A project Report

On
DISPUTE SETTLEMENT MECHANISM OF WTO
Sbmitted By
Seema.M.Talreja
Roll No. 36
Research GuideProf. Mr. Shyam Lilani

Submitted in partial fulfillment of the Degree of

M.COM (Part 1)
Affiliated to the University of Mumbai

Smt. Chandibai Himatmal Mansukhani College of Arts,

science, Commerce
Ulhasnagar- 421003.
2015-2016.

DECLARATION
1

I Seema.M.Talreja, studying in Smt. Chandibai Himatmal Mansukhani

college of Arts,
science, Commerce, Ulhasnanagr 421003, Student of M.Com Part 1,
Hereby declare that I
have completed my project on Dispute Settlement Mechanism In WTO
in the academic year 2015-2016.

The information submitted by me is true and original to the best of my

knowledge.

Seema.M.Talreja

ACKNOWLEGEMENT

To list who all have helped me is difficult because they

are so numerous and the depth is so enormous.
I would like to acknowledge the following as being
idealistic channels and fresh dimensions in the
completion of this project
I take this opportunity to thank the University of
Mumbai forgiving me chance to do this project.
I would like thank my Principal, Dr. Padma V.
Deshmukh for providing the necessary facilities
required for completion of this project.
I would also like to express my sincere gratitude
towards my project guide Prof. Mr. Shyam lilani
whose guidance and care made the project successful.
I would like to thank my college library, for having
provided Various reference books and magazines
related to my project.
Last but not the least, I would like to thank almighty God, my
parents, and my friends who helped me gather these data and
have sat with me for hours discussing about the project.

OBJECTIVE

To
To
To
To

study about WTO

know how actually disputes settlement works
know the step of DSM
know its procedure

Limitations
The project is only limited to the study of DISPUTE SETTLEMENT OF
WTO.
Other issues are being disclosed.
Time, length, and depth of the study are limited as per the

requirements of college

Scope
The project begins with a brief mention of what DSM is and
its steps, proceedings, obstacles and improvement by
adopting DSM.

EXECUTIVE SUMMARY
The WTO's Dispute Settlement Understanding (DSU) evolved out of the
ineffective means used under the GATT for settling disagreements among
members. Under the GATT, procedures for settling disputes were
ineffective and time consuming since a single nation, including the nation
whose actions was the subject of complaint could effectively block or
delay every stage of the dispute resolution process. It remains to be seen
whether countries will comply with the new WTO dispute settlement
mechanism, but thus far the process has met with relative success.
The DSU was designed to deal with the complexity of reducing and
eliminating non-tariff barriers to trade. A non-tariff trade barrier can be
almost any government policy or regulation that has the effect of making
it more difficult or costly for foreign competitors to do business in a
country. In the early years of the GATT, most of the progress in reducing
trade barriers focused on trade in goods and in reducing or eliminating the
tariff levels on those goods. More recently, tariffs have been all but
eliminated in a wide variety of sectors. This has meant that non-tariff
trade barriers have become more important since, in the absence of
tariffs, only such barriers significantly distort the overall pattern of tradeliberalization. Frequently, such non-tariff trade barriers are the inadvertent
consequence of well meaning attempts to regulate to ensure safety or
protection for the environment, or other public policy goals. In other
cases, countries have been suspected of deliberately creating such

regulations under the guise of regulatory intent, but which have the effect
of protecting domestic industries from open international competition, to
the detriment of the international free-trade regime.
The WTO's strengthened dispute resolution mechanism was designed to
have the authority to sort out this "fine line between national prerogatives
and unacceptable trade restrictions" Several of the supplemental
agreements to the GATT created during the Uruguay Round, such as the
SPS Agreement, sought to specify the conditions under which national
regulations were permissible even if they had the effect of restraining
trade. The United States, perhaps more than any other country, has found
itself on both sides of this delicate balance. In 1988, it was the United
States who pushed for strengthening the Dispute Settlement provisions of
the GATT during the Uruguay Round, in part because Congress was not
convinced that, "the GATT, as it stood, could offer the United States an
equitable balance of advantage." The concern was that formal
concessions granted to U.S. exports going into other countries would be
eroded by hidden barriers to trade. On the other hand, the United States
harbours reservations in regards to its sovereignty, with much of the
negative reaction to the WTO itself cantered around the concern that U.S.
laws and regulations may be reversed by the DSU panels or the Appellate
Body.

Methodology
This project is prepared with the combination of theoretical knowledge as well as
practical knowledge and a blend of advices and suggestion from the guide of the
project.
Various books helped me out in extracting the theoretical element. Also the
information relevant to the project is being surfed from internet. All these activities
are conducted as per the guide consent.
Finally, the project has been advantageously finished with various kinds of
experiences gained throughout. It had been possible with my facts and information on
this subject.

SR.NO

TOPIC

PG.NO

WTO DISSPUTE MECHANISM UNDERSTANDING

10

STEPS IN WTO DISPUTE

12

TABLE

18

BENEFITS OF DISPUTE SETTLEMENT MECHANISM

OBSTACLES IN WTO DISPUTE SETTLEMENT

23

WHT DEVELOPING DO NO PARTICIPATE

30

DISADVANTAGES IN WTO DISPUTE MECHANISM

CONCULSION

BIBLIOGRAPHY

19

32

37

39

THE WTO DISSPUTE SETTLEMENT

MECHANISM

WTO Dispute Settlement Understanding

While the DSU continues past GATT dispute practice,a variety of new
features are aimed at Strengthening the prior system. These include a
10

reverse consensus voting rule at key points in the process, legal review
of panel reports by a new Appellate Body, deadlines for various phases of
the dispute procedure, and improved multilateral oversight of compliance.
Under the integrated system of dispute settlement created by the DSU,
the same dispute settlement rules apply to disputes under virtually all
WTO agreements, subject to any special or additional rules in an
individual agreement.
The WTO Dispute Settlement Body (DSB), created in Article 2 of the DSU
and consisting of representatives of all WTO Members, administers WTO
dispute settlement proceedings. As was the case under the GATT, the DSB
ordinarily operates by consensus (i.e., without objection). The DSU
reverses past practice, however, in a manner that prevents individual
Members from blocking certain DSB decisions that are considered critical
to an effective dispute settlement system. Thus, unless it decides by
consensus motto do so, the DSB will (1) approve requests to establish
panels, (2) adopt panel and Appellate Body reports, and (3) if requested
by the prevailing Member in a dispute, authorize the Member to impose a
retaliatory measure where the defending Member has not complied. In
effect, these decisions are virtually automatic.
Given that panel reports would otherwise be adopted under the reverse
consensus rule, WTO Members have a right to appeal a panel report on
legal issues. The DSU creates a standing Appellate Body to carry out this
added appellate function. The Appellate Body has seven members, three
of whom serve on any one case. Notwithstanding the rule-oriented nature
of the DSU, dispute settlement in the WTO is primarily Member driven. In
other words, it is up to the disputing Members (complaining or defending,
as the case may be) to decide whether or not to take particular actions
available to them. These actions include initiating the dispute; requesting
a panel and, in doing so, setting out the scope of dispute; asking the WTO
Director-General (DG) to appoint panellists if the disputing Members
cannot agree on the WTO Secretariats proposed slate; seeking
authorization to impose countermeasures against a non-complying
Member; requesting that the prevailing Members retaliation proposal be
11

arbitrated; and imposing retaliatory measures even if the DSB has

authorized them. As stated in Article 3.7 of the DSU, the preferred
outcome of a dispute is a solution mutually acceptable to the parties and
consistent with the covered agreements. Absent this, the primary
objective of the process is withdrawal of a violative measure, with
compensation and retaliation being avenues of last resort. As of the date
of this report, 450 complaints have been filed under the DSU. Not all of
these have resulted in panels, however, and in some cases where panel
proceedings were initiated, the panel process was discontinued due to a
settlement of the dispute or for other reasons. To date, 153 original panel
reports have been publicly circulated. Some original panels have also
issued compliance panel reports as a result of proceedings initiated by
complaining Members under
Article 21.5 of the DSU to determine whether defending Members had
complied in particular disputes; 29 compliance panel reports have been
issued thus far. Well over one-half of all panel reports have been
appealed, resulting in 108 Appellate Body reports issued as of this writing.
Nearly one-half of the 450 WTO complaints filed to date involve the United
States as complaining party or defendant. The United States Trade
Representative (USTR) manages U.S. participation and is the chief
representative of the United States in the WTO, including in WTO disputes.
The DSU was scrutinized by WTO Members under a Uruguay Round
Declaration, which called for completion of a review within four years after
the WTO Agreement entered into force (i.e., by January 1999). Members
did not agree on any revisions in the initial review and continued to
negotiate on dispute settlement issues during the WTO Doha
Development Round of multilateral trade negotiations initiated in 2001,
doing so on a separate track permitting an agreement to be adopted apart
from any overall Doha Round accord. In 2008, the chairman of the dispute
settlement negotiations prepared a consolidated draft legal text based
mainly on Member proposals, which Members agreed to use in their
negotiations; in April and September 2011, the chairman issued reports
12

summarizing subsequent discussions. Although the Doha Round

negotiations have stalled, discussions of revisions to the DSU have
continued into 2012.

Steps in a WTO Dispute

The DSU describes in some detail how the panels are to work. The main
stages are:

Before the first hearing:

The panel will meet for an organizational meeting at which it sets a schedule for the case.
Each side in the dispute presents its case in writing to the panel. These written submissions
are essentially legal briefs in which the parties state the facts, the findings that they want
the panel to make and the legal arguments supporting their position.

First hearing: At the first sustentative meeting of the

panel:
The complaining country (or countries), the responding country, and those that have
announced they have an interest in the dispute, make their case. The complaining party will
present its case and make its oral arguments first, followed by the responding country and
then the third parties. The first hearing may run two to three days, with panel meeting in
several sessions to hear the presentation.

Second hearing-Rebuttals:

13

Following the first hearing, the parties will usually have two to three weeks to submit written
rebuttals. One to two weeks later, the Panel will hold a second meeting at which the parties
present oral rebuttal arguments. The defending party has the right to present its statement
first at this meeting. Third parties will not participate at the panels second meeting. During
oral presentations, the panel may interrupt with questions for the presenter. The panel also at
any time has the right to ask the parties to submit written answers to questions posed during
or outside of hearing.

Experts:
If one side raises scientific or other technical matters, the panel may consult experts or
appoint an expert review group to prepare an advisory report.
First draft:
The panel usually submits within two to four weeks after the second hearing the descriptive
(factual and argument) sections of its report to the two sides, giving them two weeks to
comment. This report does not include findings and conclusions.

Interim report:
The panel then submits an interim report to the two sides, including its findings and
conclusions. The parties will have one week to ask for a review.
Review:
The period of review must not exceed two weeks. During that time, the panel may hold
additional meetings with the two sides. To ensure transparency, presentations to the panel are
made only in the presence of both sides and all written submissions, including comments on
the descriptive part of the report and the response to questions, are given to both sides.
14

Final report:
A final report is submitted to the two sides and three weeks later, it is circulated to all WTO
members. If the panel decides that the disputed trade measure is inconsistent with a WTO
agreement or an obligation, it recommends that the measure be brought into conformity with
WTO rules. It does not tell the Parties exactly how to do this. This is left to the discretion of
the country concerned. The panel may however suggest how this could be done. If the panel
finds that the trade measure is consistent with the relevant WTO agreements, but that the
measure has denied the complaining party WTO benefits, it may recommend a solution, but
the defending country cannot be required to withdraw its measure.
The report becomes a ruling:
Once Members have had 20 days to consider a circulated report, the report can be considered
for adoption by the DSB, unless it is appealed. The DSB must adopt the report within 60
days unless there is a consensus to reject it. The adopted report with a recommendation to
bring a measure into conformity, if appropriate, becomes the ruling of the DSB.
Appealing a Panel Decision:
Either side can appeal a panels ruling. Sometimes both sides do so. Appeals have to be
based on points of law such as legal interpretation they cannot request reexamination of
existing evidence or examination of new evidence.
Each appeal is heard by three members of a permanent seven-member Appellate Body set up
by the DSB (DSB). Members of the Appellate Body have four-year terms. They have to be
individuals with recognized standing in the field of law and international trade, not affiliated
with any government.

15

The appeal can uphold, modify or reverse any of the panels legal findings and conclusions.
Normally appeals should not last more than 60 days, with an absolute maximum of 90 days.
In other words, the Appellate Body should normally issue a report within 60 days from the
date the notice of appeal is filed.
The DSB has to accept (i.e., adopt) the panel report, as modified by the ruling of the
Appellate Body, within 30 days following circulation of the Appellate Bodys report unless
there is a consensus to reject it.

After the DSB Ruling

After DSB adoption of a report in which a countrys trade measure has been found to violate
its WTO obligations, the country is required to act on the recommendations in the report and
bring the measure into compliance with its obligations. The DSU stresses that prompt
compliance with recommendations or rulings of the DSB is essential in order to ensure
effective resolution of disputes to the benefit of all Members. The country must state its
intention to comply at a DSB 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. Article 21 of the DSU provides that the
reasonable period of time can be (a) the time proposed by the losing country, if the DSB
approves, (b) a time period mutually agreed to by the parties or (c) a time period determined
through arbitration. Article 23 also indicates as guidance to the arbitrator that the period of
time should not normally exceed 15 months. To date in most WTO disputes the losing party
has brought its measure into compliance.
If a losing party fails to act within a reasonable period of time, it has to enter into negotiations
with the complaining country (or countries) in order to determine mutually acceptable
16

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 DSB for permission to impose limited trade sanctions (suspend
concessions or obligations) against the other side. The DSB should grant this authorization
within 30 days of the expiry of the reasonable period of time unless there is a consensus
against the request. If the two sides cannot agree on what constitutes a reasonable period of
time or the level of compensation, the complaining country may request an arbitrator to
decide what a reasonable period of time is or the appropriate amount of compensation/trade
retaliation to be authorized by the DSB. If a country has taken steps to comply with a
panels findings, but the complaining party does not feel that they are adequate, the
complaining party can have the original panel review the measures adopted and rule on
whether they are adequate enough to bring the losing country into compliance.
In principle, the sanctions should be imposed in the same sector as the dispute. If this is not
practical or if it would not be effective, the sanctions can be imposed 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.
The DSB monitors how adopted rulings and recommendations are implemented. Any
outstanding case remains on its agenda until the issue is resolved.

17

18

How long it take to settle a dispute

60 Days- consultations, mediation, etc

45 Days-panel set up and panellists appointment
6 months-final panel report to parties
3 weeks-first panel report to WTO members
60 Days-Dispute Settlement Body adopt reports
Total=1year-(without appeal)
60-90 Days-appeals report
30 Days- Dispute Settlement Body adopt appeal reports
Total=1y3m-(with appeal)

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Benefits for developing countries

The Uruguay Round reforms have brought great influence on developing
countries participation and performance in the WTO dispute settlement system. The
establishment of a single organizational forum for managing disputes with formalized
procedures and greater legal transparency certainly has brought about many positive results
that improve the equality status of developing countries which provides developing countries
with a more favourable environment than that under the bilateral mechanism. Under the rulebased DSM, all the members, no matter they are weak or strong, have the right to resort to the
DSM to seek fair and reasonable resolutions for their trade disputes, which is a law-protected
equality. The mechanism reduces the instability arising from countries unilateral actions.
And it also increases the transparency of the dispute settlement procedure thus help enhance
the fairness.

Improvement in Bargaining Power:

The new DSM improves the bargaining power of developing countries. The system
is based on formal legalized rules, thus members are equal in front of the law. Even the
superpowers need to abide by the regulations. Thus developing countries gain more equality,
and hence more power for equal bargaining. Just as Cameron and Campbell argue, resolving
disputes through a judicial route is particularly beneficial for smaller countries, as without
the rules and procedures of the DSU and the extensive obligations in the WTO agreements,
they would not have the necessary bargaining power vis--vis the larger powers .
For instance, Brazil had not pursued a complaint against the EU under the GATT system
since it knew the complaint would be blocked. However, under the new WTO mechanism,
Brazil notified the EU that it would bring the dispute to the DSB for formal consultation,
which is the first step of the WTO dispute settlement procedure. A few days later, the
20

EU made concessions that it had previously held as impossible, and the dispute was
resolved.Furthermore, while the GATT system might cripple weaker countries bargaining
power by its positive consensus rule, the new WTO DSM improves the situation through
the negative onsensus framework, which greatly reduces the possibility of blockage.

Independence to Developing Countries

Second, from the angle of independence, under the power-based GATT system, the
independence of developing countries was eroded because of their economic and political
dependence on developed countries.
Sometimes they could hardly express their real attitudes. Under the new
WTO DSM, as a contrast, a certain level of independence is guaranteed by the fixed legal
regulation system. Thus the rule-based arrangements for dispute resolution tend to produce
more equal outcomes, mitigating power/wealth disparities.

General Spirit of Compliance with the DSM Result:

The general spirit of compliance with the result of the DSM is another
optimistic indicator of improved equality. In this rule-based system,
the major powers in international trade have indicated that they will comply with the
mandates of the Dispute Settlement reports when they are finalized and formally adopted.
And even the most powerful players cannot defy the final rulings without risking harm to the
institution.
When developing countries file complaints against developed ones to the DSB, even if the
result is negative to the developed side, the recommendations or rulings can still be
implemented. This situation tends to reduce asymmetries in postagreement bargaining
powerand enhance developing countries equality status in the phase of rulings
21

implementation. Besides, countries now get easier access to countermeasures provided

through cross-retaliation, which makes developing countries able to impose pressure on
developed ones. Thus, as developing members have more assurance as to the implementation
situation of the DSM results, their equality status in the system is improved

Provisions Providing Special Favorable Conditions to Developing

Countries:
Considering the concrete DSU provisions, because of the increasing concern
on developing countries particular needs and interests, the DSU provides plenty of
provisions offering special favorable conditions to developing countries through the whole
dispute settlement procedure. Thus developing countries can enjoy more equality with
developed countries. Article 4.10 of the DSU calls for members to pay special attention to the
particular problems and interests of developing countries in consultations. Article 12.10
allows for the extension of the consultation time-period. Article 8.10 states that a developing
country involved in a dispute can request that the panel includes at least one panelist from
a developing member country if the other side is a developed state.
And Article 12.11 provides that the panel report must indicate the form in which the special
and differential treatment rules of the DSU have been taken into account, if a developing
country member involved in a dispute raises such rules. At the stage of implementation,
according to Article 21.2 of the DSU, particular attention should be paid to matters affecting
developing countries interests.
As to surveillance, Article 21.8 states that if a case is brought by a developing country, the
DSB needs to take into consideration not only the trade coverage of the challenged measures,
but also their impact on the economy of the developing country concerned. Furthermore
Article 27.2 requires the WTO Secretariat to make available legal expertise assistance
fromThe WTO technical cooperation services to any developing member upon its request.

22

And Article 24.1 calls for due restraint in bringing disputes against a least-developed country
(LDC) and in asking for compensation or seeking authorization to suspend obligations
against a LDC that has lost a dispute.

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Obstacles For Developing Countries

Moons research shows that under the new DSM of the
WTO, developing countries now are much more frequently taken to court by developed
countries, as the percentage of developed countries as complaints and developing countries
as defendants increased considerably from 9.5% under the GATT system to 28.1% under the
WTO mechanism.23 Reinhardt and Busch find out that developing countries are one third
less likely to file complaints against developed states under the WTO than they were under
the post-1989 GATT regime.
Following are the obstacles faced by the developing countries:
A.
B.
C.
D.
E.

High Costs and Limited Resource Availability

Limited Legal Resource
Inadequate Compensation
Lack of Enforcement Capability
The DSU Provisions Inequality behind the Articles

The same are explained bellowed in detail;

High Costs and Limited Resource Availability

24

First, the costs of access of the DSM are very high. And compared with
developed states, developing countries actually have fewer resources to invest to defend their
WTO rights. It is usually a long process for the WTO to settle a trade dispute through the
DSM.Except for the litigation costs, countries initiating disputes in the DSM
face income losses from hindered trade during the dispute investigation period.
For developing countries, especially those highly relying on their limited exports for national
incomes, these potential income and market losses may be more unbearable than the litigation
bills.

Limited Legal Resources

Except for financial investments, legal resources, especially the legal
expertise, are also essential for WTO dispute settlement. Actually, the shortage of special
expertise, personnel and information for legal activities is an important reason why
developing countries are suffering inequality and unfavorable outcomes in the DSM.
Industrialized states such as the US and the EU, also the major players in the WTO, are
well equipped with legal experts in the area of the WTO legal system, and they have a
worldwide network of commercial and diplomatic representation that feeds their systems
with relevant data.In contrast, developing countries have limited legal expertise and it is
harder for them to collect data and information because of the lack of networks. Many
developing countries have only one or two lawyers to address WTO issues.

Inadequate Compensation
25

The WTO retaliation mechanism prescribes that complaints cannot unilaterallytake retaliatory
actions unless the DSB makes decisions and permits them to, which means that the defendant
side is able to violate the WTO laws and hurt the other sides interests during the
long time-period, until the WTO recognizes and decides to take action to correct the
violations. With economic strength, developed countries
can relatively easily affect developing economies even just in a short time. Thus it is possible
that before the DSB authorize them to impose trade sanctions, the developing countries
domestic markets and internal economic capabilities have already been badly harmed. Fort
hose small developing states, this situation may be even worse.Even if a developing country
as complaint wins in a dispute, the compensation methods under the DSM are limited.Usually
it comes out in the forms that the losing defendant withdraws the measures
found inconsistent with WTO law, or the winning complaint gets authorization from the DSB
to impose limited trade sanctions. Under the current retaliation-as-compensation approach,
there is no room for retroactive compensation or punishment measures that can help
developing countries make up for its previous economic losses that have been already caused
before the decision is made.Even if the defendant side corrects its action after the dispute, the
complaint still has to assume the economic losses generated before the correction. For
developing countries particularly, while their economies are generally weak and vulnerable to
outside impact, such burden may be too heavy for them to bear.

Lack of Enforcement Capability

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It is also arguable whether developing countries possess adequate enforcement

capability to fully implement the WTO rulings or recommendations even if the results are
favorable to them. Under the DSM, the final dispute settlement decisions are supposed to be
implemented on a decentralized, bilateral basis. The DSM relies entirely on state power for
enforcement of its rulings. It may be hard for a developing country to raise tariff rates on
certain products imported from a developed country, even if it is authorized to, since this
action may hurt itself in turn at the end. With a relatively weak economy, a developing
country may depend on certain imports from developed countries for development; if the
products included in the retaliation are actually essential for its own growth, it can hardly be
expected that the developing country will really deter or limit the imports. But Lack of
Enforcement Capability
It is also arguable whether developing countries possess adequate enforcement capability to
fully implement the WTO rulings or recommendations even if the results are favourable to
them. Under the DSM, the final dispute settlement decisions are supposed to be implemented
on a decentralized, bilateral basis. The DSM relies entirely on state power for enforcement of
its rulings. It may be hard for a developing country to raise tariff rates on certain products
imported from a developed country, even if it is authorized to, since this action may hurt itself
in turn at the end. With a relatively weak economy, a developing country may depend on
certain imports from developed countries for development; if the products included in the
retaliation are actually essential for its own growth, it can hardly be expected that the
developing country will really deter or limit the imports. But considering the other side since
most developing countries markets and economic power are relatively small and weak,
whether or not they take retaliatory actions to developed countries products does not bring
much difference to the developed economies, unless they retaliate in alliance, which does not
usually happen. Thus, while the retaliatory actions taken by developing countries to

27

developed states cannot bring much danger or worries to the latter but may incur negative
consequences to the users themselves, developing countries actually do not possess real
equality with developed countries because of the asymmetry of enforcement capabilities.

The DSU Provisions Inequality behind the Articles

The WTO expanded its coverage to areas such as investment
(Agreements on Trade- Related Aspect of Investment Measures, TRIMs), intellectual
property rights protection (Agreements on Trade-Related Aspect of Intellectual Property
Rights, TRIPs), service trade (General Agreements on Trade in Services, GATS), etc. Because
of these agreements, disputes in these areas now can be brought into the DSM.
While most of the agreements reflect developed countries interests, developing countries are
actually in an unequal position.On the other hand, analyzing the special DSU provisions
which aim at improving developing countries status, it is found that they are more
declarative than operative.
For instance, the Article 4.10 requires that special attention should be
paid to the particular problems and interests of developing countries during consultation
phase. But this article does not point out concretely on what specific aspects and to what
extent the special attention should be paid. Since there is no specific implementation
measure, in practice it is hard to evaluate whether member countries have really
and adequately complied with this provision. And Article 21.2 has the similar problem.
Furthermore, several other provisions regarding special and differential treatment may be
difficult to apply, though they seem to be favorable to developing countries. For example,
Article 21.7 states that the DSB must consider what further and appropriate action it might
take in addition to surveillance and status reports, if a developing country has raised matter

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Why Participation in WTO Dispute Settlement Matters:

Participation in the WTO dispute settlement system matters in four primary respects. First, it
matters in specific adjudication to the extent that WTO legal decisions affect specific
economic outcomes, as they have done. Busch and Reinhardt show how around two-thirds of
complaints ending prior to a ruling (whether before or after the establishment of a panel),
exhibited full or partial concessions by the defendant.
Chad Bown maintains, from statistical regressions, that these concessions have mattered
economically. Three years after the date of adoption of a WTO judicial decision in favour of
the complainant, imports of the complainants affected goods have increased substantially
into the respondent member.
In other words, WTO dispute settlement has tangible effects by providing greater market
access for individual industries. Member governments implicitly make commitments of
greater market access to these industries in return for their political support during the
negotiation and ratification of trade agreements. Second, and conversely, the failure to
participate in WTO dispute settlement can have terms-of-trade effects that adversely affect
the overall social welfare of a country. If an importing country raises a trade barrier and that
country exercises market power so that foreign exporters must lower their prices in order to
sell in its market, then the exporting countrys terms of trade are prejudiced. That is, the
exporting country will need to sell a greater amount of its products (at the lower price) in
order to obtain the same amount of imports. The removal or curtailment of the trade barrier
following a successful WTO complaint can thus improvea countrys terms of trade and
overall social welfare because its exporters will no longer need to reduce their prices to
overcome the foreign market access barrier.

29

As Bagwell and Stagier state, the terms-of-trade consequences of trade-policy choices can
be expressed equivalently in the language of market access, and so the terms-of trade
consequences and the market-access implications of trade-policy choices are different ways
of expressing the same thing.
Whereas the first reason for participation focuses on the market access benefits to an
individual industry, this second reason
focuses on the welfare of a country as a whole on account of terms-of-trade effects. Third,
systemically, participation matters where WTO jurisprudence shapes the interpretation,
application, and social perceptions of the law over time, and thus affects future bargaining
positions in light of these understandings. Just as in domestic law, the outcome of an
individual WTO case has not only a tangible component, but also a broader systemic one.
The tangible component is that a measure is found either to violate or comply with a legal
obligation, and if it is in violation, give rise to a remedy, both benefiting the exporter and
(potentially) a countrys terms of trade. The systemic component affects the understanding of
the laws application in subsequent cases. In short, participation affects the choice of framing
of cases, which affects judicial interpretation, which affects what the law means overtime. As
an interviewed developing country delegate states, what they [panels] do is fill in the gaps of
trade agreements... what they do is to finish the job negotiators did not perform.
perhaps as part of an intentional compromise, when they failed to define a provision with
much precision, leaving its meaning to be resolved in the future.

Those who participate in WTO cases help to define that meaning through the case.
This systemic component leads to the most important fourth, and related, point. WTO law can
affect domestic and bilateral political bargaining in the shadow of a potential case without
any formal complaint being filed.

30

Domestically, the WTO legal system gives governments leverage over economic sectors that
demand protection. Governments can now argue that such protection is costly because it can
result in authorized trade retaliation.
Blonigen and Bown, for example, found statistical evidence that suggests that retaliation
threats substantially affect US
AD [antidumping] activity from1980 through 1998"
by both making it less likely [for private petitioners] to name a foreign import source in an
AD petition and by making government agencies less likely to rule positive in their AD
decision.
WTO law also provides strategic actors with arguments that they may deploy in domestic
political debates regarding regulatory initiatives.

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Why Most Developing Countries Do Not Participate

Developing countries, and in particular smaller developing countries, are less
likely to participate actively in WTO litigation because of the interaction of two structural
factors that affect the benefits and costs of their use of the legal system. On the benefit side,
their exports are of a smaller aggregate value and variety, so that they have lower aggregate
stakes in WTO complaints.In consequence, they would generally benefit less from a
successful claim.
The WTOs weak remedies could further reduce their incentives to initiate complaints.
On the cost side, developing countries have less domestic legal capacity into which they can
tap when needed. They canhire foreign legal counsel, but the law firms are expensive. These
two factors of costs and benefits interact. Simply stated, for most developing countries, the
prospective benefits from litigation are less likely to exceed the costs of litigation
Legal costs are relatively fixed for WTO complaints in comparison to trading stakes
that vary considerably among members. If the system is sufficiently complex to require a
developing country to hire a foreign outside law firmin order to litigate
effectively, the attorneys fees would likely cost at least US $400,000, and possibly much
more. In the case ChilePrice Band System and Safeguard Measures relating to Certain
Agricultural Products, the Association of Argentine Edible Oil Industries (known by its
Spanish acronymas CIARA) paid a law firm US $400,000 just to write the brief for
providing a first draft of the demand and being available for
specific consultations, even though this limited legal work was found to be less useful than
expected.Many claims, such as Brazils against U.S. cotton subsidies, have resulted in
significantly greater legal costs.

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In the cotton case, it is stated that Brazils cotton trade association faced legal fees of over US
$2,000,000.US and EC-based multinational firms are willing to pay much more. In the USEC Boeing-Airbus dispute, it is estimated that fees were
Running at $1,000,000 per month and could reach $20,000,000 for each company if the case
is not settled. Each company had hired a major US law firm to represent it so as to provide
the respective US and EC trade authorities with maximum assistance to defend their
commercial interests
At first glance, it would appear that internal legal costs should be the same for
all WTO members, rich and poor. However, the internal costs of bringing an individual case
can actually be higher for a developing country, unless legal assistance is subsidized. Since
developing countries export a narrower array and smaller value of exports, they are less likely
to have experience in WTO litigation. They are less likely, in sociolegal terms, to be repeat
players. Because they do not litigate multiple cases, as do larger countries, they do not
benefit from economies of scale when mobilizing resources for a single case. As a result,
legal costs in a single case should be higher for a developing country, unless it receives
subsidized assistance. In addition, a poor country, whose population may make less than $2 a
day must consider the greater opportunity costs confronting
it on account of its scarce resources. Instead of expending money on outside US or European
legal counsel, it could focus on other development and social concerns.

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Structural Disadvantages under Current Remedy Rules.

Most developing countries face an additional major challenge to those of WTO procedures
and lengthy, factually-contextualized
Jurisprudence if they are to effectively use the WTO dispute settlement system that of the
WTOs rules on remedies. As trade law scholar Robert Hudec wrote, Larger and more
powerful countriesthose accustomed to living by rules slanted in their favorare likely to
aim for a some what less balanced result. For them, the optimal remedy package will be one
that works well against others but not so well against themselves. This tendency also has to
be considered in explaining why WTO remedies are as they are.

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There are three properties of WTO remedies that reduce the

incentives for bringing a WTO complaint and which arguably
affect developing countries to a greater extent.
First, WTO panels word their rulings as general recommendations, without
dictating or providing much guidance as to how to comply the ruling. To the extent that
rulings are relatively ambiguous, they more likely benefit those members with greater
bargaining leverage in the negotiations that always follow a legal decision.
The prospect of an ambiguous ruling likewise raises the threshold for justifying a complaints
initiation in the first place. Where an ambiguous ruling provides a defendant with more
discretion to shape compliance so as to retain a protectionist effect, the benefits of bringing
the complaint are reduced. Complainants with smaller aggregate trading stakes are again
more adversely affected because the threshold of costs is more likely to exceed the reduced
benefits in cases of similar per capita importance to their economies.
Second, the primary mechanismfor a WTO rulings enforcement is retaliation by the
complainant, a remedy that relies on market power. Large developed countries can more
effectively press smaller countries to comply with WTO rules and rulings because access to
their large markets is essential to developing country exporters. Smaller countries wield no
such clout.
Chad Bowns statistical regressions indeed suggest that the successful economic resolution
to disputes is influenced by the concern for retaliation, which large developed countries are
best able to wield.
In sum, although the WTO legal system characterized by procedural legalism, for
enforcement, it retains a power-oriented bottomline

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Third, the current system can create incentives for defendants to drag out a legal case
because WTO remedies appear to be only prospective.
That is, remedies appear to cover only losses commencing as of the date of expiration of the
period for compliance with an adopted report, and not as of the date of violation (or
alternatively, the date of the filing of a complaint or of the formation of a panel). Although a
few GATT decisions and one WTO ruling recommended a retrospective remedy, no
retrospective award has ever been collected in the fifty-seven year history of the GATT and
WTO. As a result, defendants can successfully close their markets without incurring any
consequence for years. A U.S. lawyer for the U.S. lumber industry nicely encapsulated U.S.
industrys legal strategy when he made the following observation regarding Canadas
challenge to U.S countervailing duties on Canadian lumber: Do you want to litigate for
many years, or do you want to get back to the lumber business?This strategy again raises the
threshold for litigation to be worthwhile, which again adversely affects those with lower
trading stakes, the WTOs smaller and poorer members. The effects of the incentive to drag
out litigation have been particularly noted in the use of safeguards. Even though a country
may lose a safeguards case, it is able to close its market from imports for almost three years
without any consequence. Effectiveness should be measured in terms of the laws impact on
party behaviour, not in terms of formal legal victories. To truly
judge whether these cases were successful, one should ask whether the cases changed the
defendants behaviour toward the use of safeguards, at least against the complaining country.
In domestic legal systems, the creation of rights often precedes the creation of remedies.
In the WTO context, there may be persuasive reasons to limit remedies, such as the hope of
facilitating political settlement of inter-state disputes.

36

Yet a continuing gap between rights and remedies can lead to frustration, especially for
smaller members,there by discouraging countries fromparticipating in the legal system. The
gap also reduces the incentives for exporters to help to finance the costs of WTO litigation to
facilitate their countrys participation. Because thesecountries participate less, they have less
knowledge of the law and are less able to shape it over time. Perhaps most importantly, their
relative lack of legal knowledge and their relative lack of strategic influence over the laws
interpretation adversely affect their ability to bargain in the laws shadow.
.

CONCLUSION
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The DSM of the WTO is a multilateral rule-oriented mechanism. Although many problems
still exist, with its recently acknowledged special concern about developing countries
particular needs and interests, it has brought about many positive and favorable changes to
developing member countries status. From the perspective of equality, weaker states now
possess a relatively better environment and more power to defend their WTO interests
through this new dispute settlement system.However, developing countries still do not enjoy
a really neutral playing field where they can really trade equitably and efficiently with
developed states. Though the DSU provisions are not biased literally, developing countries
are not able to fully take advantage of the DSM in practice, even if certain provisions are
supposed to favour them in principle. The analysis of the experiences of developing nations
throughout the evolution of the dispute settlement procedure demonstrates the particular
challenges developing nations have faced under the GATT procedure and then under the
WTO DSM. Since the large increase in their GATT membership in the 1960s,developing
nations have supported a strong dispute settlement procedure to ensure a better level of
compliance by all nations. Their participation in the dispute settlement process has gradually
changed from fairly insurmountable difficulties in bringing claims and enforcing rulings
(through lack of economic and political influence) to a situation where confidence in the
renovated system is apparent through increased use and reliance on a structure of legal and
procedural disciplines ensuring a degree of certainty.Since they do not have adequate
financial and legal expertise resources, they can hardly bear the high costs of settling disputes
through the DSM. Because of the unevenness of political power between developed states
and developing countries, the latter group is in a disadvantageous position in the DSM given
the political pressures they may suffer outside the WTO. The developing countries lower
status is also due to their inadequate capability to enforce the dispute settlement results, even
38

if the outcomes are favourable to them. Furthermore, the real practical effects of the DSU
provisions regarding developing countries also need further examination. Thus, in the
practice of the DSM, developing countries are not enjoying a really equal status as developed
states do. In sum, it can be said that the goal of developing countries in the evolution of the
dispute settlement is no different from that of the developed nations: a better level of
compliance with obligations. Still there remains much to be done. Perhaps the greatest
challenge now facing the WTO is the further integration of developing countries into the
multilateral trading system. With the erosion of tariffs and the greater use of non-tariff
barriers to trade product standards, investment requirements, environmental and social
standards, and competition policiesthere will be a need to ensure that countries interests
can be pursued and protected.US experience demonstrates how vital the dispute settlement
system is for opening up markets and warding off protectionist measures.
Developing countries will need to be prepared to face the coming challenges, from an
institutional and substantive standpoint. Several of them are already well placed to improve
their ability to meet these challenges directly. The WTO may need to work closely with other
agencies in the international community to provide the necessary support to those who cannot
by themselves acquire specialist legal or other technical services. Useful initiatives and
proposals in this regard are already underway. All WTO members should lend their support to
such endeavours. Tighter time limits must be included so as provide relief faster. There
should be provided more effective remedies, so as to improve prompt implementation. A
permanent panel body should be constituted which could allow significant time savings.
There is a need for increased transparency, expanded third party rights and remand power for
the Appellate Body

Bibliography
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Websites:

www.google.co.in/
www.wto.org
www.wikipedia.org
https://www.fas.org
faculty.georgetown.edu
internationalecon.com/

Book
SPIL International Law Journal

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