UNILATERAL MEASURES OF ENFORCEMENT OF WTO LAW

A final draft submitted in partial fulfillment of the course International Trade

Law during the Academic Session 2018-19

SUBMITTED BY: SUBMITTED TO:

NAME: NISHANT KUMAR DR. P. P RAO
ROLL NO. 1542 (ASSISTANT PROFESSOR OF LAW)
B.A. LL.B(HONS.)

MARCH, 2019

CHANAKYA NATIONAL LAW UNIVERSITY

NYAYA NAGAR, MITHAPUR, PATNA 800001

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 DECLARATION
I hereby declare that the work reported in B.A.LL.B (Hons.) report entitled
INTERNATIONAL TRADE POLICY AND DOMESTIC FOOD
SECURITY submitted at CHANAKYA NATIONAL LAW UNIVERSITY,
PATNA is an authentic record of my work carried out under the supervision of
DR. P. P. RAO. I have not submitted this work elsewhere for any degree or
diploma. I am fully responsible for the contents of my project report.

NISHANT KUMAR

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 ACKNOWLEDGEMENT
I would like to thank my faculty DR. P. P. RAO, whose assignment of such a relevant topic
made me work towards knowing the subject with a greater interest and enthusiasm and
moreover for his guidance throughout the project.

I would also like to thank the library staffs for working long hours to facilitate me with the
required materials. I owe the accomplishment of my project to my friends, who have helped
me immensely with sources of research materials throughout the completion of this project.

I would also like to extend my gratitude to my parents who have helped me at every stage of
this project. Last, but far from least, I would like to express my gratitude to the Almighty.

NISHANT KUMAR

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 TABLE OF CONTENTS

DECLARATION

ACKNOWLEDGEMENT

INTRODUCTION ..................................................................................................................... 5

OBJECTIVE OF STUDY .......................................................................................................... 5

HYPOTHESIS ........................................................................................................................... 6

RESEARCH METHODOLOGY............................................................................................... 6

SOURCE OF DATA COLLECTION ...................................................................................... 6

SCOPE OF THE STUDY .......................................................................................................... 6

CHAPTERIZATION............................................................................................................7-26

1. Role & Principle of the WTO Dispute Settlement ………… …………………..……7

2. Dispute Settlement System…………………………..……………………………….13

3. Unilateral Measures………………………….……………...………………………..18

4. Enforcement: Evidence from WTO Dispute Settlement.….…………………….…...23

5. Conclusion, Criticism and Suggestions…………………………………………...….26

BIBLIOGRAPHY 27

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 INTRODUCTION
Global rules of trade provide assurance and stability. Consumers and producers know they
can enjoy secure supplies and greater choice of the finished products, components, raw
materials and services they use. Producers and exporters know foreign markets will remain
open to them.

This leads to a more prosperous, peaceful and accountable economic world. Decisions in the
WTO are typically taken by consensus among all members and they are ratified by members’
parliaments. Trade frictions are channelled into the WTO’s dispute settlement process, where
the focus is on interpreting agreements and commitments and how to ensure that members’
trade policies conform with them. That way, the risk of disputes spilling over into political or
military conflict is reduced.

By lowering trade barriers through negotiations among member governments, the WTO’s
system also breaks down other barriers between peoples and trading economies.

At the heart of the system – known as the multilateral trading system – are the WTO’s
agreements, negotiated and signed by a large majority of the world’s trading economies, and
ratified in their parliaments.

These agreements are the legal foundations for global trade. Essentially, they are contracts,
guaranteeing WTO members important trade rights. They also bind governments to keep
their trade policies transparent and predictable which is to everybody’s benefit.

The agreements provide a stable and transparent framework to help producers of goods and
services, exporters and importers conduct their business.

The goal is to improve the welfare of the peoples of the WTO’s members.

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  AIMS AND OBJECTIVES:
The aim of the researcher is:
1. To study about the Dispute Settlement Mechanism at WTO.
2. To study briefly the unilateral measures for enforcement of WTO law.
3. Critically examine the Rule and Principle of the WTO.

 HYPOTHESES:
The researcher through this project hypothesizes that:
The reality is that WTO globalization is opening markets where this serves important
corporate interests in powerful countries, is preserving barriers to free exchange
where this serves important corporate interests in powerful countries, and is shutting
down free and open markets where this serves important corporate interests in
powerful countries.
 RESEARCH METHODOLOGY:
The researcher has relied on the Doctrinal method of research. The researcher has
used the latest blue book citation for the footnotes.

 SOURCES OF DATA:
The researcher has used both Primary and Secondary sources of data:
 PRIMARY SOURCE:
1. Provision of WTO Law

 SECONDARY SOURCE:
1. Books
2. Articles
3. Journals
4. Internet Sources

 SCOPE OF STUDY:
The researcher has used the Doctrinal Method of research and has relied upon primary
and secondary sources of data for the content of the research paper. Owing to the
large number of topics that could be included in the project, the scope of this research

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paper is very wide. The researcher has completed this work within one month due to
time constraint allotted by the university.

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 CHAPTER I - ROLE AND PRINCIPLES OF THE WTO
DISPUTE SETTLEMENT

Introduction The WTO agreements provide for many far-reaching rules concerning
international trade in goods, trade in services and trade-related aspects of intellectual property
rights. The WTO dispute settlement institutions function very much like a court of
international trade. It has compulsory jurisdiction. It has its own rules of law. Its decisions are
binding on the parties and sanction may be imposed against non-observance of its decision.
The WTO has a remarkable system to settle the disputes between WTO Members concerning
their rights and obligations under the WTO Agreement. The WTO dispute settlement system
has been operational since 1st January 1995. Between 1st January 1995 and 1 Dec. 2007 a
total of 369 disputes had been brought in to the WTO for resolution1, while the WTO’s
predecessor ‘GATT’ reported only 132 cases during 46 years between 1948 and 1994. 2 The
WTO dispute settlement system has been used by Developed Country Members and
Developing Country Members alike.3

Some of the disputes brought before the WTO dispute settlement system have triggered
considerable controversy and public debate, and have attracted much media attention. This
has been the case, for example, for dispute on national legislation for the protection of public
health or the environment, such as4

Cases

 the EC-Hormones dispute on the European communities, import ban on meat for
cattle treated with growth hormones.5
 the US-shrimp dispute on the US import ban on shrimp harvested with nets that kill
sea turtles.6
 the EC-Asbestos dispute on a French ban on asbestos and asbestos containing
products 7and
 the EC approval and Marketing of Biotech Products, dispute on measures affecting
the approval and marketing of genetically modified products in the European Union.8

The WTO dispute settlement system was not established all on a sudden. It is not an
entirely novel system. On the contrary, this system is based on, and has taken on board,
almost fifty years of experience in the resolution of trade disputes in the context of the

1
See www. World Trade Law. Net/dsc/database/search complaints, asp, visited on 1 Dec. 2007.
2
See WT/DS/OV/31, dated 22 August 2007.
3
For statistics on complainants and respondents in the WTO dispute settlement system, See www.trade
law.net.
4
Peter VondinBossche, The Law and Policies of World Trade Organisation, p. 169.
5
EC Hormones Complaints by the US and Canada Ibid pp.848-52.
6
US-Shrimp Complaint by India, Malayasia, Pakistan and Thailand, Ibid See pp.181 and 182.
7
Ibid pp. 374-82 for asbestors complaint by Canada.
8
Ibid pp. 835-7-EC Approval and Marketing of Biotech Products, Complained by the US; Canada and
Argentena.

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 GATT 1947. Article 3:1 of the DSU states. Members affirm their adherence to the
principles of management of disputes heretofore applied under Article XXII and XXIII of
GATT 1947 and the rules and procedures as further elaborated and modified therein”.

Principles of WTO Dispute Settlement

The WTO possesses a wide range system for the resolution of trade disputes between
Members of the WTO. The system involves the following:

 The objects and purpose of the WTO dispute settlement system.

 The various methods adopted for the settlement of WTO disputes.
 The jurisdiction of the WTO dispute settlement system.
 Access to the WTO dispute settlement system.
 Chronological time schedule for the WTO dispute settlement process.
 Rules of interpretation and the burden of proof applicable in WTO dispute
settlement.
 The confidentiality of and rules of conduct for WTO dispute settlement.
 Remedies available against breach of WTO Law and special rules and assistance
to developing country members.

Objects and purpose of the WTO dispute settlement system

The principal object and purpose of the WTO dispute settlement system is the prompt
settlement of disputes between WTO Members, with respect to their rights and obligations
under the WTO law.

Article 3.3 of the DSU states that the prompt settlement of such disputes “is essential to the
effective functioning of the WTO and the maintenance of proper balance between the rights
and obligations of Members.”

Article 3.2 of the DSU states:

“The dispute settlement system of the WTO is a central element in providing security and
predictability to the multilateral trading system. The Members recognise that it seems to
preserve the rights and obligations of Members under the covered agreement and to clarify
the existing provisions of those agreements in accordance with the customary rules of
interpretation of the Public International Law.”

According to the Panel of the US Section 301, Trade Act, the DSU is one of the most
important instruments of the WTO in protecting the security and predictability of the
Multilateral Trading System.9

Settlement of Dispute through Multilateral Procedures

9
See Panel Report of US, Section 301 Trade Act Para 7.75.

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The object and purpose of the dispute settlement system is for Members to settle dispute with
other Members through the multilateral procedures of the DSU rather through unitlateral
action.10

Article 23.1 of the DSU states: When Members seek redressal of a violation of obligations or
other nullification or impairment of benefits under the covered agreements or an impediments
to the attainment of any objective of the covered agreements, they shall have recourse to and
abide by, the rules and procedures of this understanding.”

Article 23:1 of the DSU imposes a general obligation to redress a violation of WTO law
through the multilateral DSU procedures and not through unilateral action.11 Article 23.2 of
the DSU, WTO Members may not make a unilateral determination that a violation of WTO
law has occurred and may not take retaliation measures unilaterally in the case of violation of
WTO Law.12

The Panel in EC-commercial Vessels held that;

“the obligation to have recourse to the DSU, when Members seek redressal of a violation
covers any act of a Member in response to what it considers to be a violation of a WTO
obligation by another Member whereby the first Member attempts unilaterally to restore the
balance of rights and obligations.”13 It is important to note that concerns regarding unilateral
actions by the United States against what it considered to be violations of GATT law under
section 301 of the US Trade Act of 1974 and even more so under the ‘super 301’ created by
the Trade and Competitiveness Act of 1988 were a driving force behind the negotiations of
the DSU. The other GATT. Contracting Parties were greatly alarmed by the ‘Vigilante
Justice’ of the United States in the field of international trade. They demanded that the United
States change its legislation which allowed for much unilateral action. The United States,

10
See Article 23 of the DSU
11
Appellate Body Report, US-certain EC products para 111. The panel in the case noted. An important
reason why Article 23 of the DSU must be interpreted with a view to prohibiting any form of unilateral
action is because such unilateral actions threaten the stability and predictability of the multilateral trade
system, a necessary component for market condition conducive to individual economic activity in national
and global markets which, in themselves, constitute a fundamental goal of the WTO. Unilateral action are,
therefore, contrary to the essence of the multilateral trade system of the WTO. Panel Report US-certain
EC products para 6.14. See also Panel Report, US-section 301 Trade Act para 7-71.
12
The panel in US-section 301, Trade Act, noted. There is a great deal more states conduct which can
violate the general obligation in Article 23.1 to have recourse to, and abide by, the rules and procedures of
the DSU than the instances especially singled out in Article 23.2 Panel Report. US-Section 301 Trade Act para
7.45. The panel gave two examples: not notifying mutually agreed solutions to the DSB as required in Article of
the DSU and not abiding by the requirements for a request for consultation on for establishment of a panel as
elaborated in Article 4 and 6 of the DSU and Article 17.14 of the DSU.
13
Panel Report. EC-Commercial vessels, para 7.207 The act at issue in this case was an EC regulation adopted
in response to Korea’s alleged failure to abide by the terms of an agreement between Korea and the European
communities on subsidies for shipbuilding. According to the panel, the European communities sought to achieve
results unilaterally through adopting a regulation where it should have used the DSU, therefore the regulation
was found to be inconsistent with Article 23.1 See Panel Report. Korea-Commercial Vessels para 7.220.

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however, argued that the existing GATT dispute settlement system, as a result of the
consensus requirement was too weak to protect US trade interest effectively. In this respect
Robert Hudec noted: “This United States counter attack against the procedural weakness of
the GATT dispute settlement system led other governments to propose a deal. In exchange
for a US commitment not to employ its section 301- type trade restrictions”, the other GATT
governments would agree to create a new and procedurally lighten dispute settlement system
that would meet US complaints.14 In this way, agreement was eventually reached on the
current dispute settlement system. A key feature of which is the assistance on the resolution
of disputes through multilateral procedures as reflected in Article 23 of the DSU.

Settlement of dispute through consultation, if possible

‘According to Article 3.7 of the DSU, the aim of dispute settlement mechanism is to secure a
possible solution, a solution mutually acceptable to the parties to a dispute and consistent
with the covered agreement is very much to be preferred.’ It means the DSU prefers solution
mutually acceptable to the parties through negotiation rather than adjudication so that, each
dispute settlement proceedings must start with consultations between the parties to the
dispute.15To resolve dispute through consultation is not only cheaper but also more
satisfactory for long-term trade relations with the other party to the dispute than adjudication
by a panel.

Settlement of dispute and clarification of WTO Law

As per Article 3.2 of the DSU, the dispute settlement systemserves not only to preserve the
rights and obligations of Members under covered agreements, but also to clarify the existing
provisions of those agreements. The covered agreements contain gaps and constructive
ambiguity so that it requires clarification of existing provisions. However, the last sentence of
Article 3.2 states, “The recommendations and rulings of the DSU cannot add to or diminish
the rights and obligations provided in the covered agreement.” When allowing the WTO
dispute settlement system to clarify WTO law, Articles 3.2 and 19.2 explicitly preclude the
system from adding or diminishing the rights and obligations of Members. It means the DSU

14
Robert Hudec, The New WTO Dispute Settlement Procedure Minnerota
Journal Global Trade, p.3 (199).
15
The Appellate Body Report US-Certain EC products, para 116-21. The Appellate Body in this case uphold the
panels finding of violation of Article 3.7 of the DSU.

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is very much cautious about the WTO dispute settlement system against ‘Judicial Activism’.
It is the exclusive competence of the Ministerial Conference and the General Council to adopt
authoritative interpretations of the provisions of the WTO agreement and the Multilateral
trade agreements.

Methods of WTO dispute Settlement

According to the provision of DSU, there are four methods to settle disputes between WTO
Members; such as
1. Consultation or negotiation.
2. Adjudications by Panel and Appellate Body
3. Arbitration and
4. Good offices, conciliation and mediation

The DSU provides first preference to resolve disputes through consultations. Therefore,
consultation or at least an attempt for consultation should be made before going for
adjudication.

If consultation fails to resolve the dispute, the complainant may resort to adjudication by a
panel and, if either party to the dispute prefers an appeal to the findings of the panel, then
adjudication by the Appellate Body becomes the last resort. The Articles 4 and 6 to 20 of the
DSU provide the dispute settlement methods. However, the WTO dispute settlement system
provides for expeditious ‘arbitration’ as an alternative means of dispute
settlement.16However, disputes arising under a covered agreement may prefer to resort to
arbitration rather than follow the procedures in Articles 4 and 6 to 20 of the DSU. In that case
parties must define the issues referred to arbitration and agree on particular procedure to be
followed.17The parties must also agree to abide by the arbitration award. Pursuant to Article
3.5 of the DSU the arbitration award must be consistent with the WTO agreement.

The WTO Dispute Settlement Process

The WTO dispute settlement process has four major steps, such as
1. Consultation
2. Panel proceedings

16
See Article 25 of the DSU.
17
See Articles 25.1 and 25.2 of the DSU.

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 3. Appellate review proceedings and
4. Implementation and enforcement

The dispute settlement process begins with consultations or at least an attempt by the
complainant to involve the respondent in consultations to resolve the dispute in a very cordial
way. If that is not possible, the complainant can refer the matter of dispute to a panel for
adjudication. The panel proceedings will result in a panel report. This report can be appealed
to this Appellate Body. The appellate review proceedings will result in an Appellate Body
report, upholding, modifying or reversing the panel report. The panel report or Appellate
Body report, in the case of appeal, will be adopted by the Dispute Settlement Body. After the
adoption of the reports, the respondent, if found to be in breach of WTO law, will have to
implement the recommendations and rulings adopted by the DSB. This implementation and
enforcement of the adopted recommendations and rulings constitutes the last major step in
the WTO dispute settlement process.

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 CHAPTER II - DISPUTE SETTLEMENT SYSTEM

The dispute settlement system of the GATT is widely considered as one of the multilateral
trade systems. The WTO Understanding on Rule and Procedures Governing the settlement of
dispute significantly strengthen the GATT dispute settlement procedures. 18 The WTO dispute
settlement system plays a central role in clarifying and enforcing the legal obligations
contained in the various WTO agreements. The dispute settlement system of the WTO is
quasi-judicial; independent and autonomous bodies are responsible for adjudication of all
disputes subject to the overall authority of the Dispute Settlement Body (DSB), therefore the
adjudicating bodies such as Panel and Appellate Body, those bodies operating under its
authority accepted by all WTO Members by ratification of the WTO treaty. So, the WTO
Members are obligatory in participation of the WTO dispute settlement procedures in the
case of any complaint brought before Dispute Settlement Body against any other member. 19
The result of the Uruguay Round of multilateral negotiations 1985-1945 comprised of
agreement covering many different sectors of international trade .The whole commitments
made under WTO agreements must be implemented by the Member States of the WTO.20
The best international agreement is not worth very much if its obligations carmot be enforced
when one of the signatory fails to comply with such obligation.
Reforming the WTO dispute settlement system which began in 1997 in response to a decision
that has been adopted at the Marrakech Ministerial Conference by which Members agreed to
review the DSU within four years. The DSU Review began in 1998, the efforts to strengthen
this system by the improvement of the DSU also comes through the Ministerial Meeting in
Doha in September 2001, for the reviewing process of DSU as one of the Doha work
programme and to negotiate these improvement. The Ministerial Meeting declarations
regarding these subject reaffirm in the paragraph 30 state that: "we agree to negotiations on
improvements andclarifications of the Dispute Settlement Understanding. The negotiations
should bebased on the work done thus far as any additional proposals by members. And aim
toagree on improvements and clarification not later than May 2003, at which time wewill
take steps to ensure that the results enter into force as soon as

18
P. Gallagher, GUIDE TO THE WTO AND DEVELOPING COUNTRIES, 185 (2000).
19
R. Yerxa, and B. Wilson, KEY ISSUES IN THE WTO DISPUTE SETTLEMENT: THE FIRST TEN
YEARS, 29 (2005)
20
Article VIII. 1 and VIII.2 of the DSU. And the, D. Sengupta et. al, WTO AN INDL\ PERSPECTIVE
ON EMERGING ISSUES, 507 (2006).

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possiblethereafter".21However, the process of DSU reviewing is still going on. DSU reform
will have implications for developmg countries. Thus, it is probable that negotiations
concerning other agreements e.g. Intellectual Property Rights, Textiles, Agriculture, will
remain more important.22

The fact that Members of the WTO established the current dispute settlementsystem during
the Uruguay Round of Multilateral Trade Negotiation underscores thehigh importance that
they attach to compliance by all Members with their obligationsunder the WTO Agreement. 23
The DSU emphasizes the importance of consultation insecuring dispute resolution, requiring
a member to enter into consultations within 30days of request for consultation from another
member. If after 60 days from therequest for consultations there is no settlement, the
complaining party may movedirectly to request the establishment of a panel. The parties also
may voluntarily agreeto follow alternative means of dispute settlement, including good
office, conciliation,mediation and arbitration.24 When the case involves developing countries
or leastdeveloped countries as the party before DSB, there are special provisions stipulated
inthe DSU rules which grant it special positions with more understanding for theirinterests,
therefore the DSU should provide more availability more flexibility towardsit. It is clear
through DSU Articles by grants developing countries to recourse to thegood offices of
Directors General and a panel procedure with the time limits.Moreover in the stage of
consultations, the Member should give developing countriesspecial attention to the particular
problems for their interests.25 The panel will accordsufficient time for the developing
countries member to prepare and present itsargumentation, with providing legal advice and
assistance by the qualified legalexpert fi-om the WTO Technical Cooperation Services.In this
chapter research will deal with different sections with the discussionand analysis, starting
with the dispute settlement under the WTO, and explainhistorical development for dispute
settlement system under the GATT 1947 and underthe WTO 1995, by display of the nature
and character all of them. After thatexplanation the most important aspects of WTO's work in
dispute settlement systemwhich is embodied in the understanding on rules and procedures
governing thesettlement of dispute by explaining the jurisdiction and legal basis of
disputesettlement system, dispute settlement understanding and the nature of them

21
Ministerial Declaration adopted 14 November 2001, WTO Documents WT/MIN (01)/DEC/1.
22
D. Sengupta et el, WTO AN INDIAN PERSPECTIVE ON EMERGING ISSUES, 526 (2006).
23
WTO Publication, A HAND BOOK ON THE WTO DISPUTE SETTLEMENT SYSTEM, 1 (2004).
24
Article 5.1 of the DSU.
25
Article 4.10 of the DSU.

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(DSSDSU),follow that clarify the procedures of dispute settlement understanding, with
thementioned of the WTO bodies involved in the dispute settlement system.

The Concept of Dispute Settlement

Historically disputes between states were resolved in different ways. TheUnited Nations
charterrequires that all Members of UN settle their internationaldisputes by peaceful means in
such a manner that international peace and security,and justice, are not endangered.26
Moreover, Article 33.1 of the UN Charter for pacificsettlement of dispute it further is stated
that disputes between states may be settled 'bynegotiation, enquiry, mediation, conciliation,
arbitration, judicial settlement, resort toregional agencies or arrangements, or other peaceful
means of their own choice.The dispute settlement system which came into existence on P' Jan
1995, is aresult of fifty years of experience in the resolutions of trade dispute in the
previousGATT 1947 practices, that which the WTO's DSU states: Members affirm
theiradherence to the management of disputes heretofore applied under Article XXII
andXXIII of the GATT 1947, and the rule s and procedures as further elaborated andmodified
herein.27The GATT dispute settlement system evolved between the late 1940s and theearly
1990s, from a system that was primarily a system of dispute settlement throughdiplomatic
negotiations into system of dispute settlement through adjudication. TheWTO system is a
further step in the evolution of international trade disputesettlement. The WTO dispute
settlement system, which has been in operation since 1st Jan 1995 and in 12"' April 2012, a
total of 436 disputes have been brought to theWTO system for resolution.28The dispute
settlement system of the WTO is governed by the Understandingon Rules and Procedures
Governing the Settlement of Disputes (DSU). With certainexceptions, the DSU is uniformly
applicable to differences that arise in the context ofall WTO agreements. The Special or
Additional Rules and Procedures are containedin the Covered Agreements.29The more
effective and reliable dispute settlement system; the WTO has put inplace the most widely
representative multilateral and the only compulsory third party dispute resolution mechanism.
Attributed to its rule based system, this is the outcome of a long debate and reflects the pre-
Uruguay Round common belief of developed and developing countries that they needed a
more legalistic dispute settlement mechanism. It has provided countries with the ability to

26
Article 2.3 of the UN Charter.
27
Article 3.1 of the DSU.
28
http://www.wto.org/english/news_e/newsl2_e/ds436rfc_12aprl2_e.htm. Visited on 18.04.2012.
29
http://www.wt0.0rg/english/trat0p_e/dispu_e/dispu_e.htm#intr0. Visited on 05-05-2010

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challenge actions taken by trading partners and obtain rulings from independent panels of
experts on the GATT consistency of such measures. Upon their adoption by the GATT
Council, such rulings have represented an authoritative basis on which to seek the removal of
a GATT inconsistent measure.30

The WTO provides a strengthened and expanded framework for international trade. This
would be worth little without an effective dispute settlement system to enforce rights and
obligations. Therefore, the WTO dispute settlement is considered as a cornerstone in the
multilateral trading system.31 In the negotiations leading to the establishment of the WTO
dispute settlement mechanism, the debate focused on whether a negotiation approach would
be superior to a more legalistic, rule-oriented approach. For better or worse, the judicialized,
rule-oriented approach to dispute resolution has prevailed at the WTO.32

Dispute Settlement System under WTO

The WTO dispute settlement system, which came into operation in 1995, was innovative. It is
governed by the Understanding on Rules and Procedures Governing the Settlement of
Disputes (DSU).33 The key objective of the DSS under WTO to prompt settlement of dispute
between WTO Members concerning their rights and obligations under covered agreements,
by securing the security and predictability of DSS through satisfactory settlement of
disputes.34 The DSU contains 27 Articles totaling 143 paragraphs plus four appendices. It is
perhaps the most significant achievement of the Uruguay Round negotiations, often being
referred to as jewel in the crown of WTO. The explanatory role of the WTO dispute
settlement system is made explicit in Article 3 (2) of the DSU which provides that the system
serve to 'clarify the provision of the WTO Agreements in accordance with the customary rule
of interpretation of public international law'. The evolution of the DSS came into existence
through different stages of negotiations. The Tokyo Round during the Seventies was a more
sweeping attempt to extend and improve the system. It was conducted between 1973 and
1979 and with 102 participating countries, in the Tokyo Round "codes" dispute settlement
contained code specific dispute settlement procedures applicable only to the signatories of

30
ww.org.net, DS-5-DSB-WT0 DS.
31
P. Gallagher, GUIDE TO THE WTO AND DEVELOPING COUNTRIES, 57 (2000).
32
M. Matsushita et at, THE WORLD TRADE ORGANIZATION -LAW, PRACTICES AND
POLICY, 21(2003).
33
Annex 2 to the Agreement Establishing the World Trade Organization.
34
Article III.2 of the DSU.

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code and only with regard to specific subject matters. The structural weaknesses of old
GATT DSS were significant even though many disputes were ultimately resolved. As noted
in the late 1980s when the Uruguay Round was ongoing, the situation deteriorated, especially
in politically sensitive areas or because of some contracting parties attempted to achieve
trade-offs between ongoing dispute settlement and matters being negotiated .This, resulted in
decreasing confidence in the contracting parties in the ability of the GATT dispute settlement
system to resolve the difficult cases. Therefore, the contracting parties GATT 1947, both
developing and developed countries, felt that the system needed improving and
strengthening. So, the negotiations on dispute settlement were included and given high
priority on the agenda of the Uruguay Round negotiations.35 The limited achievement of the
Tokyo Round, irrespective of the achievement of the tariff reduction result, was a sign of
difficult times to come. For the reasons mentioned above and others, factors convinced
GATT Members that a new effort to reinforce and extend the multilateral system should be
attempted; indeed those efforts resulted in Uruguay Round.

The DSU as a part of the Uruguay Round introduced a significant strengthened dispute
settlement system. It provided more detailed procedures for the various stages of dispute,
including specific time frames. The DSU also contains many deadlines to ensure prompt
settlement of disputes. All provisions under the DSU are represented by Dispute Settlement
Body (DSB). The DSB plays a very crucial role in WTO dispute settlement system
particularly in ensuring implementation and enforcement of its rulings and recommendations.
It is made up of all the representatives of every WTO Member and it deals with disputes
arising under any of the WTO Agreements, and it does so in accordance with the provisions
of the DSU. Therefore this research will discuss the DSU in the following sections by
clarification of the legal nature and jurisdiction upon WTO Member states.

35
WTO Publication, A HAND BOOK ON THE WTO DISPUTE SETTLEMENT SYSTEM, 14-
15(2004).

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 CHAPTER III-UNILATERAL MEASURES

History of Unilateral Measures

The United States, to this point, is the most frequent user of unilateral measures, which also
tend to be the most problematic. The EU and Canada also have procedures of one form or
another that are similar to the United States’, but these were introduced to provide a means of
retaliating against unilateral measures taken by the United States and are procedurally limited
and applied only with extreme caution. A review of post-war U.S. trade policy shows two
main streams of thought that later diverged upon the passage of the Trade Act of 1974.

Prior to the 1970s, the Trade Expansion Act of 1962 gave the president wide-ranging trade
authority. The Kennedy Administration used substantial tariff reductions to pursue trade
liberalization and brought new rigor to the application of escape clauses. Its strategy was to
maintain the principles of trade liberalization and only applied remedy measures for damages
incurred by liberalization. Therefore, treating remedy measures as the “exception” rather than
“rule.” However, there was domestic dissatisfaction with the process used by the Kennedy
Administration; the Department of State conducted the negotiations and did not necessarily
reflect the wishes of domestic interest groups. This resulted in the establishment of the
Special Trade Representative (STR), the predecessor of the USTR. This laid the groundwork
for the system later established with the passage of the Trade Act of 1974. The increasing
U.S. trade deficit and oil crisis of the nineteen-seventies combined to increase protectionist
pressure on Congress to relax the conditions for invoking trade remedy measures. In 1971 the
United States recorded its first trade deficit of the 20th century. It was against this economic
backdrop that the Trade Act of 1974 was passed, relaxing the requirements for relief under
the escape clauses measures and incorporating a new “Section 301” authorizing retaliatory
measures against unfair trade policies in foreign countries. In the Reagan Administration of
the late 1980s, the United States carried enormous trade deficits, and Congress’
dissatisfaction (symbolized by the “Gephardt Amendment”) eventually led to the passage of
the Omnibus Trade and Competitiveness Act of 1988. This law reduced presidential
discretion over the invocation of unilateral measures against foreign practices, policies, and
customs deemed by the United States to be unfair, and granted wide ranging authority to the
USTR to deal with these cases. It also included a new “Super 301” that automated the
procedures to be taken from the investigation of unfair foreign trade measures to the
invocation of unilateral measures. This law made it significantly easier for the United States
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to take unilateral measures. The United States has repeatedly used unilateral measures as an
instrument for settling trade disputes to its advantage. Such actions are typified by Section
301 of the Trade Act of 1974. Under this provision, the United States may unilaterally
determine that a certain trade related policy or measure of another country is “unfair” without
following the procedures provided by the relevant international agreements. In the name of
rectifying “unfair” practices, the United States has often threatened to use unilateral
measures, and occasionally implements such measures to coerce the target country into
changing the trade laws or practices at issue.

Why Are Unilateral Measures Problematic?

First, unilateral measures are inconsistent with the letter and the spirit of the WTO, which is
founded on the principle of multilateralism and the consensus and cooperation that flow from
it. Article 23 of the Dispute Settlement Understanding (“DSU”) explicitly prohibits Members
from invoking unilateral measures that are not based on the WTO dispute settlement
procedures. The multilateral trading system is marked by countries observing international
rules, including those provided by the WTO Agreement and its dispute settlement procedures.
Disputes occurring within the system should be resolved by the available dispute settlement
procedures, not through resort to unilateral measures. Second, where agreements are reached
through the threat or use of unilateral measures, the multilateral system may suffer. In
particular, bilateral agreements secured under the threat or use of unilateral measures tend to
deviate from the principle of MFN treatment, which is the most fundamental component of
the multilateral framework under the WTO.

LEGAL FRAMEWORK
The WTO dispute settlement mechanism is the only forum for WTO-related disputes.
Unilateral measures that are not consistent with WTO obligations, such as unilateral tariff
increases and quantitative restrictions, are prohibited. Such measures violate several
provisions of the WTO Agreement: Article I (General MFN Treatment), Article II (Schedules
of Concessions), Article XI (General Elimination of Quantitative Restrictions), and Article
XIII (Non-Discriminatory Administration of Quantitative Restrictions). In addition, the threat
of unilateral tariff increases may have an immediate impact on trade, nullifying and impairing
benefits accruing to the injured country under the WTO Agreement. In the past, the United
States has rationalized its need to use unilateral measures by arguing that the GATT dispute

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settlement procedures were not effective. Inefficiency, however, can no longer be used as a
justification for departing from dispute settlement procedures, because the DSU provides for
a strict timeframe and greater automation to ensure quick dispute settlement.

Rules on the WTO Dispute Settlement Procedures

The WTO dispute settlement procedures provide the following two rules, which go further
than previous dispute settlement systems in clearly prohibiting the use of unilateral measures
concerning issues within the scope of the WTO rules.

1. Clear Obligation to Use the WTO Dispute Settlement Procedures

The new WTO agreement states clearly that all disputes must follow the WTO
disputesettlement procedures, and explicitly bans unilateral measures not conforming to
theseprocedures. The use of unilateral measures in contravention of these procedures is itself
aviolation of the WTO Agreement. Article 23 of the DSU, which is a part of the
WTOAgreement, stipulates that when a WTO Member seeks redress for a breach of
obligations,nullification or impairment of benefits under the covered agreements, or for an
impediment toattaining any objective under the covered agreements, the WTO Member shall
follow therules and procedures set forth in the DSU.Although it should be obvious that the
settlement of WTO-related disputes should begoverned by the WTO dispute settlement
procedures, the fact that this principle has beenexplicitly stated represents a significant step
forward.

2. Expanded Coverage of the Agreement

The WTO Agreement expands the GATT coverage from goods alone to include trade
inservices and intellectual property rights. As will be discussed later in this chapter, in
additionto disputes involving trade in goods, the United States has applied Section 301 in an
effort toopen markets for services or to increase the level of protection afforded intellectual
propertyrights. Under the WTO Agreement, however, there is no longer any justification for
theUnited States to ignore multilateral processes and resort to unilateral measures in these
areas.In light of the two considerations above, we have categorized the forms of
unilateralmeasures based on: (1) the nature of the underlying dispute, (i.e., whether the
countryimposing the unilateral measures claims damages based on a WTO violation or
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damages inareas not covered by the WTO, and (2) the nature of the measures enacted (i.e.,
whether themeasures violate the WTO Agreement – for example, tariff increases within
bound rates).Figure 14-1 below discusses whether these various unilateral measures are
consistent with theWTO Agreement. As indicated in the chart, the measures in question,
except for item D, mayviolate Article 23 of the DSU and/or the measure itself is inconsistent
with the WTOAgreement.

In the case in Quadrant D, a violation of Article 23 of the DSU or a unilateral measurewould

not itself constitute a violation of the WTO Agreement, for example unilateral measurecould
be taken against “a trading partner’s violation of the WTO Agreement,” even though
inactuality the measure would be taken against a trading partner’s measure justified under
theWTO Agreement (which would be the case for Quadrant A or B). If this is the case,
theenforcing country could unreasonably escape the WTO violation. To avoid this problem,
itshould be made clear that whether each case is related to the WTO Agreement should
bejudged objectively according the rules of dispute settlement.

ECONOMIC IMPLICATIONS
Retaliatory measures that are not based on the WTO dispute settlement procedureshave
enormous potential to distort trade. Tariff hikes and the like are themselves distortive oftrade;
their unilateral application is likely to provoke retaliation from the trading partner,leading to a
competitive escalation of retaliatory tariffs. Unilateral measures are often basedon domestic
interests (i.e., protection of domestic industries and profits for exporters), andonce procedures
are initiated it may be extremely difficult domestically to suspend orterminate them.It should
be clear that unilateral measures reduce trade both for the country imposingthem and the
country against which they are imposed. They are detrimental to the domesticwelfare and
economic interests of both countries, and impair the development of world trade.One need
only recall the competitive hikes in retaliatory tariffs during the 1930s and the vastreductions
in trade and worldwide economic stagnation that they produced.

MAJOR CASES
THE UNITED STATES
“SECTION 301 OF THE TRADE ACT OF 1974”

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The Japan-U.S. Auto Dispute
The Japan-U.S. Auto Dispute was the first case in which a Section 301 action waschallenged
under the WTO dispute settlement procedures. The United States initiated aSection 301
investigation of the Japanese aftermarket for auto parts on 1 October 1994, andannounced
sanctions on 5 May 1995. The United States proposed unilateral measures thatwould impose
100-percent import duties on Japanese luxury automobiles. In response to thisunilateral
threat, Japan immediately requested consultations pursuant to GATT Article XXIIwith the
United States. Ultimately, this dispute was settled through bilateral negotiationsoutside the
WTO consultations, but the fact that the dispute was referred to the WTO
disputesettlementprocedures and that negotiations took place before the international
communitywas quiteintegral to achieving a resolution in conformity with international norms
andwithout inducing a trade war.

The Japan-U.S. Film Dispute

The United States sought bilateral negotiations with Japan in this case under Section301, but
Japan’s adamant opposition to negotiations on such grounds resulted in the casebeing brought
before a dispute settlement panel. The thrust of the U.S. claim was that theactions of the
government of Japan in relation to consumer photographic film andphotographic paper were
in violation of GATT Article XXIII:b. Rather than arguing that themeasures taken were
themselves violations of the WTO Agreement, the United States arguedthat the measures
nullified and infringed upon the interests of other countries under theAgreement. The panel,
however, rejected all the U.S. claims.In the Japan-U.S. Film Dispute, the United States
announced that it views statementsmade in the government of Japan’s legal submissions to
the WTO dispute settlement panel as“commitments” subject to monitoring to ensure their
implementation. Based on this position,the United States released its first “Monitoring
Report” in August 1998. The U.S. position isuntenable. Like all submissions to the WTO
dispute settlement panels, Japan’s submissions inthe Film Dispute were representations of the
historic factual circumstances and legalprinciples at issue in the particular case. The U.S.
characterization of these factualrepresentations about the past as future “commitments”
represents a unilateral attempt tocreate new future obligations. Such an approach is
unreasonable, and could be viewed as aderivative of Section 301. Although the United States
intends to issue reports biannually,Japan should not accept such an approach .

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 CHAPTER IV -Enforcement: Evidence from WTO

Dispute settlement under agreements like the WTO is most frequently triggered when one
partyto the agreement is alleged to provide import protection above the limit to which it had
agreed in prior negotiations. However, the emergence of evidence that the terms-of-trade
theory helps to explain policy changes that take place as the outcome of original trade
agreement negotiations -whether through accessions or negotiating rounds -raises the
question of what, if anything, shapes the negotiated outcome arising under subsequent use of
the agreements enforcement provisions. Put differently, after a government policy deviation
disturbs the originally negotiated trade agreement outcome by moving trade volumes away
from globally efficient levels and triggering a dispute, does the terms-of-trade theory also
help explain the negotiated dispute settlement outcome that arises? The purpose of this paper
is to empirically examine the determinants of the outcomes of formal enforcement
negotiations that take place under WTO dispute settlement. Like original trade agreement
negotiations, we model formal trade dispute negotiations as potentially confronting the
externality problem that arises when a government deviates from the originally negotiated
outcome by implementing import protection above the globally efficient level so as to shift
some of the policy’s costs onto trading partners. Our specific approach to the examination of
subsequent dispute resolution is motivated by the combination of two insights from the
existing literature on trade agreements and dispute settlement. First, in an influential paper in
the terms-of-trade literature, Bagwell and Staiger (1999) provide a theory-based
interpretation of the GATT/WTO principle of reciprocity and its implications for how
original trade agreement negotiations move countries from a prisoners dilemma to a jointly
efficient outcome. They find reciprocity can serve to coordinate two large country tariffs
changes in a way that neutralizes the otherwise negative (own) termsof-trade impact that
would take place if each country were to implement the same policy change unilaterally.
Bagwell and Staiger (2011) derive formal implications for econometric estimation and
provide product-level evidence from 16 countries consistent with the theory that negotiated
tariff levels resulting from accession to the WTO agreement are related to pre-negotiation
import volumes and trade elasticities.

Second, Bown (2002) and others have noted that WTO jurists have interpreted the
agreements dispute settlement rules for renegotiation (or retaliation) almost identically to
how Bagwell and Staiger (1999) model the reciprocity principle that drives GATT/WTO

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liberalization negotiations. The WTO limits authorized retaliation in dispute settlement
negotiations to a level that -when viewed through the lens of the Bagwell and
Staigermodeling framework -should neutralize the terms-of-trade gain of the respondent
(importing) country WTO violating unilateral policy change that is the subject of the dispute.
The empirical question at the heart of this paper is whether evidence of the terms-of-trade
theory arising from the original trade agreement negotiations setting (Bagwell and Staiger,
2011) also extends to the trade agreements enforcement negotiations setting. While we begin
with their theoretical model, we are forced to adapt its empirical implementation in order to
address shortcomings in observability of data that arises in the enforcement setting. For
whereas Bagwell and Staigers examination of tariff negotiations had access to data on best
responseand politically optimaltariff levels, the enforcement setting typically does not allow
for direct observation of best response policies.36Most WTOviolations that trigger disputes
are not imposed as straightforward changes to tariffs; instead they are typically implemented
through non-tariff policies, the sizes of which are notoriously difficult to measure accurately.
We must therefore first reinterpret the theory to account for what we can better observe and
measure, which is data on best response and politically optimal trade volumes and prices.37
Put differently, in order to examine whether the predictions from the terms-of-trade theory
also extend to determinants of outcomes under trade agreement enforcement negotiations, we
do not attempt to assess the impact of these determinants on the changes to the levels of the
policies themselves, but instead to the changes in the trade volumes that result from these
policy choices.

36
In the Bagwell and Staiger (2011) trade agreement negotiations setting, the best response policy was the tari¤
the country implemented before its WTO accession negotiations, and the politically optimal policy was the
negotiated tari¤ after the country had acceded to the WTO. In the trade dispute setting that we introduce below,
the best response policy will be the policy that is imposed that triggers the WTO dispute, whereas the politically
optimal policy is the one imposed by the importing country after the conclusion of the formal WTO dispute.
37
Our approach is to impose su¢ cient structure on the estimation and additional controls to address other factors
outside of the model that may also inuence trade volumes and prices of disputed products within the period of
the dispute.

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GATT/WTONegotiations and Dispute Settlement

One of Bagwell and Staigers (1999) critical theoretical contributions to the trade agreements
literature was to establish the terms-of-trade externality as a central problem that such
agreements are seen to solve. In order to establish this result, they provide a formal
theoretical interpretation of the GATT/WTO principle of reciprocity. The basic GATT/WTO
principle of reciprocity arises in the text in two critical places. First, governments negotiate
tariff reductions in GATT rounds under Article XXVIII bis,which contains clear language
that participation is voluntary. While the Article XXVIII bis language indicates a desire for
country negotiators to arrange reciprocal and mutually advantageousreductions in tariffs,
there are no mandatory requirements for reciprocity to take place in the original GATT/WTO
trade agreement negotiations. However, a second and formal application of reciprocity is
found in the GATT rules for renegotiation of tariffs. Under Article XXVIII, a country is
permitted to withdraw its previously granted tariff concessions and thus increase its tariffs.
Nevertheless, if it and any adversely affected trading partner cannot come to an agreement as
to a level of compensation that is due for such a tariff increase, reciprocity is understood as a
limit to the tariff withdrawal (the retaliation response of the trading partner) to the amount
that would balance substantially equivalent concessions.

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 CONCLUSION

The DSU has made major strides in establishing a rule of law system for the adjudication of
international trade disputes. In many ways, it is a model for how dispute settlement
institutions in other areas might be designed; and yet, the DSU has its own institutional
limitation. The core legal principle of DSU is that government foregoes unilateral trade
enforcement in favor of a multilateral process, but the institutional design of the DSU has a
different effect. The structure of the DSU creates a demand for unilateral retaliation by
immunizing breaches of the WTO agreement during litigation. So, long as the respondent
government withdraws the measures after the DSU litigation is complete, WTO member
governments cannot legally respond to the breach. In addition, the DSU system permits the
unilateral retaliation the same legal immunity as the alleged breach. . Consequently, an
analysis of the DSU system has to balance the successes of the system in constraining
unilateral action with the institutional design elements of the DSU that permit, if not
encourage, unilateral action.

WTO rules are unfair to developing States, as detailed in Chapters 5 to 7. In this respect, the
political philosopher Thomas Pogge has issued a scathing critique of WTO rules:

The reality is that WTO globalization is opening markets where this serves important
corporate interests in powerful countries, is preserving barriers to free exchange where this
serves important corporate interests in powerful countries, and is shutting down free and open
markets where this serves important corporate interests in powerful countries. The third type
is exemplified by the [fact that] large pharmaceutical corporations have won the right to use
monopoly patents to block free trade in vital medicines worldwide. The second case is
exemplified by the uneven fortunes of protectionism: while poor WTO members are forced to
open their markets, wealthier members maintain their tariffs and anti-dumping duties as well
as their huge export credits and subsidies to domestic producers. To be sure, these
protectionist measures are often theoretically illegal under WTO rules. But less developed
countries usually lack the resources to bring and win cases against the US or EU. Moreover,
such a country has little to gain from winning as affluent members typically continue their
Treaty contraventions even in the face of clear-cut WTO rulings, confident that the weaker
member will prudently refrain from imposing the retaliatory measures such rulings may
entitle them to and that these retaliatory measures would, in any case, not seriously hurt them.

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 BIBLIOGRAPHY

Books:

 Blame it on the WTO?: A Human Rights Critique by Sarah Joseph

 Trade Policy Review – Peru by Book by World Trade Organization

Websites:
 https://www.wto.org/
 https://economictimes.indiatimes.com/topic/WTO
 https://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm

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