The Role Of The World Trade Organisation In Resolving Trade Disputes Under International Law

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The Role Of The World Trade Organisation In Resolving Trade Disputes Under International Law


Abstract


In 1995, the World Trade Organization (TWO) was established as the only international Organization dealing with the global rules of trade between nations. Its primary function was to ensure that trade flows as smoothly, predictably and freely as possible. At the heart of the system are the WTO’s Agreements, which are the legal rules for international commerce. This study aims at appraising the role of the WTO in settling trade disputes. Specifically, this study would examine the WTO Dispute Settlement System, identify the objectives of the system and whether or not the system allows for the actualization of these objective. The study would also evaluate its performance and make recommendations based on research findings on how the system can be made more effective. In undertaking this task, the researcher would employ the historical record review and library research methods as well as interact with individuals and bodies concerned with international trade, as well as WTO bodies concerned with settling trade disputes, and personal observations.

Disputes in the WTO arise when one country adopts a trade policy measures or takes some actions that one or more members considers to be inconsistent with the obligations set out in the WTO agreements. Settling trade disputes in a timely and structured manner is important in order to realize the practical value of the commitments the signatories undertake in WTO agreements. The central objective of the WTO dispute settlement system is to provide security and predictability to the multilateral trading system. In addition, the system is to preserve and clarify the rights and obligations of the members under the WTO Agreements, as well as 7 ensure that disputes are settled promptly and members are prohibited from unilateral determination of their disputes. In carrying out its mandate, the WTO dispute settlement system has decided several disputes among member nations of the WTO, covering diverse areas of the WTO agreements. In fact, the performance of the WTO dispute settlement system has been generally described as successful. This notwithstanding, the WTO dispute settlement system is beset with many problems, obstacles and challenges, which makes it impossible for it to achieve its objectives.

Thus, the objectives of the system have not been satisfactorily met due to implementation problems, inadequate funding, lack of transparency and access to the system, ad hoc nature of panels, as well as lacuna’s in the DSU. Considering the importance of the WTO’s role of settling trade disputes to the stability of the global economy, adequate attention should be given to the system. Accordingly, the WTO dispute settlement body should be adequately funded that would meet the increased work load of the DSB. The lacuna’s in the DSU should be corrected and the system made more transparent and accessible to the public. Furthermore, the system should adopt adequate panelist that can meet the increased complexity of the substance of cases presented before panels nowadays.


Table of Contents


  • Title Page
  • Declaration
  • Certification
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Contents
  • Table of Cases
  • Table of Statutes, Conventions and Agreements
  • List of Abbreviations

Chapter One

Introduction

  • 1.1 Background to the study
  • 1.2 Significance of the Study
  • 1.3 Objective of the study
  • 1.4 Methodology of Research
  • 1.5 Scope of the Research
  • 1.6 Literature Review
  • 1.7 Limitations of the study
  • 1.8 Organizational Layout

Chapter Two

Development of the World Trade Organization

  • 2.1 Introduction
  • 2.2 The Establishment of the World Trade Organization (WTO)
  • 2.3 Objectives, Functions and Structures of the WTO
  • 2.4 Scope and Status of the WTO
  • 2.5 Decision making in the WTO

Chapter Three

Dispute Settlement in the World Trade Organization

  • 3.1 Historical Development of the WTO Dispute Settlement System
  • 3.2 Functions, Objectives and Key features of the system
  • 3.3 Substantive Scope and Importance of the system.
  • 3.4 Laws Applicable to Legal Interpretations of WTO Agreements within the System
  • 3.5 WTO Bodies involved in the Dispute settlement process
  • 3.6 Function and Composition of the WTO Dispute Settlement Body (DSB)
  • 3.7 Rules of conduct of the Dispute Settlement Body.

Chapter Four

Trade Dispute Within the Jurisdiction of the World Trade Organization

  • 4.1 Legal Basis for a dispute in the WTO Dispute Settlement System.
  • 4.2 The covered Agreements:
    • (i) General Agreement on Tariff and Trade (GATT) 1994.
    • (ii) Multilateral Agreement on Trade in Goods.
    • (iii) General Agreement on Trade in Services (GATS).
    • (iv) The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs).
    • (v) The WTO Agreements.
  • 4.3 Possible objects of a complaint to the WTO Dispute Settlement System.
  • 4.4 Domestic Legislation as an object of a dispute 95

Chapter Five

Dispute Settlement Proceedings in the World Trade Organization

  • 5.1 The process/stages for settling dispute in the WTO Dispute Settlement System:
    • (a) Consultation
    • (b) Panel Stage
    • (c) Appellate Review
    • (d) Implementation of Rulings/Recommendations
  • 5.2 Legal Effects of Dispute Settlement Body’s Ruling/Recommendation.
  • 5.3 Participation in the Proceedings.
  • 5.4 Legal Issues arising in the Proceedings.
  • 5.5 Developing Countries in the Proceedings.
  • 5.6 Activities of the WTO Dispute Settlement System: 1995 – 2007

Chapter Six

Summary, Recommendation and Conclusion

  • 6.1 Summary
  • 6.2 Recommendations
  • 6.3 Conclusion
  • Bibliography

Chapter One


Introduction

1.1 Background to the Study

The concept of International Trade has been of immense importance in the existence of the nations of the world because no nation is completely self-sufficient. In addition, the needs and wants of people in all parts of the world are better served by exchanging commodities and services1. Trade increases the standard of living for all countries. For some countries, foreign markets take a third to a half of the total output and the standard of living depends crucially on the international division of labour that foreign trade permits2. However, there are opinions to the effect that international trade has negative effects in the standard of living of the nations of the world, and consequently, trade barriers are necessary to protect the earth’s natural environment, reduce domestic unemployment and prevent the exploitation of the World’s impoverished workers3.

International trade has played a critical role in the ability of countries to grow, develop and be economically powerful throughout history. International transactions are becoming increasingly important in recent years as countries seek to obtain the more benefits that accompany increased exchange of goods, services and factors. Little is known about the earliest trade. However, English flint used to make primitive tools, which was widely traded in Europe thousands of years before Christ, and so was the salt from the mines in Central Europe. Moreover, the Egyptians as far back as 3000 B.C ranged far in Africa in search of gold, antimony and slaves. By 1700 B.C, the Cretans traded extensively by sea4.

Each sovereign nation is free to establish laws, taxes and regulations governing its own foreign trade. Initially, these nations used certain policy instruments to protect their country and citizens that are players at the international market against certain consequences that might arise as a result of unrestricted trade practices and thereby interfered with free trade. Some of these instruments include: import tariff, export taxes and subsidies, import quotas, voluntary export restraint, government procurement provisions, domestic content provisions, trade related investment measures and so on5. These measures interfered with free trade.

However, in the 19th century, there was an important change in government6 policies towards trade, away from mercantile protectionism, all towards freer trade – fewer prohibitions and lower duties on foreign trade. Furthermore, after World War II, various circumstances combined to obstruct world trade. The nations found it convenient to agree to rules that limits their own freedom of action in trade matters, and generally to work towards removal of artificial and often arbitrary barriers to trade. Thus in 1947, the major trading countries, initiated comprehensive multilateral negotiations in an effort to prevent a post war contraction of world trade similar to the tariff war of the 1930’s7. The negotiations resulted in the formation of the General Agreement on Tariff and Trade (GATT).

The GATT incorporated a code of international trade rules, made provisions for multilateral trade negotiations, established a procedure for adjudicating trade grievances among members, and provided for the continuing review of actions by member countries. As a result of the reductions in tariff brought about by the implementation of GATT, coupled with improvements in transportation and communication at the time, foreign trade grew and by the 1970’s, the value of total world merchandise reached $300 billion a year and $50 billion to $60 billion annually for services8.

Such increases indicated a greater international interdependence and a more complex international trade network encompassing not only final consumption goods, but also capital goods, intermediate goods, primary goods and commercial services. Thus, not only did individual nations experience the economic benefits that accompany international trade but also realized that her economic prosperity depends on economic prosperity in the world as a whole. It is a well known fact that while increased interdependence has many inherent benefits, it also brings with it greater adjustment requirements and greater needs for policy coordination among trading partners.

Consequently, in September 1986, new round of negotiation – the Uruguay Round began. Member nations who participated in the round established groups to work on the different areas of the negotiation, including the four areas dealing with GATT itself (example – dispute settlement procedure and the implementation of the NTB (Non tariff barriers) codes of the Tokyo Round)9. The round made certain achievements, which included the adoption of new procedure for the settlement of disputes and the creation of the World Trade Organisation (WTO).

Since the Marrakesh Agreement of 1994 entered into force on 1st January, 1995, the WTO now provides the principal forum for negotiations on multilateral trading relations among member states, and for the binding settlement of disputes arising under WTO agreements10. At the heart of the multilateral trading system are the WTO agreements which are the legal ground rules for international commerce.

Essentially, they are contract guaranteeing member countries important trade rights.

They also bind governments to keep their trade policies within agreed limits to everybody’s benefit.

The member nations, being convinced of the need to provide security and predictability to the multilateral trading system, preserve the rights and obligations of the member states under the agreements and to be able to clarify the rights and obligations of the member states through interpretation, created a dispute settlements system, which is contained in the Understanding on Rules and Procedures governing the settlement of disputes (DSU).


1.2 Significance of the Study

Disputes in the WTO are essentially about broken promises. It arises when one country adopts a trade policy measure or takes some actions that one or more members consider to be inconsistent with the obligations set out in the WTO agreement. Thus, a member-state believing that free trade has been undermined or blocked by another state or group of states can seek to have such barriers (be they tariff or non tariff barriers) declared a violation of WTO principles.

The importance of the WTO’s role of settling trade disputes to the multilateral trading system and consequently, to international trade relations generally, cannot be overemphasized. Dispute settlement is very important and a central pillar to the multilateral trading system for there to be stability of the global economy. There is no doubt that settling trade disputes in a timely and structured manner plays an important role in the economic life of every nation of the world. Consequently, it is expected that the WTO would provide a fast, efficient, dependable and rule-oriented system to resolve trade disputes.

Furthermore, as a result of the importance of a prompt settlement of trade disputes to the stability of the global economy, the role of WTO in resolving trade dispute must receive adequate attention if the goals of the WTO Dispute Settlement System are to be attained. The successful resolution of trade disputes by the WTO would add security and predictability to the world trading system and prevent member countries from taking unilateral preemptive action. This therefore raises the question of the effectiveness and efficiency of the WTO Dispute Settlement System.

Despite the fact that the Dispute Settlement System of the WTO is very important in providing security and predictability in international trade and consequently, to the promotion of the global economy, its study in Nigeria and the world over, remains one of the most unexplored subjects among the general branches of International
Law.

Certainly, however, the new dispute settlement system can only meet all expectations if its provisions and its importance to the promotion of the global economy are fully understood by those who must use it. Thus, the choice of this work is therefore, imperative to further explore present developments in the WTO Dispute Settlement System, particularly, as no significant work has been done in the area under investigation. Undoubtedly, this study will serve as a significant contribution to knowledge.


1.3 Objectives of the Research

The main purpose of this study is to appraise the role of the World Trade Organisation in resolving trade disputes under International Law.

Specifically, the aims of this study are as follows:

  1. To examine the WTO’s system for settling trade disputes;
  2. To identify the objectives of the WTO’s system for settling trade disputes and whether or not the system allows for the actualization of these objectives;
  3. To evaluate the performance of the WTO in relation to settling disputes;
  4. To make recommendations based on research findings as to how to make the system more effective and efficient.

1.4 Methodology of Research:

In this study, historical record review and library research methods shall be employed. These approaches are necessitated by the desire to take a look at the historical evolution of the WTO and its Dispute Settlement System. Accordingly, the primary source of data shall include the Marakesh Agreement establishing the WTO, the WTO agreements, particularly the WTO Dispute Settlement Understanding (DSU) and Reports of cases handled by the WTO. Meanwhile, Law texts on the WTO and its dispute settlement system, WTO’s Annual Reports, documentaries and other publications, articles and journals (published and unpublished) and official reports in this area shall be the secondary source of data.

In addition, the researcher shall also interact with individuals and bodies involved in international trade in this study. This approach, it is hoped will assist us to ascertain how far the WTO has lived up to its role of settling trade disputes under international law. Thus, this approach would include both oral and written interactions with the operators in the international market, the Federal Ministry of Commerce and Trade dealing with international trade, as well as the WTO bodies, especially those concerned with settlement of trade disputes, and personal observations.


1.5 Scope of the Research:

The scope of this research covers the role of the World Trade Organisation in resolving trade dispute under International Law. However, for a better understanding of this role of the WTO, the aims and objectives of the WTO’s Dispute Settlement System, the trade disputes within the jurisdiction of the WTO, as well as the procedures involved in settling dispute in the WTO shall be discussed. Furthermore, the activities of the WTO Dispute Settlement System as it relates to the settlement of violation and non – violation complaints under GATT 1994, Agreement on Subsidies and Countervailing Measures, Agreement on Agriculture and the Antidumping Agreement as well as compliance disputes under the DSU between 1995 and 2007 shall be highlighted. These discussions are necessary to enable us ascertain whether the WTO has performed its role efficiently and
effectively.


1.6 Literature Review:

The WTO came into being on 1stJanuary 1995 when the Marrakesh Agreement of 1994 entered into force. The current Dispute Settlement System was created as part of WTO Agreement during the Uruguay Round. It is embodied in the Understanding on Rules and Procedure governing the settlement of disputes commonly referred to as DSU.

The WTO is a young organization of barely ten years. This being so, much write ups and researches have not been done on the role of the WTO in settling trade disputes.

Most write ups concerning the WTO dealt with the recital of the WTO Agreements.

The two books published by Oceana11: Raworth/Reif and Joseph Dennin are primarily a – necessarily – selective collection of the principal primary documents and summaries: GATT/WTO “Marraskesh” agreements, Understandings and Ministerial Decisions. The books provide an excellent access to primary WTO documents; the introduction and the commentary are, on the other hand, of little help. The second Oceana-book, however, also contains US implementing legislation and some agreements surprisingly not included in the first book.

However, several authors have of recent, specifically dealt with the WTO Dispute Settlement System. These include Ernst-Ulrich Petersmann12, Chengwei, Liu13, Palmeter and Mavroidis14. Chengwei, Liu’s work is a systematically selected compilation of Reports issued by various panels and the standing Appellate Body, then adopted by the DSB under the WTO jurisdiction by the end of May 2002, in category of subjects such as causes of action, initiation of panel proceedings, function of panels, rules of evidence and special rules governing anti-dumping disputes, and so on which are in most cases ruled as preliminary issues, or procedural objections. However, the book is not exhaustive, and dealt with only the issues in dispute settlement proceedings relating to Art. XXIII of the GATT 1994; Arts. 3, 4, 6, 7, 10, 11, 13, 21.5, 23, 26 of the DSU; Arts. 17.4, 17.5, 17.6 of the AD Agreement and Arts. 31, 32 of the Vienna Convention and so on. The book did not discuss the WTO system of settling disputes generally. It dealt on decided cases only.

Ernst-Ulrich Petersmann’s work on the other hand is a primarily academic and conceptual analysis. It traces the history of the much more political and diplomatic dispute settlement practice up to 1994 and presents the injection of much greater legal elements by the 1994 modernisation of the panel/appeal method. The book also discusses some current issues of interest, notably the relation of GATT/WTO law to conflicting multilateral trade agreements and the complex role of “non-violation complaints in GATT/WTO law. The issue of compliance by sub national actors is raised, though not discussed in detail and the currently controversial issue of economic sanctions does not appear. The book concludes with new challenges to the dispute settlement mechanism, in particular to trade in services, to intellectual property rights and restrictive business practices. The author – a committed antiprotectionist – argues against the inter-state tendency in international trade law restricting trade law to diplomats and in favour of giving private companies judicial remedies. Helpful annexes include a list of panel reports, of disputes initiated already under the 1994 dispute settlement mechanism and relevant rules for dispute settlement and the WTO appellate body. However, the book dealt largely with the old GATT system, case law and policy questions.

Palmeter David and Petros C Mavroidis’ book which appears to be the most current and detailed work on the WTO’s Dispute Settlement System, in its first chapter, provides a historical introduction, starting with the failed attempts to create an International Trade Organization (ITO), moving on to the negotiation of GATT and finally to the WTO. The authors then examine in detail the jurisdiction of the Dispute Settlement Body under the DSU. In Chapter 3 the sources of law relevant to the settlement of disputes are analysed, following the order established in Article 38(1) of the Statute of the International Court of Justice. On this basis the authors go on to explain each stage of the panel process in one chapter. Chapter 4 thus examines the panel process itself and addresses the legal problems that have been raised, such as burden of proof and standard of review issues. The next chapter is devoted to special rules and procedures for developing countries and under each of the Multilateral and Plurilateral Trade Agreements covered by the DSU. The appellate process is set out in Chapter 6, followed by a chapter on adoption and implementation of reports and another on remedies. Chapter 9 sums up some of the findings in a short conclusion.

What Palmeter and Mavroidis have achieved is the first complete and systematic introduction to the WTO dispute settlement system. Although this is by no means the first book on the subject, earlier publications have dealt largely with the old GATT system, case law and policy questions or international dispute settlement in general. Palmeter and Mavroidis focus exclusively on the new system, without discussing in depth academic questions and policy issues related to international dispute settlement and the way these questions were solved (or not solved) in the DSU. This lack of in-depth discussions (exemplified by a chapter entitled `Conclusion’, which is a mere two pages long) can be regarded as a shortcoming of the work. Issues like the appropriate standard of review in panel proceedings, which are the subject of dozens of articles in all relevant periodicals, are treated in two paragraphs without quoting any literature for further reading (the bibliography is also very `concise’). The work is not a comprehensive and conclusive commentary on the law of the DSU. It falls short of adequately identifying and evaluating how effective and efficient the WTO dispute settlement system is.

Thus, the choice of this study is importantly to further explore present developments in the WTO Dispute Settlement System, try to find out how well the WTO has lived up to its mandate of settling trade dispute as well as make number of recommendations to strengthen the WTO Dispute Settlement System.


1.7 Limitations of the Study:

The WTO came into existence on 1st January 1995 when the Marrakesh Agreement of 1994 came into force. Since then, it has administered the international trade agreements based on the General Agreement on Tariffs and Trade (GATT). Thus, while the WTO is still young, the multilateral trading system that was originally set under GATT of 1947 is well over 50 years old.

The WTO is a young organization of barely ten years. This being so, much write ups and researches have not been done on its dispute settlement system. Consequently, heavy reliance would be placed on the WTO agreements, especially the WTO Dispute Settlement Understanding. Understandably therefore, WTO reports on cases it has handled since it came into existence may be limited.

Moreover, most international trade today is carried on by private parties, mainly manufacturers, persons and firms specializing in buying and selling abroad. Disputes brought to the WTO are the result of the information provided by these persons, firms, industries or their associates to their governments on the difficulties being encountered in marketing their products in foreign markets. In essence, where these persons, firms or industries decide not to inform their governments of these difficulties, the government would not be aware of them. Consequently, the Dispute Settlement System will not be invoked. Thus, it would not be easy to evaluate the real situation of security and predictability in international trade. This study would base its evaluation of the performance of the WTO on the cases actually handled by it

Despite the foregoing, this study is a critical and systematic evaluation of the role of the World Trade Organisation in resolving trade disputes under international law. However, this study is not intended to be so exhaustive as to include a study of the role of the WTO in relation to its other mandates as contained in the WTO Agreement. It does not also discuss all aspects of the WTO dispute settlement system as it relates to the four annexes to the WTO Agreement. It deals only with issues in dispute settlement system of the WTO that are considered the more important in determining how efficient and effective the WTO has performed this task.

Consequently, the study is intended to be descriptive, prescriptive and positive rather than theoretical. Most of the analysis would benefit much from the provisions of the Dispute Settlement Understanding and the precise and logical rulings/recommendations by panels and the Appellate Body, administered by the DSB under the WTO jurisdiction.


1.8 Organizational Layout:

As a matter of convenience, the study has been broken down into six (6) chapters. Chapter One provides the general introduction on which the thesis is based. It deals with preliminary issues that will ensure the understanding of the entire work. These include among others, the objective, scope and limitations of the study, literature review and research methodology.

Chapter Two traces the historical development of the World Trade Organisation (WTO), the objectives, functions, structures, scope and status of the WTO are also considered as well as decision making in the WTO.
Chapter Three discusses dispute settlement in the World Trade Organisation. Accordingly, the historical development of the WTO Dispute Settlement System, functions, objectives, key features, substantive scope and importance of the system are highlighted. Also discussed under this chapter are the WTO Bodies involved in the dispute settlement process, the function and composition of the body and its rules of conduct.

Chapter Four considers the Trade Disputes within the Jurisdiction of the World Trade Organisation. Consequently, it deals with the legal basis for a dispute in the WTO Dispute Settlement System and the covered agreements. The possible objects of a complaint to the WTO dispute settlement system as well as domestic legislation as an object of a dispute are also discussed under this chapter.

Chapter Five discusses the Dispute Settlement Proceedings in the World Trade Organisation. Accordingly, the process/stages in settling dispute in the WTO dispute settlement system, the legal effect of Dispute Settlement Body’s ruling/recommendation, participation in the proceedings and the legal issues arising in the proceedings are considered. Also highlighted in this chapter is the dispute settlement without recourse to adjudication, as well as developing world in the dispute settlement proceedings. It concludes with the discussion on the activities of the WTO Dispute Settlement System from 1995 – 2004.

Chapter Six is the concluding chapter. It summarizes the entire discussion made in the body of the work and brings out major recommendations for necessary reform.

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Chapter Six


Summary, Recommendation and Conclusion

6.1 Summary

In January 1995, the WTO came into being as the international organization concerned with the promotion of global trade in goods, services and intellectual property1. Crucially, the WTO provides for the effective enforcement of its rules and agreements through a dispute settlement system, the results of which are binding on all parties. This dispute settlement system is one of the great strengths of the WTO2.
It is created by the DSU and administered by the DSB.

Disputes between members arising under the Multilateral Trade Agreements (covered Agreements) are first remitted to consultations3, but if these are not successful, they may be adjudicated by panels and appealed to an Appellate Body4. A significant development that brings additional certainty and predictability to the system is the establishment of the Appellate Body, as a quasi-permanent, standing tribunal. Rulings are automatically adopted unless there is a concession to reject a ruling. The parties must implement the decisions within a reasonable period of time, normally not more than fifteen months from the date of the adoption of a panel or Appellate Body Report5. However, in the event of non-compliance with the decision of the DSB, a member can be subjected to sanctions in the form of compensation and suspension of concession6.

The DSU emphasizes that prompt settlement of disputes is essential if the WTO is to function effectively. It sets out in considerable detail the procedures and timetables to be followed in resolving disputes. If a case runs its full course to a first ruling, it should not normally take more than about one year – 15 months if the case is appealed. Although much of the procedure resembles a court or tribunal, the preferred solution is for the parties to discuss their problems and settle the dispute by themselves.

The DSU, while preserving much of the legacy of Article XXII and XXIII of GATT 1947, also contains remarkable innovations that take the system into a more judicial, rule-oriented approach. It introduced an integrated dispute settlement that applies across all the various WTO Agreements as well as enables all the relevant provisions relating to a matter in issue between parties to a particular dispute to be considered at the same time by the same panel.

The DSB has the authority to establish panels, adopt panel and Appellate Body Reports, maintain surveillance of implementation of rulings and recommendations, and authorise suspension of concessions or other obligations. Government can participate in disputes either as a party or as a third party, and need not have an actual legal interest at stake, other than safeguarding the functioning of the system. One of the central provisions of the DSU, reaffirms that members are not permitted to take unilateral determinations of violations, or suspend concession.

The DSU ensures the primacy of WTO law over domestic law in all forms of dispute settlement. Even mutually agreed solutions and arbitration awards must be notified to the DSB and must be consistent with the WTO rules.

It is part of the functions of the WTO dispute settlement system to provide security and predictability to the multilateral trading system, preserve the rights and obligations of members, as well as clarify the rights and obligations of members through interpretation.

In carrying out its mandate, the DSB has received 324 complaints as at 31st December 2004. It adopted 95 panel reports and 65 Appellate Body Reports during the said period. The DSB has covered a wide variety of products and issues spanning almost all aspects of the WTO Agreements and has authorized suspension of obligation in seven cases.

In fact, it has generally been accepted that the experience of WTO dispute settlement has been excellent7. The number of disputes alone is testimony to the success of the system. A notable development has been the increased propensity for parties to reach mutually agreed solutions. During the period from 1995 to 30 June 2003, of the 295 disputes submitted, the DSB established only 110 panels9. This shows that about 185 disputes were settled without going to adjudication. This outcome is a strong endorsement of the system.

There has also been a greater involvement of smaller and developing countries in disputes. This shows that they are taking their rights and obligations seriously and are enjoying the benefits of the system, which accords the smallest members the same weight as the larger trading nations. Developing countries as a group have registered 124 of the 295 disputes brought by 30th June 2003, with India, Brazil, Mexico and Thailand playing the most active roles9.

In its endeavour to fulfill its mandate, the WTO dispute settlement mechanism has encountered a number of problems, obstacles and challenges. These have hindered its effort in effectively and efficiently resolving trade disputes between states. These include the inability of the DSB to meet the deadlines specified by the DSU10; inadequate financial resources; the making of suspension of obligation as the final remedy in the WTO dispute settlement, bearing in mind that in the event of nonimplementation, it is not all members that have the ability to resort to the suspension of obligations as a remedy11 as well as its ineffectiveness in bringing about implementation in some cases12; and the non-clarity in the relationship between Article 21.5 and Article 22 of the DSU, which created problem in the EC-Banana dispute.

Furthermore, the DSU as constituted also contains several weaknesses that have hindered the DSB in the performance of its duty. These weaknesses include the lack of provisional measures to protect the economic and trade interests of the successful complainant during the dispute settlement procedure and to compensate for the harm suffered during the time given to the respondent to implement the ruling or to reimburse for legal expenses.

Another weakness in the DSU is the lack of remand procedure for Appellate Body.

The DSU does not give the Appellate Body power to remand disputes to panels.

However, the DSB has resolved this problem by adopting a practice whereby the Appellate Body does a complete analysis of particular issues in order to resolve cases where it has significantly modified a panel’s reasoning13. This avoids requiring the party to start the whole proceeding over as a result of these modifications14.

Finally, developing countries wishing to participate in the system have encountered problems in the early years of the system. These problems arise from the fact that these countries do not have the required human resources and financial empowerment to take up cases under the system. However, these problems have been resolved by the establishment of the Advisory Centre on WTO Law15. The center specialises in WTO law and provides legal services and training to developing countries. The center also represents developing countries throughout the dispute settlement proceedings at discounted rates, which vary depending on the level of economic development of the concerned country.

Notwithstanding the extent of the problems, obstacles and challenges as well as the weaknesses of the DSU, it is important to note that they are not necessarily insurmountable. Given the outstanding problems, and challenges that are associated with the task of resolving trade disputes among nations, a lot more efforts should be channeled toward creating a better enabling environment for the DSU to operate effectively. In fact, the WTO member states realizing the flaws in the DSU and the problems and challenges faced by the DSB in undertaking its task, had since 1997 entered into negotiations to review and reform the DSU16. However, the negotiations could not be concluded so far as several deadlines lapsed without tangible achievements17. The last deadline that was missed was the May 2004 deadline18.


6.2 Recommendations

The importance and relevance of the dispute settlement to the rule-based multilateral trading system cannot be overemphasized. Indeed, there is no doubt that an effective and accessible dispute settlement mechanism is essential for the success of the multilateral trading system to ensure certainty, predictability and respect for the system.

Consequently, it is paramount for the WTO to have an effective and efficient mechanism for resolving trade disputes among its members. The following recommendations are respectfully offered in order to make the DSU of the WTO effective and efficient in resolving trade disputes between the member states:

6.2.1 Clarification of the Relationship between Article 21.5 and Article 22of DSU

The time – frames specified in Articles 21.5 and 22 of the DSU do not seem to have been appropriately coordinated.

This is otherwise known as the sequencing issue.

This created acute problem in the past, especially in the EC-Banana dispute19. However, members have committed themselves to clarifying this stage of the process.

In fact, it is generally agreed in principle between members that if there is no dispute over whether or not implementation has occurred at the end of the reasonable period of time, then the prevailing party should be entitled to seek compensation or authorization to suspend concessions. Where, however, there is a dispute over whether or not implementation has occurred, it is necessary to first determine whether or not there has been implementation before moving to the issue of compensation and suspension of concession.

In the light of the above practice followed consistently by members since 1999, it would seem that members now broadly agree that completing Article 21.5 procedure is a prerequisite for invoking Article 22 procedure where there is a disagreement among the parties about implementation.

It is therefore recommended that the language of the DSU should be clarified in line with this consistent practice followed by the members when dealing with this issue. This it is believed would ensure legal certainty and predictability of the system for its entire member.

6.2.2 More Effective Remedies

The first objective of the dispute settlement system in the absence of a mutually agreed solution to a dispute is to secure the withdrawal of WTO – inconsistent measures. However, where immediate compliance is impossible, the DSU gives preference to temporary compensation over suspension of concession or other obligations20. Hence, it is logical that trade compensation should always be preferred to suspension of concession or other obligations – which is the last resort instrument.

However, the reality is that compensation is currently not a realistic option before the application of trade sanctions. In fact, the structure of the DSU is such that members are induced to request suspension of concessions first21.

The last resort remedy of the dispute settlement mechanism runs against a basic and a foundational principle of the WTO, that is, predictability of the trading system, and free trade. In addition, the remedy has been ineffective is bringing about the rebalancing of concession that was upset by the violation of WTO obligation by the losing member and compliance with the concerned DSB ruling which are the main aims of the WTO remedies 22. The application of this last resort has also caused double injury to the winning member23.

As a result of the foregoing, it is hereby recommended that as an alternative to trade sanction, monetary fine should be imposed on the losing member. The monetary fine should be equivalent to the level of nullification or impairment suffered by the winning party. In addition, provisional measures in terms of cost and damages should be awarded to the winning party to compensate for the legal expenses suffered in prosecuting the case, as well as damages suffered while the dispute was pending before the DSB. This it is believed would prove prompt implementation of DSB rulings.

It is also recommended that a member who fails to comply with the ruling of the DSB should be prohibited from invoking the jurisdiction of the DSU, until such a member complies with the ruling. After all, how can a member seek assistance from an institution whose decision and authority it challenges by non-compliance with the ruling? It is believed that this remedy would provide an incentive to the member to comply with the ruling but should not be so onerous as to provide it an incentive to break away from the international trade regime24.

6.2.3 Transparency and Access to the WTO dispute settlement system.

Dispute settlement mechanisms established under international public law normally provide for public access to their proceedings. This is the case for the International Court of Justice25 as well as the European Court of Human Rights.26.

However, the WTO dispute settlement system differs from the international practice on this issue. Thus, it is hereby recommended that the text of the DSU should be modified as to provide sufficient flexibility for parties to decide whether certain part of the proceedings before the panel or Appellate Body should be open to the public for attendance. Third parties should also have the right to decide whether their interventions should take place in open or closed session, bearing in mind that the main aim of the mechanism is to secure positive solution to a dispute27.

In doing this however, the panel or Appellate Body should be able to impose limited and justified restrictions on the opening of the proceedings, especially when dealing with business confidential information28.

6.2.4 Reputation of Amices Curiae Submissions:

It would be recalled that the Appellate Body had, while interpreting the DSU, ruled that both the panel and Appellate Body could allow submissions of amices curiae briefs on a case-by-case basis29.

However, there is need for proper regulation of the acceptance of amicus curiae submission that would generally apply in potentially all cases. Hence it is hereby recommended that the text of the DSU should include conditions for the acceptance of amicus curiae submissions, as well as the weight that should be attached to such submissions by the panel or Appellate Body.

6.2.5 Adequate Resources:

Inadequate funding has affected the effectiveness of the system in fulfilling its mandate. Although there has been an increase in secretariat resources devoted to dispute settlement, that increase has not kept pace with the increase in the workload of the DSB, (from panel secretaries to legal officers, to translators).

For instance, the staff of the WTO Legal Affairs Division responsible for providing legal advice to panels has doubled since 1991, but the panels’ workload has also increased much more. For example, between 1996 – 1998, panel findings have 1,379 that is, 394 pages per year. However, between January 1999 and 30 June
1999, that is, 6 months, the pages of the panels’ findings were 56330.

It is clear that the present level of funding of the system is poor and insufficient for its activities. It is therefore, recommended that members should devote more resources to the system to enable its undertake it work more efficiently and effectively.

6.2.6 Professionalization of Panel:

There is a growing quantitative discrepancy between the need for panelists and the availability of adhoc panelists. The cases and the total duration of the cases are increasing, but it has proved more difficulty to find qualified panelists who are not nationals of members involved in the dispute either as a complainant, defendant or a third party.

Thus there has been an increasing delay in the selection of panelists, and an increasing recourse to the Director General of the WTO for appointment of panelists. For instance, the average time for the composition of the nine panels that worked by mid-January 2004 was 68 days instead of 20 – 30 days target set by the DSU31.

Furthermore, in recent times, the actual conduct of a dispute settlement procedure has became much more sophisticated as a result of the increased complexity of the substance of the cases brought before the panels. This has indeed increased the workload of the panels that have to conduct an assessment of these complex disputes and the actual consideration of these cases put greater strain on panelist selected on an adhoc basis.

As a result of the foregoing, it is hereby recommended that the system should adopt permanent panelists, similar to the Appellate Body. Adopting permanent panelists, it is believed would reduce the total time frame of the dispute settlement procedure; the workload of the Appellate Body and costs for all the parties as well as enable the
DSB meet up with the deadlines specified by the DSU..


6.3 Conclusion:

In the current age of globalization, may factors foster international cooperation, and states increasingly realize that by establishing international organization that have some power of governance and coercion, or by entering into international agreements that would curb their own behaviour, they can be better off. No organization has gone as far in this direction as the WTO.

The WTO, in addition to the large subjects covered by the WTO agreement, has created institutional base to fulfill its mission, and in regards to this, the dispute settlement system plays the most critical role.

They system is the center piece of the WTO and can indeed be considered a giant leap in the field of public international law. Indeed, the DSU has been called a “crown” “Jewel” and a “Core linchpin” of the multilateral trading system32. According to Hudec, by the system, the trading nations granted an unprecedented degree of power to a legal tribunal to enforce the obligations under the WTO Agreement33. The DSU has also been hailed as a model for other international organizations. In fact, Ali, states that the WTO mechanism with courts, compulsory jurisdiction, appellate procedures and legally binding rulings, defines a model for amicable resolution of disputes between members that could also be adopted by other international organisation34.

The first ten years of dispute settlement practice under the DSU have confirmed the usefulness of the system. The mechanism has been used actively, and the perception by both practitioners and academic observers has generally been positive35. Nevertheless, the intense use of the mechanism has also revealed certain problems in its practical application.

Indeed, the system has in handling the numerous disputes that were brought before it by members, been able to clarify and preserve the rights and obligation of the WTO members through the rulings of the panels and the Appellate Body.

In addition, the mechanism has been able to prohibit the members of the WTO from taking unilateral determination of disputes between them as was shown in the US: Certain EC Products Case36. In relation to providing predictability and security to the unilateral trading system, the mechanism has been able to achieve this with the exception of the few cases where the DSB authorized trade sanctions.

In 1994 when the WTO dispute settlement came into force, it was widely praised as a decisive and historic improvement over the GATT procedures. Thus in 1997, Renato Ruggiero, the then Director General of the WTO, stated that the mechanism is the WTO’s most individual contribution to the stability of the global economy37.

Furthermore, it has been claimed that the establishment of the dispute settlement system was likely to be seen in the future as one of the most important and perhaps even watershed developments of international economic relations of the twentieth century38.

On the whole, it is indubitable that in order to carryout its mandate more effectively and efficiently, the DSB should be better funded and the panels professionalized. In addition, the text of the DSU should be amended to correct the flaws identified by members during its practical application. The system requires more realistic financial empowerment in order to enable it meet its need of staff, equipment, and other facilities that would enhance its effectiveness and efficiency.

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