rights.
Guatemala-Cement II Case
 Guatemala challenged independence of one of the panelists
because that individual served as a panelist in the Guatemala-
Cement I. It argued that the individual would inevitably be
influenced by the previous case and therefore challenged the
panel’s right to examine the case.

 The panel rejected this argument and issued a preliminary ruling

finding that it did not have the competence to review the challenge
to impartiality of one of the assigned panelists or of composition of
panel. Therefore, if the party opposes the nomination of a panelist,
it should raise its opposition at the time of the panel composition.

 The panel advised Guatemala that if it had any opposition to the

appointment of a particular panelist, it should refer the issue to the
chairman of the DSB in accordance with the rules of conduct
which governs the activities of the panel.
 Conclusion
 Thus we can ascertain that the dispute-settlement process of
WTO, which came into existence as a result of the Uruguay
Round of trade negotiations on 1st Jan. 1995, is by any objective
standard, a resounding success.

 Over 100 cases have been brought to the WTO, and at the end of
1997, 25 cases had been settled at the consultation stage, 61 were
under consultations and 36 were in or beyond the panel-appeal
process.

 The newly created Appellate Body has decided nine cases, the
quality of its opinions as well as those of the dispute-settlement
panels is generally excellent. Member States of the WTO are
complying with the rulings and recommendations adopted by the
DSB.
 Thank You..!!

Presented by- Navneet Kaur

LLM (ITBL) Batch: 2009-11
NALSAR Univ. of Law, Hyderabad.