Dispute Settlement


The instrument covering Dispute Settlement is the Dispute Settlement Understanding, Annex 2 of the Marrakech Agreement.

Scope

  • The DSU covers disputes in the covered agreements, mentioned in art. 1, defined in Appendix 1 of the DSU. These are:

Strength

  • The dispute settlement system of the WTO is uniquely powerful in international law because the system as well as the covered agreementswere agreed to by consensus, and can thus be binding on member-states.
  • Further, the WTO is an economic organisation, and the DSB can impose economic penalties on members in breach (or, rather, suspend their concessions under the WTO).

Negative consensus

  • Most WTO decisions require positive consensus (e.g. everyone agreeing to the decision) to pass.
    • This is impossible in Dispute Settlement, since the respondent party would always vote against the creation of a panel, or the losing party would vote against the adoption of a panel report.
    • Thus, in the DSU, negative consensus is required to block, all members must vote against the creation of a panel or adoption of a panel report.
      • Again, almost impossible, since the complainant or victor party will not likely vote against the creation of a panel/adoption of a report.
  • It is required in the following sections:
    • Art. 6:1– for establishment of a panel
    • Art. 16:4– for adoption of panel reports
    • Art. 17:4– for adoption of appellate body reports
    • Art. 22:6 – for adoption of compensation or retaliation (suspension of concessions).

Timeline of a dispute

Insert Flowchart

  1. Ambassadors call each-other
  2. Consultation
  3. Panel requested (semi-automatic acceptance unless there is negative consensus)
  4. Panel hears terms of reference
  5. Panel decides
    • Appeals (if any)
  6. Implementation
    • Disputes over implementation
  7. Where there is non-implementation
    • Compensation
    • Retaliation
      • Cross Retaliation

Consultation

Dealt with in Art. 4

  • Must enter into good faith consultations within 30 days (Art. 4:3)
  • should attempt to solve the issue here, before escalating the matter to a Panel (Art 4:5).

NB: Here, “good offices, conciliation and mediation” (Art. 5) can be, voluntarily, looked to in order to resolve the dispute.

The Panel

Part of Art. 4 as well as Arts 5-16 deal with the Panel.

  • A panel is established on request except if there is negative consensus (Art. 6:1)
  • 60 days after consultations, the complainant party may ask for a Panel to be established on the issue (Art 4:7).
    • except for urgency, where 20 days is sufficient (Art. 4:8)
  • The panel will only decide on issues within the terms of reference it is presented (Article 7)
  • Directly affected parties, including multiple parties, have standing to bring/respond to a case (Art. 9).
    • Third parties may also join a case (Art. 10)

The Appellate Body

  • Limited to decisions of law on issues covered by the panel (Art. 6).
  • Decisions adopted by negative consensus (Art. 17:14)
  • The Appellate Body is a standing body (not composed for each case, like the panel), with 3/7 persons serving on each case (Art 17:1).
    • Appointed persons are elected, with a fixed term (that may be extended once (Art. 17:2).
  • Only directly involved parties (not third parties) have standing to bring appeal unless given special leave (Art. 17:4).

Implementation

  • Implementation is surveilled under Art. 21, and should be done within a reasonable period of time (assumed, unless otherwise discussed, to be 15 months) (Art. 21:3)
  • Disputes of implementation are brought under Art 21:5, 21:6 by the party not required to implement
    • This may create an issue/loopwhole: where, in response to non-implementation, the complainant party retaliates, and the respondent party, thus implements.
      • Since only the non-implementing party may bring an implementation dispute, it can occur that the complainant is retaliating whilst the respondent is in compliance.
      • The only way for the respondent party to require the complainant to remove its retaliation is to bring a new dispute: since the breach of WTO requirements is no longer excused by means of suspension of concessions.

Result of a dispute

  • A panel or appellate body report, will usually state what policy/law breaches WTO rules, and will recommend that the offending member bring its policy/law in line with WTO agreements.
  • Neither compensation or retaliation pay, monetarily, for a breach:
    • compensation the offended party from certain obligations to the offending party
    • retaliation allows the offended party to suspend its WTO obligations (e.g. bound tariff rates) to the offending party
  • If it fails to do so (non-implementation), or does so in an incomplete manner (disputed implementation), then the complainant party may have access to the following remedies (although implementation is preferred to either (Art. 22:1))

Compensation

  • Compensation is where the offending membervoluntarily decreases its tariffs to the offended member.
  • This is rare, and expensive, since the magnitude of compensation must be equal to the magnitude of the damage, and then this must be applied on a MFN basis to all members, potentially increasing the damage to the offending member by 150+ times (Art. 22:1“compensation … shall be consistent with the covered agreements”)

Retaliation

  • Retaliation (suspension of concessions) may be requested under Art. 22:2
  • Art. 22:3stipulates the requirements for retaliation:
    • The level of concession suspension should be equivalent to the impairment (Art. 22:4)
    • Suspension of concessions should occur [Note: you must exhaust all possible retaliation in the higher sectors before moving down the list (EC – Bananas)]:
      1. within the same industry;
        • Note: all of GATT is one industry; importantly, GATS has several industries (Art. 22:3:f)
      2. if that is not possible, in an industry within the same agreement
        • Note: All of the agreements in Annex 1A (e.g. GATT, Ag, etc.) are, for this section, considered one agreement (Art. 22:3:g)
      3. if that is not possible, in another agreement

[ ]???Cross retaliation may occur if retaliation is disproportionate

EC – Bananas

EC v Ecuador, etc.: requirements for retaliation; asymmetry in retaliation

Facts

  • Europe offered cheaper tariff rates to old european colonies than other member countries
    • The dispute settlement body stated that this was against WTO principles (GATT Art. 8)
    • And ordered that EC bring its tariffs into compliance
  • The EC, for political reasons (it did not want to abandon the colonies which it had once exploited) refused to implementthe panel’s recommendation
    • Compensation was not agreed upon (Art. 22:2)
  • Ecuador, thus, requests the right to retaliate

Proposed retaliation

  • Ecuador proposed to retaliate within TRIPS and GATS, since it believed that would most effectively support the Ecuadorean economy, and hurt the EC

Held

  • Ecuador could not choose wherever it liked to retaliate
  • Before Ecuador could move to other agreements, it had to exhaust:
    1. All possible retaliation within GATT (where there was a breach)
    2. All possible retaliation within GATS, in the wholesale services sector (where there was a breach)
    3. All possible retaliation for the rest of GATS
    4. Only then did TRIPS and other agreement become open to retaliation

Issue

  • Since Ecuador was forced to retaliate in Services, which it was required to import, implementing the allowable retaliation would have increased domestic prices.
    • Here, the retaliation would have hurt Ecuador
  • Thus, where there are small nations with a large export, and the breach is within that sector, oftentimes retaliation is ineffective
  • Antigua and Barbuda – Gambling
    • However, the Antigua and Barbuda case showed that retaliation by smaller nations can be effective – these countries were allowed to retaliate in TRIPS, and were able to hurt the US sufficiently that it was required to back down.

Proposed solutions

Some suggestions to fix this include:

  • allowing retaliation to be *retroactive *
  • auctioningoff retaliation rights
  • or allowing for monetary compensation
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