Settlement of Trade Dispute

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Settlement of Trade Dispute

• Dr. Mrs. Vijaya Katti
• Professor Chairperson, IIFT
• New Delhi

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Significance of WTOs Dispute Settlement
Understanding

• DSU Termed as WTOs Most Individual
  Contribution
• DSU procedure underscores the Rule of Law, makes
  the trading system more secure
• Nature of Dispute (a) Adoption of trade policy
  measure that violates a WTO Agreement or (b) Not
  living up to obligation under a WTO Agreement

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GATT - WTO Differences

• GATT
• No time frames.
• Rulings adopted only by consensus. Single party
  could block.
• No effective monitoring and enforcement of
  rulings.

• WTO
• Clear Time Tables.
• Automatic adoption. Rejection only by consensus.
• DSB monitors how rulings are adopted.

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Nullification or Impairment

• Art.XXIII, GATT States may bring complaints if
  they consider that benefits accruing to them
  under GATT are nullified or impaired
• Breach of rules leads to presumption of an
  adverse impact. Can be rebutted by a defending
  party.

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Non-Violation Complaints

• Art.XXIII(1)(b) If any benefit to a State is
  nullified or impaired by application of any
  measure by another State, whether or not it
  conflicts with any WTO Agreement.
• In most cases under this provision, the claimed
  benefit has been legitimate expectations of
  improved market access opportunities arising out
  of relevant tariff concessions.

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Third Party

• Members having substantial interest in a matter
  can be a third party, and have a right to be
  heard by the Panel make written submissions to
  the Panel.

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Amicus Curiae

• Art.13 Panel has right to seek information
  technical advice from individual or body.
• AB rulings Any individual or body can make
  submissions to the Panel. Panel has discretion
  whether or not to consider these.
• Concerns Interest groups from developed world
  will have greater resources access prejudice
  developing country interests.

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Stages of Dispute Settlement

• I Consultation Stage Upto 60 Days. To see if
  dispute can be avoided
• II Appt of Panel Upto 45 days 6 mths for
  Panel to conclude
• III Appeals from Panel to Appellate Body. To be
  decided within 60 days max 90 days
• IV DSB to accept AB report within 30 days.
  Rejection possible only by consensus

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After DSB Adoption

• Losing Party to bring its policy in line with the
  decision. Prompt compliance reqd. Party to tell
  DSB its intention of compliance within 30 days.
  If immediate compliance impractical, DSB will
  give Member reasonable time period to do so.
• If dispute whether measures adopted comply with
  DSB ruling, a Compliance Panel will hear the
  matter rule within 90 days.

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After DSB Adoption (Contd)

• Failure to act ?Adequate Compensation to
  Complaining party/parties
• Amount of Compensation through negotiations
• If no satisfactory agreement, complaining side
  may seek DSBs permission for ltd trade sanctions
• Trade sanctions Suspension of concessions or
  obligations. In principle, in the same sector as
  the dispute. If this is not effective or
  practical, action under another agreement.

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Suspension of Concessions

• Level of suspension of concessions shall be
  equivalent to the level of nullification or
  impairment
• If party objects to level determined, matter
  shall be referred to arbitration by the
  original panel.

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Flowchart of Dispute Settlement

• Art 1 if DSU states that all the Covered
  Agreements included in Annex I of the Marrakesh
  Agreement would be subject to dispute settlement.

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• Art 2 establishes the Dispute Settlement Body
  (DSB) to administer the rules and procedures
  except those otherwise provided in the covered
  agreement

14

• Art 3 states that Members shall affirm adherence
  to the principles for the management of disputes
  heretofore applied under Articles XXII and XXIII
  of GATT47 and the rules and procedures as
  further elaborated and modified.

15

• Clause (3) of Art 3 - prompt settlement of
  situation sin which a Member considers that any
  benefits accruing to it, directly or indirectly,
  under the covered agreement are impaired by
  measures taken by another member is essential to
  the effective functioning of the WTO. (it may be
  recalled here that GATT dispute settlements took
  inordinately long time to be settled.
• In clauses (4) and (5) mutual consultations prior
  to registering a dispute are also provided for.
  Clause (7) of Art 3 is more categorical stating
  that a Member shall exercise its judgement as to
  whether action under these procedures would be
  fruitful

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• Art 4 provides for consultation. Clause (1) of
  Art 4 states that Members affirm their resolve to
  strengthen and improve effectiveness of
  consultation procedures employed by members.
• Clause (7) of Art 4 further states that if the
  consultations fail to settle a dispute within 60
  days after the date of receipt of request for
  consultation the complaining party may request
  the establishment of a panel.
• The complaining party may request for a panel
  during the 60-day period if the consulting
  parties jointly consider that consultations have
  failed to settle the dispute.

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• Clause 8 of Art 4 of significance to developing
  countries. It provides for cases of urgency
  including those of perishable products. Members
  are expected to enter into consultations within a
  period of no more than 10 days after the date of
  receipt of the request. If the consultation fails
  to settle the dispute within a period of 20 days
  after the date of receipt of the request, the
  complaining party may request the establishment
  of panel. Clause 9 of this Art stipulates that
  the panels and the Appellate Body shall make the
  necessary effort to accelerate the proceedings.

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• Art 5 envisages good offices conciliation and
  mediation for procedures that are undertaken
  voluntarily if the parties to the dispute so
  agree. Such proceedings shall be confidential.
  The complaining party must allow 60 days after
  the date of request for consultation before
  requesting for establishment of a panel. The
  complaining party may seek establishment of a
  panel if the parties to the dispute jointly find
  that the good offices conciliation on mediation
  process have failed.

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• Art 6 provides for the establishment of panels if
  a complaining party requests. This request shall
  be made in writing.
• Art 7 stipulates the terms of reference of the
  panels. Art 8 provides for the composition of the
  panels. They are to be composed of well qualified
  governmental and/or non-governmental individuals.

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• Art 9 provides that a single panel may be
  established when more than one Member request the
  establishment of a panel. This single panel shall
  organise its examination and present its findings
  to the DSB in such a manner that the rights which
  the parties to the dispute would have enjoyed had
  separate panels examined the complaints are in no
  way impaired.

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• Art 10 takes care of the interests of the parties
  to a dispute and those of other members under
  covered agreement. All issues in the dispute
  shall be fully taken into account.
• Art 11 stipulates the functions of the panels.
  Broadly, the function of the panel is to assist
  the DSB in discharging its responsibilities under
  this Understanding and the covered agreement.

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• Art 12 spells out the detailed procesure. Clause
  8 of this Art gives the time table for the
  panels working. The general rule is that an
  issue taken up by a panel should not exceed six
  months of its consideration. In cases of urgency
  including those relating to perishable goods the
  panel shall aim to issue its report within a
  period of three months.

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• Clause 10 of Art 12 provides for giving
  sufficient time for a developing country member
  to prepare and present its argumentation.
• Clause 11 of the same Article stipulates that
  when a developing country or developing countries
  are a party to a dispute the panel has to
  explicitly indicate the form in which account has
  been taken of the relevant provisions on special
  and differential treatment to the developing
  country Member that forms part of the covered
  agreements which have been raised by the
  developing country member in the course of the
  dispute settlement procedure.

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• Art 13 provides for right to seek information
  from any member or individual and Art 14
  emphasises the need for confidentiality. Art 15
  states the stages of interim review by the panel.
• Art 16 gives 20 days to the Members before the
  panel reports are adopted by the DSB.
  Significantly, it provides Members atleast 10
  days for their objections to the panel reports
  before the DSB considers them. Clause 4 of Art 16
  expects that the panel reports should be adopted
  within 60 days.

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• Art 19 states that when a panel or the Appellate
  Body conclude that a measure is inconsistent with
  the covered agreement, it shall recommend that
  the Member concerned bring the measure in
  conformity with the agreement.
• Art 20 spells out the time period. Adoption of
  the panel or Appellate Body report is not
  expected to exceed nine months when there is no
  appeal or 12 months when the report is under
  appeal.

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• Art 21 details out the procedures for
  surveillance of implementation of the
  recommendations and rulings.
• The most controversial Article is Article 22
  which embodies the principle of cross
  retaliation. This has legitimised and
  universalised Section 301 of the U.S. Trade and
  Competitiveness Act.

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• Art 22, Clause (1) emphasizes the importance of
  full implementation of a recommendation to bring
  measures in Conformity with covered agreement.
  Compensation and suspension of concessions is not
  preferred. Compensation is voluntary and if
  granted shall be consistent with covered
  agreements.

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• The emphasis has been on reasonable period of
  time. If no satisfactory compensation has been
  agreed within 20 days after the date of expiry of
  the reasonable period of time, any party having
  invoked the dispute settlement procedures may
  request authorisation from the DSB to suspend the
  application of the Member concerned or
  concessions or other obligations under covered
  agreements.

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• Clause 3 of Art 22 gives the principles to be
  observed by the complaining party while
  suspending concessions
• (a) General principle is that the complaining
  party should first seek to suspend concession or
  other obligations with respect to the same sector
  (s) as the panel or Appellate Body has found a
  violation or other nulification or impairment.

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(b) If that party considers that it is not
practicable or effective to suspend concessions
of other obligations with respect to same
sector(s) it may seek to suspend concessions or
other obligations in other sectors under the same
agreement, and that if circumstances are serious
enough if may seek to suspend concessions or
other obligations under another covered
agreement. (c) In applying the above principles,
that party shall take into account the trade in
the sector or under the agreement which the panel
or Appellate body has found a violation or other
nullification or impairment and the importance of
such trade to the party (ii) broader economic
consequence of suspension of concession or other
obligation.
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• Art 24 provides for special procedures involving
  the least developed country members. Clause 1 of
  the Article emphasises that particular
  consideration shall be given to the special
  situation of the least developed country members.
  It exhorts members to exercise due restraint in
  raising matters under the procedures involving
  such a country. Further, it also exhorts Members
  to exercise due constraint in asking for
  compensation if nullification or impairment is
  found to result from a measure taken by a least
  developed country member.

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• Clause 2 of Art 24 provides for good offices of
  the Director-General or the Chairman of DSB if a
  request is made by a least developed country
  Member when consultations between the contending
  parties do not come up with a satisfactory
  solution.
• The WTO dispute settlement mechanism recognises
  the role of arbitration as an alternative means
  of settlement. Art 25 states the WTOs approach
  to arbitration. Clause 2 of the Article states
  that resorting to arbitration shall be subject to
  mutual agreement of the parties which shall agree
  on the procedure to be followed.

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• THANK YOU