An impartial mechanism for WTO dispute settlement
WTO members, like those of any other organisation, can, and do,undertake measures which are inconsistent with their obligations towards one another. Obviously, if members get away with such measures, predictability and stability as well as effectiveness of the multilateral trading system will be at risk

By Hussain H. Zaidi

Disputes are bound to arise in any organisation which creates rights and obligations for its members. For smooth functioning, therefore, it is imperative to have an elaborate and impartial mechanism for dispute settlement. The same is true for World Trade Organisation (WTO).

The WTO is the forum for the conduct of multilateral trade negotiations as well as administration of various multilateral trade agreements, which are the fruit of these negotiations. These agreements confer certain rights and obligations on members with regard to both general rules or principles, which together define what members are entitled to do and what they cannot do, and specific commitments which each member has undertaken, such as tariff reductions. For instance, with some exceptions no member can discriminate among like products destined to or originating in its trading partners-the most favoured nation (MFN) principle. Similarly, in normal circumstances, no member can increase tariffs, which it has bound in its schedule of concessions.

Notwithstanding these general and specific commitments, WTO members, like those of any other organisation, can, and do, undertake measures which are inconsistent with their obligations towards one another. Obviously, if members get away with such measures, predictability and stability as well as effectiveness of the multilateral trading system will be at risk. Alive to this danger, the framers of the WTO Agreement devised an elaborate system for dispute settlement.

The first thing is that only governments can bring a case to the WTO against measures of other governments while private individuals or entities can not. Take an example. Dumping-selling a product in foreign markets below its domestic price or cost of production is an act of a business enterprise. Anti-dumping duty is the measure that a government takes to offset dumping. Dumping, being a private practice cannot be challenged while anti-dumping can be. The reason for this is simple: WTO is part of public international law (PIL), and states not private entities or individuals are PIL subject.

The legal basis of the WTO dispute settlement system is Articles XXII and XXIII of GATT (General Agreement on Tariffs and Trade) and Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Annex II of the WTO Agreement. Dispute settlement provisions are also contained in specific WTO agreements.

A member can invoke dispute settlement provisions if any benefits accruing to it directly or indirectly under any of the covered WTO agreements are nullified or impaired as a result of failure of another member to carry out its obligations under any of the agreements (a violation case) or a measure taken by another member whether or not it conflicts with any WTO provision (a non violation case).

A violation case is easier to establish than a non-violation case. Take examples. Suppose country A fails to grant national treatment-not discriminating between like domestic and imported products in terms of internal taxes, etc as provided in Article III of GATT-to imports from country B. This entitles country B to lodge a violation complaint against country A as the latter has allegedly acted inconsistently with its GATT obligations.

In case of a non-violation complaint, it is not necessary that a member has allegedly acted inconsistently with its GATT obligations. Non-violation cases have not been explained in GATT text but WTO jurisprudence has thrown light on such cases. Non-violation cases arise for example when improved competitive opportunities that can legitimately be expected from tariff reduction are impaired by practices, such as currency devaluation or subsidisation, which themselves may not be inconsistent with GATT provisions. Thus the doctrine of legitimate expectancy plays an important role in non-violation cases.

Whether violation or non-violation cases, the dispute settlement process consists of four stages: consultations, panel reports, appellate review, and implementation and enforcement.

Consultation is the first stage in dispute settlement. Consultation means lodging a formal complaint by a WTO member (complainant) with another member (respondent) regarding operation of any WTO agreement. The request for consultations must identify the measure at hand and the legal basis of the complaint.

Consultations are important for two reasons. Firstly, they can help resolve the issue in a mutually satisfactory manner-always a preferred solution in WTO. Secondly, consultations can help resolve the dispute expeditiously without having to go through more formal procedures. The request for consultations have to be notified to the Dispute Settlement Body (DSB), which in fact is the General Council comprising all WTO members but wearing a different hat.

WTO rules (Article 4 of DSU) require that the member to whom the request for consultations has been made must enter into consultations with the complaining member within 30 says of the receipt of such request. The period, however, may be increased with mutual consent of the two parties.

Any other member who has a substantial trade interest in the matter may also join the consultations subject to the approval of the member to whom the request for consultations has been made. If consultations start but the issue is not resolved within 60 days of the date of receipt of the request for consultations, the complaining member can request the DSB to establish a panel to settle the dispute. However, practically consultations go on for more than 60 days.

This brings us to the second stage -the panel stage. Panels are established by the DSB by reverse or negative consensus. This needs to be explained. In WTO all decisions are made by consensus. A matter is decided by consensus if no one presents formally objects to a proposal. A consensus decision must be distinguished from a unanimous decision, which takes place when all present approve a proposal. A unanimous decision is thus the result of voting, while in case of a consensus decision no voting takes place. But decisions by consensus have their problems since even one objection can block decision-making. Alive to this problem, in WTO certain decisions are taken by negative consensus. Establishment of panels is one such decision. In a DSB meeting a panel is deemed to have been established when there is a consensus that it may not be established. Since the complaining member objects to such a proposal, a consensus that a panel may not be established is not reached, which means that a panel is established. Panels have to be established within 20-30 days of the date of request for panels. However, in practice it takes much longer.

Article 11 of DSU defines the role of panels. In the first place, they need to make an objective assessment of the matter. In the second place, they should deal with both questions of law and facts. In the third place, they should give the parties adequate opportunity to develop a mutually satisfactory solution.

Panel reports can be challenged in the Appellate Body (AB). Appellate review (Article 17 of DSU) is thus the third stage in dispute settlement. As against panels, AB deals only with questions of law, not questions of facts. The AB may uphold, modify or reverse legal findings or conclusions of panels. AB proceedings have to complete in 60 days. The period however may be extended to 90 days. But in practice it takes much longer to complete the proceedings. Like the panel report, AB report embodying rulings and recommendations is adopted by the DSB by reverse consensus, which makes the adoption process merely a formality.

Article 22 of DSU provides that in case DSB recommendations are not implemented within RTI, compensation or suspension of concessions may be resorted to. Compensation means that the respondent makes up for the loss suffered by the complainant as a result of the former’s WTO-inconsistent measure(s). This is done by giving the complainant concessions in other sectors, which must be WTO-consistent. The thorny issue here is the level of compensation.

If the issue is not resolved within the stipulated time (20 days of expiry of RTI), the complainant may seek authorisation from the DSB to suspend its concessions or other obligations towards the respondent under WTO equivalent to nullification or impairment of its benefits.

In case, the respondent objects to the level of suspension of concessions, which it generally does, an arbitrator is appointed to determine the right level of suspension of concessions, whose decision is binding.

A second feature is that a mutually acceptable solution is preferred. That is why there is provision for consultations before bringing the case to the more formal channels. Consultations if successful are likely to result in a solution that is both mutually acceptable and can be implemented expeditiously.