Dispute Settlement Machanism of Wto

DISPUTE SETTLEMENT MACHANISM OF WTO
SUBMITTED TO : MS. TITASHA BANERJEE

SUBMITTED BY: SHIKHA GUPTA
10LLB019
BY : SHIKHA GUPTA
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CONTENTS
TOPICS
PAGE NUMBER
INTRODUCTON
O3
PRINCIPLES:
EQUITABLE, FAST,
EFFECTIVE,
MUTUALLY
ACCEPTABLE
04
DISPUTE
SETTLEMENT IN
THE
WORLD
TRADE
ORGANIZATION
07
SUMMARY
OF
TIME
PERIODS
WITHIN
THE
DISPUTE
SETTLEMENT
MECHANISM
12
THE CASE HAS

BEEN
DECIDED:
WHAT NEXT?
CONCLUSION
13
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INTRODUCTON
The dispute settlement procedure of the World Trade Organization (WTO) is
governed by the Understanding on Rules and Procedures Governing the
Settlement of Disputes (DSU). With certain exceptions, the DSU is uniformly
applicable to differences that arise in the context of all WTO agreements. In some
cases, the Special or Additional Rules and Procedures Contained in the Covered
Agreements apply (article 1.2 and appendix 2 of the DSU).
WTO demands that all its Members respect the rules in the interests of a safer and
more reliable multilateral trade system. In this sense, WTO Members have agreed
that, when they judge that other Members have broken trade rules, they shall refer
the matter to the dispute settlement mechanism rather than adopting unilateral
measures. This involves complying with the agreed procedures and respecting the
decisions reached by the dispute settlement bodies set up for that purpose.
Forum / Jurisdiction
The WTO dispute settlement system has jurisdiction over any difference that may
arise between Member countries, above and beyond the provisions of any of the
Covered Agreements provided for in appendix 1 of the DSU. That is to say, a
dispute based on the violation of WTO rules can only be dealt with by the
multilateral forum, rather than by regional dispute settlement mechanisms.
Bodies
WTO bodies include the political institution known as the Dispute Settlement
Body (DSB) and
- Comprises a chairman (head of the permanent mission of one of the Member
countries appointed by consensus among the Members of WTO) and
representatives of all WTO Members (government representatives, usually
diplomats who belong to ministries of trade or foreign affairs). In their capacity as
government officials, the representatives receive instructions from their
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governments on the positions they must adopt and the statements they must make
within the DSB, hence the latter is considered a political body.
- The DSB is responsible for the application of the DSU, in other words it
oversees the entire dispute settlement procedure. It has the authority to set up
panels, adopt panel and Appellate Body reports, monitor the application of
recommendations and authorize retaliatory measures when a Member fails to
comply with rulings.
- The DSB usually meets once a month, and the Director-General may convene
extraordinary meetings at the request of Members. The staff of the WTO
Secretariat provide administrative support to the DSB.
- As a general rule, the DSB makes decisions by consensus. However, when the
DSB sets up panels, adopts reports or authorizes retaliation, the decision is
automatically considered to be adopted, unless there is a consensus to the contrary
(a negative consensus).
The full WTO dispute settlement process involves parties and third parties, the
Dispute Settlement Body, Panels, the Appellate Body, WTO Secretariat,
arbitrators, independent experts and various specialized agencies.
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Principles: equitable, fast, effective, mutually acceptable

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 judgments.
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.1
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
1 https://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm
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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.
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DISPUTE SETTLEMENT IN THE WORLD TRADE

ORGANIZATION
independent and quasi-judicial institutions that are the Panels, the Appellate Body
and Arbitrators:
I Dispute Settlement Body (DSB) - article 2 of the DSU 2
II Director-General and Secretariat of WTO
- The Director-General of WTO participates in the Dispute Settlement Body
(DSB) in the following ways: The Director-General may, acting in an ex officio
capacity, offer good offices, conciliation or mediation with the view to assisting
Members to settle a dispute (article 5.6 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU)), especially in cases
involving a less developed country;
DISPUTE SETTLEMENT IN THE WORLD TRADE ORGANIZATION
independent and quasi-judicial institutions that are the Panels, the Appellate Body
and Arbitrators:
I Dispute Settlement Body (DSB) - article 2 of the DSU 3
II Director-General and Secretariat of WTO
- The Director-General of WTO participates in the Dispute Settlement Body
(DSB) in the following ways: The Director-General may, acting in an ex officio
capacity, offer good offices, conciliation or mediation with the view to assisting
2 This information comes from the official WTO website:
http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm#intro.
3 This information comes from the official WTO website:
http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm#intro.
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Members to settle a dispute (article 5.6 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU)), especially in cases
involving a less developed country; if there is no agreement on the panelists, at
the request of either party, the Director-General, in consultation with the
Chairman of the DSB and the Chairman of the relevant Council or Committee,
shall convene DSB meetings and determine the composition of the panel (article
8.7);
The Director-General appoints an Arbitrator to determine a reasonable period of
time if the parties are unable to agree on a period of time or the appointment of an
Arbitrator (article 21.3 c);
The Director-General shall examine proposed retaliatory measures in cases of
non-implementation (article 22.6).
Within the Dispute Settlement Body (DSB), the Secretariat can act in the
following ways (article 27): Reports to the Director-General; provides assistance
in respect of dispute settlement to Members at their request; organizes special
training courses and provides additional legal advice and assistance to developing
country Members; provides assistance to parties in the formation of panels; and
helps established panels and provides administrative support to the DSB.
III - Panels - articles 6, 7 and 8 of the DSU
- Panels are quasi-judicial bodies responsible for settling differences between
Members in the first instance.
- They comprise three, and in exceptional cases five, experts specially selected for
each case (there is no permanent panel, but rather a different one is set up for each
case). WTO Members regularly put forward names to be included in the list kept
by the Secretariat. People appointed to a panel provide their services
independently, in an individual capacity, and not as a representative of any
government or organization.
IV Appellate Body - article 17 of the DSU
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- Unlike the panels, the Appellate Body is a standing body made up of seven
members appointed by the DSB by consensus and for a period of four years, with
a maximum of two terms. The Appellate Body examines the legal aspects of panel
reports (rather than studying evidence or facts), and represents the second and
final instance of the legal process.
V - Arbitrators - article 25 of the DSU
- Arbitration is an alternative means of dispute settlement to panels and the
Appellate Body. Arbitrators can thus be called on to resolve certain issues at
various stages of the dispute settlement process (when there is no agreement on
determining the reasonable period of time or on the level of retaliation). Arbitral
awards are not subject to appeal and may be enforced by the DSB.
VI - Experts - article 13 and appendix 4 of the DSU
- Panels may seek the opinions of experts in dealing with technical or scientific
issues, such as when the case relates to the Agreement on the Application of
Sanitary and Phytosanitary Measures, Agreement on Technical Barriers to Trade,
or the Agreement on Subsidies and Countervailing Measures.
- Groups of experts act under the authority of the panel, and provide the latter
with their opinion. These groups carry out a purely consultative role. The final
decision on legal issues and fact-finding, based on expert opinion, remains with
the panel.
The dispute settlement procedure in full
Pre-litigation stage
Consultations: A filing of a Request for Consultations is the official beginning
of the dispute within WTO and brings the Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU) into play. Consultations
provide parties with the opportunity to debate the issue and find a satisfactory
solution without resorting to litigation. The party complained against must reply
to the request within 10 days after the date of its receipt and shall enter into
consultations in good faith within a period of no more than 30 days after the date
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of receipt of the request. If the Member does not comply with this time frame,
then the Member that requested the holding of consultations may proceed directly
to the litigation stage and request the establishment of a panel. If the consultations
fail to settle a dispute within 60 days after the date of receipt of the request for
consultations, the complaining party may request the establishment of a panel
(article 4.7). However, governments are in permanent contact, and agreement may
be reached at any stage of the process (article 4). Along with good offices,
conciliation and mediation, consultations are the main non-judicial or diplomatic
instrument in the WTO dispute settlement system.
Litigation stage
1st stage (panel): If the consultations fail to settle a dispute, the complaining
party may request establishment of a panel by the Dispute Settlement Body
(DSB). The panel must be established within 45 days of the request. Once
established, the panel must produce a report for the DSB within six to nine
months. This report must include an objective assessment of the facts of the case
and an examination of the measures in dispute, using the relevant provisions of
the appropriate legal instruments.
2nd stage (optional recourse to the Appellate Body): The Appellate Body
examines the legal aspects of the challenge and may uphold, modify or reverse
the legal findings and conclusions of the panel (article 17.13).
According to the Understanding on Rules and Procedures Governing the
Settlement of Disputes (DSU), parties may adopt three positions in relation to
reports:
Implementation: it is insisted that the party failing to fulfil its obligations comply
with the recommendations of the panel or Appellate Body. When it is impossible
to do so immediately, the DSB may establish a reasonable period of time for
implementation.
Payment of compensation: when the offending party exceeds the reasonable
period of time without implementing the recommendations or determinations, the
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complainant may ask for compensation. The offending party may also offer
compensation.
Retaliatory measures: when the offending party fails to comply with
recommendations and refuses to offer compensation, the affected party may
request DSB authorization to introduce retaliatory measures against the offending
country. In principle, these measures must be applicable in the same sectors in
which the panel has established the existence of an offence. Only if this were
considered impossible would could the application of retaliatory measures in
other sectors of the same agreement be authorized.
In any event, the above-mentioned measures (compensation or retaliation) are
considered temporary measures, as the offending country is expected to fully
adopt the recommendations or determinations formulated by the panel or
Appellate Body.
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Actions
Time scale
Consultations, mediation, etc.

60 days
45 days
Establishment of panel and appointment of

members
6 months
Panel presents its final report to parties
3 weeks
Panel presents its final report to WTO Members
60 days
Dispute Settlement Body (DSB) adopts report (in

the absence of an appeal)
If no appeal
total = 1 year
60 to 90 days
Appellate review report
30 days
DSB adopts the Appellate review

If a party appeals
total = 1 year and 3
Summary of time periods within the dispute settlement

mechanism
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4
Specificities of the system

In terms of developing country Members of WTO, the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU) takes into account
their particular situation. Within the dispute settlement system, the special and
differentiated treatment they receive consists in additional or privileged
procedures such as longer time periods
Source: Understanding the WTO: settling disputes
(http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm).
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The case has been decided: what next?

Go directly to jail. Do not pass Go, do not collect . Well, not exactly. But the
sentiments apply. If a country has done something wrong, it should swiftly correct
its fault. And if it continues to break an agreement, it should offer compensation
or face a suitable response that has some bite although this is not actually a
punishment: its a remedy, the ultimate goal being for the country to comply
with the ruling.
The priority is for the losing defendant to bring its policy into line with the
ruling or recommendations, and it is given time to do this. The dispute settlement
agreement stresses that prompt compliance with recommendations or rulings of
the DSB [Dispute Settlement Body] is essential in order to ensure effective
resolution of disputes to the benefit of all Members.
If the country that is the target of the complaint loses, it must follow the
recommendations of the panel report or the appeals report. It must state its
intention to do so at a Dispute Settlement Body meeting held within 30 days of
the reports adoption. If complying with the recommendation immediately proves
impractical, the member will be given a reasonable period of time to do so. If it
fails to act within this period, it has to enter into negotiations with the
complaining country (or countries) in order to determine mutually-acceptable
compensation for instance, tariff reductions in areas of particular interest to the
complaining side.
If after 20 days, no satisfactory compensation is agreed, the complaining side may
ask the Dispute Settlement Body for permission to retaliate (to suspend
concessions or other obligations). This is intended to be temporary, to encourage
the other country to comply. It could for example take the form of blocking
imports by raising import duties on products from the other country above agreed
limits to levels so high that the imports are too expensive to sell within certain
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limits. The Dispute Settlement Body must authorize this within 30 days after the
reasonable period of time expires unless there is a consensus against the
request.
In principle, the retaliation should be in the same sector as the dispute. If this is
not practical or if it would not be effective, it can be in a different sector of the
same agreement. In turn, if this is not effective or practicable and if the
circumstances are serious enough, the action can be taken under another
agreement. The objective is to minimize the chances of actions spilling over into
unrelated sectors while at the same time allowing the actions to be effective.
In any case, the Dispute Settlement Body monitors how adopted rulings are
implemented. Any outstanding case remains on its agenda until the issue is
resolved.
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CONCLUSION
The WTO DSU was negotiated as part of the Uruguay Round to create a new
rules-based procedure for dispute settlement. Its structure and scope addressed the
principal shortcomings of the GATT system as well as embodying the diverse
objectives of many Member states. In the years since its inception, the DSU has
demonstrated a sharper cutting edge in enforcing the international trade rules and
greater effectiveness in resolving trade disputes between WTO Members. As it
currently stands, the DSU therefore represents a significant improvement upon
the previous GATT dispute settlement systems.
The WTO DSU has, nevertheless, faced a number of criticisms, most of which
concern the pattern and structure of incentives for its use. Initial studies of the
performance of the new dispute settlement system suggest that it is subject to
institutional bias that favours leading trading nations over most developing
countries.
The effectiveness of the DSU has been greatly enhanced by the negative
consensus rule but this also means however, that the WTO system can impose
external policies on Member countries without a democratic mandate. It is this
lack of democratic accountability on the part of the WTO that is, in
part, responsible for its current crisis of credibility. Some form of middle way is
needed to strike a better balance between the demands of national sovereignty and
the effective resolution of international trade disputes. The unchallenged
dominance of either is to the detriment of the other and will undermine the
credibility of both the WTO and the DSU.
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