WTO dispute settlement at a stake

Asjadul Kibria   | Published: May 29, 2019 21:16:28 | Updated: June 01, 2019 21:43:20

The World Trade Organization (WTO) organised an information seminar in Geneva on May 13-17. The seminar dealt with trade dispute settlement mechanism, agriculture, development, global value chain, regional trade agreements, technical barriers to trade etc. Photo shows  a group of Asian and African journalists  participating  in  a session  of the seminar.               —Photo courtesy:  WTO

Dispute Settlement Body (DSB) is one of its core instruments of the World Trade Organization (WTO). This is the only multilateral mechanism to address trade related disputes among the different member countries. Since the inception of the multilateral trade body, some 584 trade disputes have been referred to the DSB (as on May 10, 2019). Some of the disputes also ended at the very first stage known as consultation phase.

Recently the function of the DSB has come under serious threat mainly due to strong objection from the United States. President Trump has blocked the appointment of jurists to the appellate body of the WTO which is responsible to validate the rulings of the DSB panel.  Usually, the appellate body is served by seven members as jurists. As the US has been blocking the appointment or reappointment of the appellate body members, the number of jurists has now come down to three. It is the minimum number to keep the appeal process functional. By the end of this year, two of them will run out of their terms in office. If they are not reappointed or if there are no fresh appointments to replace them, there will be only one member and the appellate body will be left non-functional. It will also make the future of the whole dispute settlement mechanism as well as the WTO highly uncertain.

HOW DSB WORKS: Generally, when a member country has a complaint against another member country's trade distortive activity or violation of WTO rules, it can go to the DSB for remedy. The first party has to formally submit a request of consultation on the allegation through the DSB. The WTO system encourages consultation so that the parties can sit together, discuss the disputed issue and review whether they can settle the dispute at this stage. If there is no positive outcome during the 60 days of consultation, the first party can request DSB to set up a panel for hearing the allegation. Panel members are selected by the consensus of two parties. If the conflicting parties fail to do so, the WTO Director General establishes a panel. So far, in 65 per cent cases the DG had to intervene and set up panel of experts to hear the allegation and version of the other side. The panel gets six months time for hearing and preparing its report before submitting to the conflicting parties and the DSB.  Within 60 days after submission, it becomes ruling or recommendation on whether there is a consensus on adopting the report. Consensus, however, means no opposition or absence of opposition, not unanimity.

Any of the parties or both the parties can appeal against the panel report. The appeal is heard by three members of a permanent seven-member Appellate Body set up by the DSB and broadly representing the range of WTO membership. Though it is termed a 'permanent body,' members of the appellate body have four-year terms and may be reappointed for the second term. They are individuals with well recognised knowledge in the fields of law and international trade, and must not be affiliated with any government. Both the panel and appellate body members are officially termed 'members' though they are sometimes termed 'jurists'. Appellate body examines the panel report and can uphold, modify or reverse the findings and conclusions. It has to conclude the work within 60 days and submit the report to DSB. DSB has to accept or reject the appeal report within 30 days and rejection is possible if there is a consensus.

Both the parties have to follow the rulings and recommendations of the DSB adopted panel report (if there is no appeal) or appellate body report (in case of appeal). If the second party (respondent) fails to comply with the rulings by correcting its trade practice and offering compensation, the first party (complainant) may seek approval of DSB for retaliation.

THE US OBJECTIONS: In the WTO, the US seeks the highest number of remedies through the DSB, wins the highest number of disputes and also loses the highest number of cases.  So far, the country is complainant of 123 cases, respondent of 153 cases and also third party of 150 cases.  At the same time, it has won around 90 per cent cases as complainant and lost around 89 per cent cases as respondent.  US complaints against China are pretty well known. An analysis by the Peterson Institute for International Economics said: "Over the last 16 years, US officials have challenged Chinese practices 23 times in the WTO; the win-loss record is 19-0, with four cases pending. In the most recent decision, the WTO panel found that China's agricultural subsidies are inconsistent with WTO rules, upholding US claims."

Nevertheless, Mr Trump and his team have continued to allege that the DSB always takes position against the US.  He said: "Panels are set up so that we don't have majorities."  But same thing is true for all the parties involved in disputes and in fact, none of the panel jurists come from member countries involved in a dispute. Another allegation of Trump is that the appellate body often exceeds its mandate by reinterpreting rules without the agreement of member states. The US also alleged violation of the 90-day deadline for submitting the reports by the appellate body. It is true that in some cases, the appellate body failed to complete and submit the reports within 90 days and took additional time. With these allegations and objections raised two years ago, the US has been blocking the appointment or reappointment of jurist at the appellate body. In WTO, any member can block any move and the US is using the tool.

Interestingly, it was in the '80s and early '90s when the US and European Union (EU) continued to block the verdicts or even establishment of panels under GATT dispute settlement procedure. In WTO, it is difficult. The 'reverse consensus' rule ensures that a panel will be established as long as complainant member wants to do so. It is also known as automaticity.  

OVERCOMING THE UNCERTAINTY: In order to overcome the uncertainty over appellate body's jurist appointment, the EU, China, India and Montenegro submitted a joint proposal in December last. They sought to strengthen the mandate of the body, increase the term of the members from the existing four years to six or eight years without any reappointment, increase its number from the current seven to nine members. But the US rejected the proposal and demanded that the structure and functions of the DSB have to be changed entirely. Ironically, the US is still bringing cases to the WTO to contest the rights of other countries to retaliate against its unilateral tariffs. Again, it is still not very clear what the US really wants or in which way it wants to restructure the WTO's dispute settlement mechanism. 

Uncertainty as to the future of appellate body is definitely worrisome for developing countries as well as the Least Developed Countries (LDCs).  The LDC group is yet to submit any proposal or express its concern in this regard. Bangladesh, being a LDC, is a good example of the beneficiary of WTO dispute settlement mechanism. So far, it is the only LDC that moved the DSB to seek remedy against Indian antidumping duty on its lead-acid battery export. After Bangladesh had submitted request for consultation, India decided to withdraw the anti-dumping duty. Thus the LDCs have also some stake to keep the DSB functional and need to take a clear position in this regard.

(Asjadul Kibria is back from Geneva after attending an information seminar  organised by the World Trade Organization and Friedrich-Ebert-Stiftung)


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