NATIONAL UNIVERSITY OF ADVANCED LEGAL STUDIES

PUBLIC INTERNATIONAL LAW Research Project

ROLE OF THE WORLD TRADE ORGANIZATION IN DISPUTE RESOLUTION

Akhil S. Vishnu Ananthu Bahuleyan Jithin S. Isaac Mitha Sudhindran Roshni Thammaiah Semester IV

(574) (585) (596) (607) (618)

TABLE OF CONTENTS
TABLE OF CONTENTS..................................................................1

INTRODUCTION............................................................................4 UNDERSTANDING THE WTO..........................................................5 ORIGIN..........................................................................................................7 Post-Second World War Scenario..........................................................7 General Agreement on Trade and Tariff................................................8 Establishment ....................................................................................10 MEMBERSHIP ................................................................................................11 Types..................................................................................................11 Accession Process...............................................................................12 Current Membership...........................................................................13 Withdrawal.........................................................................................13 STRUCTURE...................................................................................................13 Ministerial Conference........................................................................14 General Council..................................................................................15 Dispute Settlement Body....................................................................15 Trade Policy Review Body...................................................................15 Plurilaterals.........................................................................................16 Specialized Committees and Working Parties......................................16 Secretariat..........................................................................................16 FUNCTIONS...................................................................................................17 DISPUTE SETTLEMENT................................................................18 MECHANISM..................................................................................................18 STAGES IN
THE

DISPUTE SETTLEMENT PROCEDURE.......................................................21

Consultation.......................................................................................21 Establishment of Panel.......................................................................23 Report of Panel...................................................................................23 Adoption of Panel Report....................................................................24

Appellate Review ...............................................................................24 Implementation..................................................................................24 LEGAL BASIS..............................................................................25 DISPUTE SETTLEMENT BODIES....................................................30 FUNCTIONING.................................................................................................31 APPELLATE BODY............................................................................................33 Appellate Body Members and Secretariat ..........................................33 DISPUTE SETTLEMENT MECHANISM AND DEVELOPING COUNTRIES 34 INDIA INDIA
AS COMPLAINANT

.....................................................................................37

AS RESPONDENT....................................................................................... 38

REFERENCES..............................................................................38

INTRODUCTION
Trade agreements on the basis of reciprocity are instruments used by governments to achieve trade liberalisation. The reciprocal exchange of market access rights, which occurs through such agreements amounts to an international exchange of domestic political support between governments, helps policymakers to overcome the protectionist bias of uncoordinated trade policies. In order to protect the negotiated balance of rights and obligations from eroding - e.g., by trade restrictions which one government may introduce in violation of the trade agreement in order to enhance its political support from import-competing interests - trade agreements usually include dispute settlement mechanisms based on diplomatic and/or adjudicative procedures. Such a dispute settlement mechanism is also included in the multilateral trading system. Based on the rudimentary provisions of two articles in the General Agreement on Tariffs and Trade (GATT) 1947, i.e., Article XXII on Consultations and Article XXIII on Nullification or Impairment of Benefits, dispute settlement developed gradually through evolving practice and occasional codifications thereof. The conclusion at the Uruguay Round of Multilateral Trade Negotiations brought the establishment of the World Trade Organisation on 1 January 1995. One of the most noteworthy achievements of the establishment of the WTO was the introduction of its binding dispute settlement system. Building upon GATT dispute settlement practice, the Understanding on the Rules and Procedures Governing the Settlement of Disputes ('DSU') contains innovations that resulted in a paradigm shift from a system based on economic power and politics to one based on the rule of law. The resulting increased legality of the WTO has been hailed to benefit considerably smaller countries, of which many are developing countries and least-developed countries ('LDCs'). As Steger and Hainsworth comment, the shift 'is particularly beneficial for smaller countries, as without the rules and procedures of the DSU... they would not have the necessary bargaining power vis--vis the larger powers.'1 Similarly,

D. Steger and S. Hainsworth, 'World Trade Organization Dispute Settlement: The First Three Years' 1998 JIEL 1(2) 199, at 225.

Weiler notes the advantages of the legalised WTO model, 'especially for the meek economically and politically unequal.'2 Despite these perceived benefits, the vast majority of developing countries have not participated actively in the WTO dispute settlement system. This raises concerns that they are not benefitting fully from the WTO legal regime. As Bown and Hoekman observe, 'a systemic pattern of missing dispute settlement activity calls into question whether the full public good and positive externality benefits of the trading system are sufficiently exploited.'3 Davey also has commented that 'only an effective dispute settlement system can ensure rule enforcement, which in turn provides predictability and stability in trade relations.' According to Article 181.3 of the WTO Agreement, dispute settlement is one of the key functions of the WTO. Dispute settlement is administered by a Dispute Settlement Body (DSB) that consists of the WTO's General Council. The Dispute Settlement Body has the authority to "establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize suspension of concessions and other obligations." The Dispute Settlement system aims to resolve disputes by clarifying the rules of the multilateral trading system; it cannot legislate or promulgate new rules. The introduction of binding WTO dispute settlement is perceived to be of considerable benefit for developing countries. The shift from a power- to a rules-based system is seen to permit even the smallest and weakest economic powers to enforce the rules under which they trade and consequently to provide unprecedented security and predictability in their trading relations.

UNDERSTANDING THE WTO

The World Trade Organization is the only global international organization dealing
2

J. Weiler, 'The Rule of Lawyers and the Ethos of Diplomats Reflections on the Internal and External Legitimacy of WTO Dispute Settlement' 2001 Journal of World Trade 35(2) 191, at 192.
3

J. Weiler, 'The Rule of Lawyers and the Ethos of Diplomats Reflections on the Internal and External Legitimacy of WTO Dispute Settlement' 2001 Journal of World Trade 35(2) 191, at 192.

with the rules of trade between nations. The main aim of the WTO is to help the producers of goods and services, exporters, and importers conduct their business. Its functioning pivots around the WTO agreements, which are negotiated and signed by the bulk of the worlds trading nations and ratified in their parliaments. There are a number of ways of looking at the WTO. Its an organization for liberalizing trade. But the WTO is not just about liberalizing trade, and in some circumstances its rules support maintaining trade barriers for example to protect consumers or prevent the spread of disease. Its a forum for governments to negotiate trade agreements. Its a place for them to settle trade disputes. It operates a system of trade rules. Above all, its a negotiating forum; The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. These negotiations lead to the compilation of documents, which provide the legal ground-rules for international commerce. They are essentially contracts, binding governments to keep their trade policies within agreed limits. Although negotiated and signed by governments, the goal is to help producers of goods and services, exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives. The bulk of the WTOs current work comes from the 198694 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the Doha Development Agenda launched in 2001. The third important side to the WTOs work is its dispute settlement function, which is the main focus of this project. Trade relations often involve conflicting interests and agreements often need interpreting. The most harmonious way to settle these

differences is through some neutral procedure based on an agreed legal foundation. This is the purpose behind the dispute settlement process written into the WTO agreements. An exhaustive understanding of the WTO requires an exploration into its historical background, structure and functions, which has been dealt with in this section. Origin The WTO commenced functioning on 1 January 1995, but its trading system is half a century older. Since 1948, the General Agreement on Tariffs and Trade (GATT) has provided the rules for the global trading system. It did not take long for the General Agreement to give birth to an unofficial, de facto international organization, also known informally as GATT. Over the years, GATT evolved through several rounds of negotiations. The last and largest GATT round, was the Uruguay Round which lasted from 1986 to 1994 and led to the creation of the WTO. Whereas GATT had mainly dealt with trade in goods, the WTO and its agreements also covers trade in services and intellectual property. Post-Second World War Scenario The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was established after World War II in the wake of other new multilateral institutions dedicated to international economic cooperation notably the Bretton Woods institutions known as the World Bank and the International Monetary Fund. A comparable international institution for trade, named the International Trade Organization was successfully negotiated. The ITO was to be a United Nations

specialized agency and would address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the ITO treaty was not approved by the U.S. and a few other signatories and never went into effect. In the absence of an international organization for trade, the GATT assumed the primary role in trade governance. General Agreement on Trade and Tariff The WTOs creation on 1 January 1995 marked the biggest reform of international trade since after the Second World War. It also brought to reality the failed attempt in 1948 to create an International Trade Organization. Much of the history of those 47 years was written in Geneva. But it also traces a journey that spanned the continents, from that hesitant start in 1948 in Havana (Cuba), via Annecy (France), Torquay (UK), Tokyo (Japan), Punta del Este (Uruguay), Montreal (Canada), Brussels (Belgium) and finally to Marrakesh (Morocco) in 1994. During that period, the trading system came under GATT, salvaged from the aborted attempt to create the ITO. GATT helped establish a strong and prosperous multilateral trading system that became more and more liberal through rounds of trade negotiations. But by the 1980s the system needed a thorough overhaul. This led to the Uruguay Round, and ultimately to the WTO. From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the rules for much of world trade and presided over periods that saw some of the highest growth rates in international commerce. For almost half a century, the GATTs basic legal principles remained much as they were in 1948. There were additions in the form of a section on development added in the 1960s and plurilateral agreements (i.e. with

voluntary membership) in the 1970s, and efforts to reduce tariffs further continued. Much of this was achieved through a series of multilateral negotiations known as trade rounds. The biggest leaps forward in international trade liberalization have come through these rounds, which were held under GATTs auspices. The eighth, the Uruguay Round of 198694, was the last and most extensive of all. It led to the WTO and a new set of agreements. GATT was provisional with a limited field of action, but its success over 47 years in promoting and securing the liberalization of much of world trade is incontestable. Continual reductions in tariffs alone helped spur very high rates of world trade growth during the 1950s and 1960s around 8% a year on average. And the momentum of trade liberalization helped ensure that trade growth consistently out-paced production growth throughout the GATT era, a measure of countries increasing ability to trade with each other and to reap the benefits of trade. The rush of new members during the Uruguay Round demonstrated that the multilateral trading system was recognized as an anchor for development and an instrument of economic and trade reform. But all was not well. As time passed new problems arose. The Tokyo Round in the 1970s was an attempt to tackle some of these but its achievements were limited. This was a sign of difficult times to come. GATTs success in reducing tariffs to such a low level, combined with a series of economic recessions in the 1970s and early 1980s, drove governments to devise other forms of protection for sectors facing increased foreign competition. High rates of unemployment and constant factory closures led governments in Western Europe and North America to seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural trade. Both these

changes undermined GATTs credibility and effectiveness. The problem was not just a deteriorating trade policy environment. By the early 1980s the General Agreement was clearly no longer as relevant to the realities of world trade as it had been in the 1940s. For a start, world trade had become far more complex and important than 40 years before: the globalization of the world economy was underway, trade in services not covered by GATT rules was of major interest to more and more countries, and international investment had expanded. The expansion of services trade was also closely tied to further increases in world merchandise trade. In other respects, GATT had been found wanting. For instance, in agriculture, loopholes in the multilateral system were heavily exploited, and efforts at liberalizing agricultural trade met with little success. In the textiles and clothing sector, an exception to GATTs normal disciplines was negotiated in the 1960s and early 1970s, leading to the Multifibre Arrangement. Even GATTs institutional structure and its dispute settlement system were causing concern. These and other factors convinced GATT members that a new effort to reinforce and extend the multilateral system should be attempted. That effort resulted in the Uruguay Round, the Marrakesh Declaration, and the creation of the WTO. Establishment In response to the problems identified in the 1982 Ministerial Declaration; structural deficiencies, spill-over impacts of certain countries' policies on world trade, the eighth GATT round -known as the Uruguay Round - was launched in September 1986, in Punta del Este, Uruguay. It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend the trading system into several new areas, notably trade in services and

intellectual property, and to reform trade in the sensitive sectors of agriculture and textiles; all the original GATT articles were up for review. The Final Act concluding the Uruguay Round and officially establishing the WTO regime was signed April 15, 1994, during the ministerial meeting at Marrakesh, Morocco, and hence is known as the Marrakesh Agreement. The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations. Membership The WTO is member-driven, with decisions taken by consensus among all member governments In this respect, the WTO is different from some other international organizations such as the World Bank and International Monetary Fund - in the WTO, power is not delegated to a board of directors or the organizations head. All members have joined the system as a result of negotiation and therefore membership means a balance of rights and obligations. They enjoy the privileges that other member countries give to them and the security that the trading rules provide. In return, they had to make commitments to open their markets and to abide by the rules. Such commitments are the result of the membership or accession negotiations. Countries negotiating membership are called WTO observers. Types There are two types of members; original and acceded. The original members include the members to the GATT as on the date of entry into force of the agreement. Besides the original members, States which have acceded to this agreement and the Multilateral Trade Agreements annexed thereto are WTO members.

Accession Process The process of becoming a WTO member is unique to each applicant country, and the terms of accession are dependent upon the country's stage of economic development and current trade regime. The process takes about five years, on average, but it can last more if the country is less than fully committed to the process or if political issues interfere. An offer of accession is only given once consensus is reached among interested parties. A country wishing to accede to the WTO submits an application to the General Council, and has to describe all aspects of its trade and economic policies that have a bearing on WTO agreements. The application is submitted to the WTO in a memorandum, which is examined by a working party open to all interested WTO Members. After all necessary background information has been acquired, the working party focuses on issues of discrepancy between the WTO rules and the applicant's international and domestic trade policies and laws. The working party determines the terms and conditions of entry into the WTO for the applicant nation, and may consider transitional periods to allow countries some leeway in complying with the WTO rules. The final phase of accession involves bilateral negotiations between the applicant nation and other working party members regarding the concessions and commitments on tariff levels and market access for goods and services. The new member's commitments are to apply equally to all WTO members under normal nondiscrimination rules, even though they are negotiated bilaterally. When the bilateral talks conclude, the working party sends to the general council or ministerial conference an accession package, which includes a summary of all the

working party meetings, the Protocol of Accession (a draft membership treaty), and lists of the member-to-be's commitments. Once the general council or ministerial conference approves of the terms of accession, the applicant's parliament must ratify the Protocol of Accession before it can become a member. Current Membership The WTO has 153 members and 26 observers. In addition to states, the European Union is also a member. WTO members do not have to be full sovereign nationmembers. Instead, they must be a customs territory with full autonomy in the conduct of their external commercial relations. Thus Hong Kong (as "Hong Kong, China" since 1997) became a GATT contracting party, and the Republic of China (Taiwan) acceded to the WTO in 2002 as "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu" (Chinese Taipei) despite its disputed status. Iran is the biggest economy outside the WTO. Fourteen states and two territories so far have had no official interaction with the WTO. Withdrawal Any member may withdraw from this agreement by giving a written notice to the Director General of the WTO. The withdrawal takes effect upon the expiry of six months from the application date. Structure The structure of the WTO is depicted in the diagram below and further explained.

Ministerial Conference The topmost decision-making body of the WTO is the Ministerial Conference, which usually meets every two years. It brings together representatives of all members of the WTO. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements. The inaugural ministerial conference was held in Singapore in 1996. Day-to-day work in between the ministerial conferences is handled by three bodies; The General Council, The Dispute Settlement Body and The Trade Policy Review Body.

All three are in fact the same the Agreement Establishing the WTO states they are all the General Council, although they meet under different terms of reference. Again, all three consist of all WTO members and they report to the Ministerial Conference. General Council The General Council acts on behalf of the Ministerial Conference on all WTO affairs. It can meet as many times as necessary and appropriate. The General Council has the following three councils working under its supervision and guidance: Council for Trade in Goods Council for Trade-Related Aspects of Intellectual Property Rights Council for Trade in Services As their names indicate, the three are responsible for the workings of the WTO agreements dealing with their respective areas of trade. These councils may establish subsidiary bodies and subject to the approval of their respective councils, these subsidiary bodies shall make their respective rules of procedure. Dispute Settlement Body The Disputes Settlement Understanding envisaged a Dispute Settlement Body. This body is empowered to have its own chairman and to frame rules of procedure as it deems necessary for the discharge of its responsibilities. The functioning of this body is highlighted in the following sections. Trade Policy Review Body The General Council convenes the Trade Policy Review Body. It may appoint its own chairman and frame such rules of procedure as are necessary for the discharge of its

responsibilities. Plurilaterals Plurilaterals are those bodies that are provided for under the Plurilateral Trade Agreements. These bodies shall carry out the functions provided to them under those agreements and shall operate within the institutional framework of the WTO. The General Council is updated of its activities regularly. Specialized Committees and Working Parties The current bodies under this are: Committee on Trade and Development Committee on Balance of Payment Restrictions Committee on Budget Finance and Administration These committees were established by the General Council to carry out the functions assigned to them by the Agreement and by the Multilateral Trade Agreements. The General Council may establish such additional committees with such functions as t may deem appropriate. The representatives of all members shall be the members of these committees. Secretariat The WTO provides for a Secratariat headed by a Director General, who is to be appointed by the Ministerial Conference. The Ministerial Conference shall also adopt regulations setting the powers, functions, conditions of services and terms of office of the Director General. The members of the staff of the Secretariat shall be appointed by the Director General who shall also lay down their duties and conditions of service in

accordance with the regulations adopted by the Ministerial Conference. Functions Article III of the Marakkesh Agreement lays down the functions of the WTO as listed below: 1. The WTO facilitates the implementation, administration and operation, and furthers the objectives, of this Agreement and the Multilateral Trade Agreements, and also provide framework for the implementation, administration and operation of the Plurilateral Trade Agreements. 2. The WTO provides the forum for negotiations among its members concerning their multilateral trade relations in matters dealt with under the agreements and a framework for the implementation of the results of such negotiations, as may be decided by the Ministerial Conference. 3. The WTO administers the Understandings on Rules and Procedures governing the Settlement of Disputes. 4. The WTO administers the Trade Policy Review Mechanism (TPRM). 5. With a view to achieving greater coherence in global economic policy-making, the WTO cooperates as appropriate, with the International Monetary Fund (IMF) and with the International Bank for Reconstruction and Development (World Bank) and its affiliate agencies.

DISPUTE SETTLEMENT
For the global peace and prosperity, an open, rule based trading system, based on the principles of non-discrimination, progressive liberalization of tariffs, and rule of law could be of great help. Obviously, once the international obligation and rights and duties of member states have been defined, the question of how those obligations, rights and duties are to be enforced specially in the arena of international trade, multilateral conventions and treaties needs to be addressed. In the Havana Charter4 ITO, the concept of balancing the rights and duties was incorporated by providing for compensatory adjustment in case a member has not obligated itself of the rights and duties which it had agreed upon while acceding to the ITO. After the ITO failed to come into existence, almost similar provisions were incorporated in Articles XXII and XXIII of GATT 1947. The management of disputes in the WTO is structured on the same basis of the Articles of GATT, and the rules and procedures as further elaborated and modified therein. Therefore, it will not be out of place to briefly survey the jurisprudence of settlement of disputes as developed in GATT 1947 up to the incorporation of an elaborate treaty of twenty seven articles and four appendices known as Understanding on Rules and Procedures Governing the Settlement of Disputes as part of the governing the settlement of disputes of WTO dispensation on 1 January, 1995. Mechanism Article 3 of the Dispute Settlement Understanding (DSU) sets out the general provisions outlining mainly the objectives of the dispute settlement mechanism as enshrined in the DSU. These are summarised as under:

Kenneth W. Dam. The GATT and international Economic Organisation 352 (1977)

1. Adherence to the management principles applies under Articles XXII and XXIII of the 1947 GATT as modified by the DSU; 2. DSU is meant for security and predictability of the multilateral trading system, to serve and preserve the rights and obligations of members under the covered Agreements. Recommendations of the DSB should not add to or diminish the rights and obligations of members of the WTO; 3. Promptness of settling situations where a member considers that his benefits have been infringed, and to maintain a proper balance between rights and obligations of the members. 4. DSBs aim should be achieving a satisfactory settlement of the disputes in accordance with the rights and obligations of the members; 5. Consultation and dispute settlement should be such that they are consistent with the covered agreements and do not nullify or impair benefits of members, nor the objectives of the Agreements; 6. Matters formally raised under the consultation and dispute settlement shall be notified to the DSB and the relevant Councils and Committees, where any Member may raise any point relating thereto; 7. Solutions mutually agreed to a dispute are preferred. In the absence of a mutually agreed solution, the first objective of dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if found to be inconsistent with the provisions of any of the covered agreements. Compensation should be resorted to only if the immediate withdrawal of the measure is impracticable. The last resort is the possibility of suspending the application of concessions or other

obligations under the covered agreements on a discriminatory basis vis-vis the other Member, subject to authorization by the DSB. 8. In cases where there is an infringement of the obligations assumed under a covered agreement, it constitutes a case of nullification or impairment prima facie, i.e., presumption that rules have an adverse impact on other Members in the covered agreement, and it is the responsibility of the other Member against whom the complaint has been brought to rebut the charge; 9. DSU provisions are without prejudice to Members and any member can have recourse to the authoritative interpretation of the covered agreement through decision-making under the WTO Agreement or a covered agreement which is a Plurilateral Trade Agreement. 10. The dispute settlement mechanism is not contentious and members are supposed to act in good faith in resolving disputes. Complaints and counter-complaints should not be linked. 11. The concept of security and predictability in Article 3.2 is central object of the dispute Settlement System of the DSU to protect the security and predictability of the multilateral trading system and DSU provisions must be interpreted in the light of this object and in a manner which would most effectively enhance it. The WTO rules are reliable, comprehensible and enforceable, and are not too rigid or flexible as to leave room for reasoned judgments in conformity with endless and ever changing ebb of real facts in real cases in real world. The WTO provides for a Dispute Settlement Body (DSB) which consists of representatives of every WTO member and is responsible for the settlement of disputes.

The Dispute Settlement Body may establish panels for specific investigation, may constitute appellate body, may adopt reports of panels and Appellate Body and may exercise surveillance to ensure compliance with rules and recommendations and if necessary may also authorise retaliatory measures in cases of non-implementation of recommendations. For the purpose of investigation, the DSB has four subsidiary bodies1. 2. 3. 4. Working groups Panels Permanent Expert Group Arbitration

The main stages in the dispute settlement process, under the WTO, are explained below. Stages in the Dispute Settlement Procedure Consultation The first stage in the settlement of disputes is consultation among the members of concerned. Normally, an international trade dispute settlement commences with consultation between the member nations of WTO under Article XXII of GATT 1947, the consultation mechanism was further strengthened and reaffirmed in the Tokyo Round. The WTO, DSU affirms in the effectiveness of the consultation and provides that each member undertakes to accord sympathetic consideration to and afford adequate opportunity for consultation regarding any representation made by a another member concerning measures affecting the operation of the covered Multilateral Trade Agreements taken within the territory of the former. Such consultations occur regularly at the official level and can be raised at the Ministerial level as appropriate. 5 The

Article 4 of the DSU

purpose of holding consultation is to arrive at mutually agreed and satisfactory solution. The holding of consultation does not prejudice the rights of the members. The request for consultation is to be notified to DSB and to the relevant Councils and Committees. Any request for consultation ought to be notified to the DSB in writing, specifying the reason for the request. The request for consultations should specify the articles of relevant WTO Agreements under which consultations are sought. The complaining party should give reasons for the request including identification of measures at issue and the identification of legal basis for the complaint. It is necessary that the request for consultations should be broad in scope as far as possible, both in identifying the measure and in indicating the legal basis for such complaint, as these will limit the scope of any eventual panel request and that in turn, will limit the scope of the terms of reference of the panel.6 A measure that is not subject of consultations cannot be referred to a panel. When a member makes a request for consultations, it has to be replied promptly within ten days and to hold consultation within 30 days from the date of the request by the other member. Many disputes are thus settled in this initial stage. However, if a dispute is not solved through consultation within 60 days from the date of request, the party may request the DSB for the establishment of a panel. Good Offices, Conciliation and Mediation- If the consultation fails, the members of the WTO may avail themselves DSUs good offices, conciliation and mediation services. Article 5 provides for the above services to be voluntarily taken by the members, if the members to dispute so agree and request for such services to any item of dispute which can be terminated at any time. Good offices, conciliation and mediation services are to be entered into within sixty days from the date of request for consultation before requesting for a panel.
6

United States Denial of MFN treatment as to the Non rubber footware from Brazil, BISD 39S/128, 147-148 (adopted June, 1992)

Establishment of Panel If the dispute is not settled through consultations, the member who sought the consultations may request the DSB to establish a panel. To resolve a dispute, within 60days if the consultation fails (if a member to which a request for consultation is made agrees within 10days to consult within 30 days, and does so, the complaining party may not ask for a panel until 60 days have elapsed from the date of original request, unless the parties agree that further consultations would not be productive), at the request of the complaining party, a meeting of the DSB shall be convened within 15days provided at least 10 days advance notice Such a request ought to be accompanied with full particulars of the dispute, details of notice of the meeting is given, and the panel may be established by the DSB to hear the dispute. This request ought to be accompanied with full particulars of dispute, the details of the consultations and the reasons for their failure. After considering the request, the DSB decides the establishment of a panel. The panel is composed of three or five panelists. The panel is established in consultation with the parties in dispute. The panel functions as an expert team to help the DSB to arrive at a finding. If the dispute is between a developing and a developed country and if the country so desires, one panelist ought to be from the developing country. The panelists are selected by the Secretariat. The Panelists serve in their individual position and not in their official position. Report of Panel After examining the complaint, the panel prepares its report containing its findings and recommendations. The panel has to submit its report within six months and in case of urgency within three months. In any case, the maximum time which the panel can take to circulate the report to the members is nine months.

Adoption of Panel Report After examining the complaint, the panel prepares its report containing its findings and recommendations. The panel has to submit its report within six months and in case of urgency within three months. In any case, the maximum time which the panel can take to circulate the report to the members is nine months. Appellate Review The WTO provides for a Standing Appellate Body to hear appeals. Under Article 17 of the DSU, the DSB has been empowered to establish a Standing Appellate Body with 7 members, three of whom shall serve any one case and shall hear appeals from Panel cases. The panels decision can be challenged in the SAB by either party to the dispute. It is provided that the Appeal proceedings must not generally exceed 60 days and in no case 90 days. The Standing Appellate Body comprises of seven persons who have distinguished themselves in the field of law and international trade. The DSB provides for strict rule of confidentiality and there is a prohibition of ex parte communications with the panel or the appellate body with regard to matters for their consideration. However, the members to the dispute have a right to access the same. The Appellate Body may uphold, modify, or reverse the legal proceedings and conclusions of the panel. Implementation Article 21 of the DSU provides an elaborate mechanism of surveillance of implementation of recommendations and rulings of panels and Appellate Body reports. Once a panel finds a complaint is justified, its report categorically recommends that the offending member should cease and desist from violations of GATT rules by either withdrawing the offending measures or suitably amend the measures to bring them in

conformity with GATT rules or covered Multilateral Agreements. Thirty days after the adoption of the report by the panel or the decision of the Appellate Body, it is the obligation of the party concerned to inform the DSB its willingness or otherwise to implement the rulings or recommendations. If the member concerned fails to implement within the reasonable time, it is obliged to start the negotiations with the complainant. If the negotiations fail or satisfactory compensation is not agreed, the complainant may approach the DSB to suspend concessions or obligations against the other party. This is the last remedy available to an aggrieved member.

LEGAL BASIS
Disputes in the WTO are essentially about broken promises. WTO members have agreed that if they believe fellow-members are violating trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally. That means abiding by the agreed procedures, and respecting judgements. A dispute arises when one country adopts a trade policy measure or takes some action that one or more fellow-WTO members considers to be breaking the WTO agreements, or to be a failure to live up to obligations. A third group of countries can declare that they have an interest in the case and enjoy some rights. A procedure for settling disputes existed under the old GATT, but it had no fixed timetables, rulings were easier to block, and many cases dragged on for a long time inconclusively. The Uruguay Round agreement introduced a more structured process with more clearly defined stages in the procedure. It introduced greater discipline for the length of time a case should take to be settled, with flexible deadlines set in various stages of the procedure. The agreement emphasizes that prompt settlement is essential if the WTO is to function effectively. It sets out in considerable detail the procedures

and the timetable 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. The agreed time limits are flexible, and if the case is considered urgent (e.g. if perishable goods are involved), it is accelerated as much as possible. The Uruguay Round agreement also made it impossible for the country losing a case to block the adoption of the ruling. Under the previous GATT procedure, rulings could only be adopted by consensus, meaning that a single objection could block the ruling. Now, rulings are automatically adopted unless there is a consensus to reject a ruling any country wanting to block a ruling has to persuade all other WTO members (including its adversary in the case) to share its view. Although much of the procedure does resemble a court or tribunal, the preferred solution is for the countries concerned to discuss their problems and settle the dispute by themselves. The first stage is therefore consultations between the governments concerned, and even when the case has progressed to other stages; consultation and mediation are still always possible. Article 1.1 of the DSU stipulates that its rules and procedures apply to disputes brought pursuant to the consultation and dispute settlement provisions of the ... covered agreements. The basis or cause of action for a WTO dispute must, therefore, be found in the covered agreements listed in Appendix 1 to the DSU, namely, in the provisions on consultation and dispute settlement contained in those WTO Agreements. In other words, it is not the DSU, but rather the WTO Agreements that contain the substantive rights and obligations of WTO Members, which determine the possible grounds for a dispute. These provisions on consultation and dispute settlement are:

Articles XXII and XXIII of GATT 1994;

Article 19 of the Agreement on Agriculture; Article 11 of the Agreement on the Application of Sanitary and Phytosanitary Measures;

Article 8.10 of the Agreement on Textiles and Clothing; Article 14 of the Agreement on Technical Barriers to Trade; Article 8 of the Agreement on Trade-Related Investment Measures; Article 17 of the Agreement on Implementation of Article VI of GATT 19941; Article 19 of the Agreement on Implementation of Article VII of GATT 19942; Articles 7 and 8 of the Agreement on Preshipment Inspection; Articles 7 and 8 of the Agreement on Rules of Origin; Article 6 of the Agreement on Import Licensing Procedures; Articles 4 and 30 of the Agreement on Subsidies and Countervailing Measures; Article 14 of the Agreement on Safeguards; Articles XXII and XXIII of the General Agreement on Trade in Services; Article 64 of the Agreement on Trade-Related Aspects of Intellectual Property Rights.

Many of these provisions simply refer to Articles XXII and XXIII of GATT 19943, or have been drafted using Articles XXII and XXIII as a model. Article XXIII deserves

being considered first and given special attention. Obviously, a dispute can be, and often is, brought under more than one covered agreement. In such a case, the question of the proper legal basis has to be assessed separately for the claims made under different agreements. The GATT 1994 contains consultation and dispute settlement provisions in both Articles XXII and XXIII. However, it is Article XXIII:1(a) to (c) which sets out the specific circumstances in which a (WTO) Member is entitled to a remedy. Article XXIII:2 originally specified the form that this remedy could take, but the consequences of a successful recourse to the dispute settlement system nowadays are set out in more detail in the DSU. Article XXIII of GATT 1994 therefore retains its significance chiefly for specifying in paragraph 1 the conditions under which a Member can invoke the dispute settlement system. Article XXIII:1 of GATT 1994 states: Nullification Or Impairment:

1. If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of

a. the failure of another contracting party to carry out its obligations under this agreement, or b. the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, or c. the existence of any other situation, the contracting party may, with a view to the satisfactory adjustment of the matter, make written representations or proposals to the other contracting party or parties which it considers to be concerned. Any contracting party thus approached shall give sympathetic consideration to the representations or proposals made to it.

The different types of complaints under Article XXIII:1 of GATT : In subparagraphs (a), (b) and (c), Article XXIII:1 provides for three alternative options

(i.e. (a) or (b) or (c)) on which a complainant may rely. However, Article XXIII:1 starts with an introductory clause containing the condition that a Member consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded. This must be the result of one of the scenarios specified in subparagraphs (a), (b) and (c). The first, and by far, the most common complaint is the so-called violation complaint pursuant to Article XXIII:1(a) of GATT 1994. This complaint requires nullification or impairment of a benefit as a result of the the failure of another [Member] to carry out its obligations under GATT 1994. This failure to carry out obligations is just a different way of referring to a legal inconsistency with, or violation of, the GATT 1994. There also needs to be nullification or impairment as a result of the alleged legal inconsistency. The second type of complaint is the so-called non-violation complaint pursuant to Article XXIII:1(b) of GATT 1994. A non-violation complaint may be used to challenge any measure applied by another Member, even if it does not conflict with GATT 1994, provided that it results in nullification or impairment of a benefit. There have been a few such complaints both under GATT 1947 and in the WTO. The third type of complaint is the so-called situation complaint pursuant to Article XXIII:1(c) of GATT 1994. Literally understood, it could cover any situation whatsoever, as long as it results in nullification or impairment. However, although a few such situation complaints have been raised under the old GATT, none of them has ever resulted in a panel report. In the WTO, Article XXIII:1(c) of GATT 1994 has not so far been invoked by any complainant. Given the admissibility of non-violation and situation complaints, the scope of the WTO dispute settlement system is broader than that of other international dispute settlement systems which are confined to adjudicating only violations of agreements. Simultaneously, the WTO dispute settlement system is narrower than those other systems, in the sense that a violation must also result in nullification or impairment (or possibly the impeded attainment of an objective). This particularity of the system for settlement of international trade disputes reflects the intention to maintain the

negotiated balance of concessions and benefits between the WTO Members. It was GATT practice and it is now WTO law that a violation of a WTO provision triggers a rebuttal presumption of nullification or impairment of trade benefits (Article 3.8 of the DSU). In summary, the WTO dispute settlement system provides for three kinds of complaints: (a) violation complaints, (b) non-violation complaints and (c) situation complaints. Violation complaints are by far the most frequent. Only a few cases have been brought on the basis of an allegation of non-violation nullification or impairment of trade benefits. No situation complaint has ever resulted in a panel or Appellate Body report based on Article XXIII:1(c) of GATT 1994

DISPUTE SETTLEMENT BODIES

The Dispute Settlement Body (DSB) of the World Trade Organization (WTO) makes decisions on trade disputes between governments that are adjudicated by the Organization. Its decisions generally match those of the Dispute Panel. It was created during the Uruguay Round to deal with the disputes arising under any of the WTO agreements; it does so in accordance with the provisions of the Understanding on Rules and Procedures Governing the Settlement of Disputes, or the Dispute Settlement Understanding (DSU). The DSB has the authority to establish dispute settlement panels, to adopt panel and appellate body reports, to maintain surveillance of the implementation of the rulings and recommendations it adopts, and to authorize the suspension of the concessions and other obligations under the covered WTO agreements, if its rulings and recommendations are not acted upon by the members in a timely fashion. WTO members have agreed that if they believe fellow-members are violating trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally. That means they should abide by the agreed procedures, and respect

judgments. The WTOs dispute settlement agreement is formally known as the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). The DSU provides the primary legal means of settling trade related conflicts in the WTO. Settlement of disputes is the responsibility of the Dispute Settlement Body (composed of all Members of the WTO). Typically, a dispute arises when a country adopts a trade policy measure or takes some action that another member considers to be a violation of a WTO agreement. A dispute may also arise if a member feels that, as a result of another countrys action, it has been denied WTO benefits to which it is entitled. A third group of countries can also declare that they have an interest in the case and, when that is the case, they enjoy some rights as Third Parties. The DSB is more than a vehicle by which panels are established and reports adopted are implemented, it also serves as a forum where matters of disputes are discussed. The DSB is, in effect, a session of the General Council of the WTO: that is, all of the representatives of the WTO member governments, usually at ambassadorial level, meeting together. It decides the outcome of a trade dispute on the recommendation of a Dispute Panel and on a report from the Appellate Body of WTO, which may have amended the Panel recommendation if a party chose to appeal. Only the DSB can make these decisions: Panels and the Appellate Body are limited to making recommendations. Functioning The DSB meets as often as necessary to carry out its functions, normally monthly, but it may also meet at special sessions at the request of a member. It is presided over by a chairman, usually the head of one of the permanent missions to Geneva of one of

its members. The DSB uses a special decision procedure known as 'reverse consensus' or 'consensus against' that makes it almost certain that the Panel recommendations in a dispute will be accepted. The process requires that the recommendations of the Panel (as amended by the Appellate Body) should be adopted "unless" there is a consensus of the members against adoption. This has never happened, and because the nation 'winning' under the Panel's ruling would have to join this reverse consensus, it is difficult to conceive of how it ever could. Since consensus requires approval of the complaining party, those parties, not the DSB, normally will have the last word on crucial topics. Although much of the procedure resembles a court or tribunal, the preferred solution is for the countries to settle the dispute by themselves. Before a country can request the formation of a dispute settlement panel, it must consult with the other side for a minimum period of 60 days after it first requests a formal consultation. Therefore, formal consultations invoked under the specific provisions of the DSU are the first stage of the process. Even when the case has progressed to other stages, consultation, negotiation and mediation remain an option for resolving the issue. Once it has decided on the case, i.e., whether the complaint had been shown to be right or wrong, the DSB may direct the 'losing' Member to take action to bring its laws, regulations or policies into conformity with the WTO Agreements. This is the only direction that emerges from a WTO dispute. There is no concept of "punishment" or even restitution. The DSB will give the losing party a "reasonable period of time" in which to restore the conformity of its laws etc. Any country that wants to block a ruling has to persuade all other WTO members (including its adversary in the case) to share its view.

If the losing party fails to restore the conformity of its laws within the "reasonable period of time", the DSB mayon an exceptional basisauthorize a successful complainant to take retaliatory measures to induce action on the part of the losing party. This is very rare. Almost all WTO members "voluntarily" implement DSB decisions in time. Of course, when a losing country brings its laws etc. into conformity it may choose how to do so; indeed, it may not necessarily make the changes that the winning party would prefer. Appellate Body The Appellate Body was established in 1995 under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). It is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members. The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel, and Appellate Body Reports, once adopted by the Dispute Settlement Body (DSB), must be accepted by the parties to the dispute. The Appellate Body has its seat in Geneva, Switzerland. Appellate Body Members and Secretariat The Appellate Body is composed of seven Members who are appointed by the DSB to serve for four-year terms, with the possibility of being reappointed once. The Appellate Body membership shall be broadly representative of membership in the WTO. The Appellate Body receives administrative and legal support from the Appellate Body Secretariat. Appeals are conducted according to the procedures established under the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and the Working Procedures for Appellate Review (Working Procedures). The

Working Procedures are drawn up by the Appellate Body in consultation with the Director-General of the WTO and the Chairman of the Dispute Settlement Body (DSB). They have been amended six times since 1995(1).

DISPUTE SETTLEMENT MECHANISM AND DEVELOPING COUNTRIES

Process of dispute settlement In the WTO dispute settlement is governed by the Dispute Settlement Understanding ("DSU"), which is effectively an interpretation and elaboration of GATT Article XXIII. There are essentially four phases in the WTO dispute settlement process: consultations, the panel process, the appellate process and surveillance of implementation. The DSU is administered by the Dispute Settlement Body (DSB), which is the WTO's General Council meeting to discharge the responsibilities of the DSB under the DSU. As such, all WTO members are members and may participate in the DSB. The DSB has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of its recommendations and rulings, and authorize suspension of concessions. The DSU provides that the DSB shall take decisions provided for in the DSU by consensus.

WTO members are required to submit all WTO-related disputes to the WTO system and are prohibited from taking unilateral action in respect of such disputes. The general philosophy of WTO dispute settlement is set out in Article 3 of the DSU. Among the principles that are enshrined in that article are the following: First, it is recognized that the system serves to clarify the existing provisions of then WTO agreements in accordance with the customary rules of interpretation of public international law. In this regard, it is also noted that the prompt settlement of disputes is essential to the functioning of the WTO and the maintenance of a proper balance between the rights and obligations of WTO members.

Second, it is agreed that the results of the dispute settlement process cannot add to or diminish the rights and obligations provided in the WTO agreements. Third, several provisions highlight that the aim of dispute settlement is to secure a positive solution to a dispute and that a solution that is acceptable to the parties and consistent with the WTO agreements is clearly to be preferred. Fourth, although the DSU provides for the eventuality of non-compliance, it is explicitly stated that "the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements". Retaliatory action is described as the last resort. In WTO dispute settlement, private economic actors such as consumers, producers, importers and exporters cannot bring complaints directly. Nor does the WTO by itself initiate legal cases against its Members, even if their trade measures obviously violate multilateral trade law. In WTO dispute settlement, complaints may exclusively be brought by (and against) governments. Whether or not a government will make use of the system in order to tackle a trade issue that is raised by a private economic actor is therefore a matter of national policy, law, and procedure, Some countries have established norms for this decision process (such as the United States with "Section 301" or the European Union with the "Trade Barriers Regulation"). In many countries, however, there is no publicly-known decision process. In short, the WTO Dispute Settlement Understanding provides for a procedure that starts with mandatory consultations as a diplomatic element. If the disputing governments cannot agree to a settlement during these consultations within a certain period, or if the defending party does not respond to the consultations request, the complainant may request a panel to review the matter. Panels are composed ad hoc and they consist of normally three specialists who engage in fact-finding and apply the relevant WTO provisions to the dispute at hand. Their findings and recommendations are published in a report against which either or both parties may appeal. Unless there is an appeal, the reports are adopted in a quasiautomatic adoption procedure by the Dispute Settlement Body (DSB) where all WTO Members are represented. "Quasi-automatic" adoption means that the reports are

adopted unless the DSB decides by consensus (i.e., including the party that has prevailed) not to adopt the report. In case of an appeal, however, the Appellate Body reviews the issues of law and legal interpretations in the panel report that are subject to the appeal. The Appellate Body is a standing body composed of seven jurists, three of whom (i.e., a division) work on each case. The Appellate Body can uphold, modify or reverse the panel's findings. After this appellate review, no further recourse is possible. The DSB shall then adopt the report in the quasi-automatic adoption procedure described above. If it has been found that a trade measure is in violation of WTO law, the defendant shall bring the measure into compliance with the covered agreements within a reasonable period of time, normally not exceeding 9 months. If the defendant refuses to comply, the complainant may ask the defendant to enter into negotiations on compensation, or may seek authorisation from the DSB to suspend concessions or other obligations vis a vis the defendant at an amount equivalent to the injury suffered, If the adequacy of implementation is disputed, the implementation measures are subject to further review under the DSU. The primary goal of dispute settlement is to ensure national compliance with multilateral trade rules. Accordingly, the Dispute Settlement Body encourages Members to their make best possible efforts to bring legislation into compliance with the panel ruling within a reasonable period of time established by the parties to the dispute. If a Member does not comply with rulings, the DSB can authorize the complainant to suspend commitments and concessions to the violating Member. In general, complainants are encouraged to suspend concessions with respect to the same sector as the subject of the dispute; however, if complainants find this ineffective or impracticable, they may suspend concessions in other sectors of the same Agreement or even under separate Agreements. The suspension of concessions or other obligations, if authorised, normally takes the form of punitive tariffs on a defined value of the complainant's imports from the defendant. Ecuador, for example, suspended its TRIPs commitments to the European Union in retaliation against the EUs non-compliance with panel rulings in the goods-based Banana dispute.

India as complainant

European Communities - Anti-Dumping Duties on Imports of Cotton-type Bed Linen from India7

India requested consultations with the EC in respect of Council Regulation (EC) No 2398/97 of 28 November 1997 on imports of cotton-type bed-linen from India. The measure at issue was the definitive anti-dumping duties imposed by the European Communities, including the European Communities' zeroing method used in calculating the dumping margin. India contended that:

the determination of standing, the initiation, the determination of dumping and injury as well as the explanations of the EC authorities findings are inconsistent with WTO law.

the EC authorities establishment of the facts was not proper and that the ECs evaluation of facts was not unbiased and objective. the EC has not taken into account the special situation of India as a developing country. there were violations of many Articles of the Anti-Dumping Agreement, and Articles I and VI of the GATT 1994.

The panel constituted concluded that the EC did not act inconsistently with its obligations under certain Articles, but found that there was inconsistency with certain other Articles. India appealed the recommendations of the Panel and after many rounds of discussions and consultations, the Appellate Body recommended that the DSB request the EC to bring its measure into conformity with the Anti-Dumping Agreement. At its meeting on 24 April 2003, the DSB adopted the Appellate Body Report and the Panel Report, as modified by the Appellate Body Report.

DS 141

India as respondent The United States as complainant and India as respondent submitted a dispute to the Dispute Settlement Body, of the WTO 8regarding violations of the TRIPS Agreement On 2 July 1996, the US requested consultations with India concerning the alleged absence of patent protection for pharmaceutical and agricultural chemical products in India. Violations of the TRIPS Agreement Articles 27, 65 and 70 were also claimed. The Panel established by the Dispute Settlement Body found that India has not complied with its obligations under Article 70.8(a) or Article 63(1) and (2) of the TRIPS Agreement by failing to establish a mechanism that adequately preserves novelty and priority in respect of applications for product patents for pharmaceutical and agricultural chemical inventions, and was also not in compliance with Article 70.9 of the TRIPS Agreement by failing to establish a system for the grant of exclusive marketing rights. India appealed certain issues of law and legal interpretations developed by the Panel. The Appellate Body upheld, with modifications, the Panels findings on Articles 70.8 and 70.9, but ruled that Article 63(1) was not within the Panels terms of reference. India enacted the relevant legislation and implemented the recommendations and rulings of the DSB.

REFERENCES
Joel P. Trachtman, The Domain of WTO Dispute Resolution, 40 Harv. Int'l L.J. 333 (1999) World Trade Organisation http://www.wto.org/index.htm Seema Sapra, India in the WTO, accessed at http://indiainthewto.wordpress.com/category/wto-dispute-settlement/> Marc L. Busch and Eric Reinhardt, Trade brief on the WTO Dispute Settlement, accessed at www.sida.se/publications S.K Kapoor, International Law and Human Rights, Central Law Agency, 14th edn. (2008), pp. 318-320.

DS50, India Patent Protection for Pharmaceutical and Agricultural Chemical Products (Complaint by the United States)

 Uruguay Round Agreement: Understanding on Rules and Procedures Governing the Settlement of Disputes, accessed at <http://www.wto.org/english/docs_e/legal_e/28-dsu_e.htm> David Palmeter and Petros C. Mavroidis, Dispute Settlement in the World Trade Organization, Practice and Procedur, Cambridge University Press, 2nd edn. Autar Krishen Koul, Guide to the WTO and GATT Economics, Law and Politics, Satyam Law International, 2nd edn. (2010) http://userwww.service.emory.edu/~erein/research/SIDA.pdf