The WTO Dispute SettlementThe WTO Dispute Settlement

Dr. Valentina VadiDr. Valentina Vadi

Maastricht UniversityMaastricht University

University of Rome IIIUniversity of Rome III

22 November 201222 November 2012

SynopsisSynopsis

From the GATT years to the WTO DSFrom the GATT years to the WTO DS Characteristics of the WTO DSCharacteristics of the WTO DS Principles of WTO DSPrinciples of WTO DS InstitutionsInstitutions ProceedingsProceedings The Challenges AheadThe Challenges Ahead

From the GATT to the WTOFrom the GATT to the WTO

GATT (1947-1995)GATT (1947-1995)=political, consensus, power-=political, consensus, power-based system of dispute settlement, based system of dispute settlement,

Art. XXII and XXIII GATT 1947Art. XXII and XXIII GATT 1947

WTOWTO rule-based architecturerule-based architecture final and legally enforceable decisions.final and legally enforceable decisions. Quasi-judicial = shift in legal philosophy, closer to Quasi-judicial = shift in legal philosophy, closer to

the characteristics of ordinary systems of the characteristics of ordinary systems of litigation litigation

Dispute Settlement in the GATT Dispute Settlement in the GATT 19471947

Diplomatic ConsultationsDiplomatic Consultations

After 1955, Panels of neutral GATT experts After 1955, Panels of neutral GATT experts recommendations recommendations adopted by the adopted by the Contracting Parties (GATT Council, after Contracting Parties (GATT Council, after 1960) by consensus1960) by consensus

Remedies: GATT Council makes Remedies: GATT Council makes recommendations to withdraw a measure recommendations to withdraw a measure (restoration); may authorize suspension of (restoration); may authorize suspension of concessions. Retaliation is disfavoured, no concessions. Retaliation is disfavoured, no punishment or damagespunishment or damages

Critical AssessmentCritical Assessment

SuccessfulSuccessful Decisions implemented and observedDecisions implemented and observed

ShortcomingsShortcomings::- Delays in the process- Delays in the process- Blocking of the adoption of panel - Blocking of the adoption of panel

reportsreports- Delays in implementation- Delays in implementation

The WTO Dispute Settlement The WTO Dispute Settlement MechanismMechanism

Continuation of the GATT regimeContinuation of the GATT regime- Multilateral procedures rather than unilateral - Multilateral procedures rather than unilateral

action (E.g. Section 301 of the US Trade Act 1974)action (E.g. Section 301 of the US Trade Act 1974)

A Court of International Trade?A Court of International Trade? - compulsory jurisdiction- compulsory jurisdiction - short timeframes (9 months panels; 90 days AB)- short timeframes (9 months panels; 90 days AB) - no backlog- no backlog - rules of law- rules of law - binding decisions- binding decisions - sanctions may be imposed- sanctions may be imposed - Appellate Body- Appellate Body

Nature of DisputesNature of Disputes

Disputes on technical trade issuesDisputes on technical trade issues

Zeroing Methodology (Complainant: European Communities)Zeroing Methodology (Complainant: European Communities) Disputes on politically sensitive issues:Disputes on politically sensitive issues:

1) 1) Trade & environmentTrade & environment

China — Measures concerning wind power equipmentChina — Measures concerning wind power equipment

China — Raw MaterialsChina — Raw Materials

US – Shrimp/turtles caseUS – Shrimp/turtles case

2) 2) Trade & Public healthTrade & Public health

European Union and a Member State — Seizure of Generic European Union and a Member State — Seizure of Generic Drugs in Transit (Complainant: Brazil)Drugs in Transit (Complainant: Brazil)

Brazil – Retreaded TyresBrazil – Retreaded Tyres

EC – Hormones; EC – AsbestosEC – Hormones; EC – Asbestos

3)3) Trade and Public MoralsTrade and Public Morals

US – GamblingUS – Gambling

Object and PurposeObject and Purpose Securing prompt settlement to a disputeSecuring prompt settlement to a dispute

- Mutually acceptable- Mutually acceptable preserving rights & obligationspreserving rights & obligations Security & predictabilitySecurity & predictability Clarification in accordance with customary rules Clarification in accordance with customary rules

of interpretation of public international lawof interpretation of public international law It cannot add or diminish rights and obligationsIt cannot add or diminish rights and obligations!!!!!!

No judicial activismNo judicial activism Genuine intention to see the dispute resolved.Genuine intention to see the dispute resolved.

something more than mere violation of substantive something more than mere violation of substantive provision = failure to act in provision = failure to act in good faithgood faith

Methods of Dispute Methods of Dispute SettlementSettlement

Consultations/negotiationConsultations/negotiation (Art. 4 DSU) (Art. 4 DSU) Good offices, mediation and conciliationGood offices, mediation and conciliation (Art. (Art.

5 DSU)5 DSU) - 25% of the disputes are settled!- 25% of the disputes are settled! AdjudicationAdjudication (Art. 6 – 19 DSU) (Art. 6 – 19 DSU) - Repeated players: US, EU (US is also the most - Repeated players: US, EU (US is also the most

active respondent!)active respondent!)

Arbitration Arbitration (Art. 25 DSU) as an alternative; only (Art. 25 DSU) as an alternative; only one case so far.one case so far.

Steps in Dispute SettlementSteps in Dispute Settlement

1)1) consultation (Article 4)consultation (Article 4)

2)2) Panel proceedings (Art. 6-16)Panel proceedings (Art. 6-16)

3)3) Appellate review proceedingsAppellate review proceedings

4)4) Implementation and enforcementImplementation and enforcement

JurisdictionJurisdiction Disputes arising out of any of the WTODisputes arising out of any of the WTO ’covered agreements’ Annex I-Some agreements include special or additional

rules which prevail in case of conflict with DSU rules. (complementary; if conflict=lex specialis)

-Customary rules of treaty interpretation- Vienna Convention on the Law of Treaties

compulsory jurisdiction exclusive jurisdiction vis-à-vis other int’l for a

or unilateral conduct Only contentious jurisdiction (no abstract

ruling on hypothetical future measures)

AccessAccess

Government-to-governmentGovernment-to-government Members of the WTO can be parties or Members of the WTO can be parties or

third parties to a disputethird parties to a dispute NONO Non-Members, IOs, NGOs, Non-Members, IOs, NGOs,

companies or individualscompanies or individuals BUT: indirect access for private parties, BUT: indirect access for private parties,

lobbying, ‘behind the scenes’ rolelobbying, ‘behind the scenes’ role- US: section 301 (1974) Trade ActUS: section 301 (1974) Trade Act- EC Trade Barriers regulationEC Trade Barriers regulation- Chinese LawChinese Law

Amicus Curiae BriefsAmicus Curiae Briefs Persons that are not parties to the disputesPersons that are not parties to the disputes No right to be heard, no right to have the brief No right to be heard, no right to have the brief

consideredconsidered Shrimp/TurtleShrimp/Turtle panel panel no amicus curiae; AB no amicus curiae; AB

panels have the power to seek information from any panels have the power to seek information from any individual or body;individual or body;

Discretion of the AB or PanelsDiscretion of the AB or Panels EC Asbestos ABEC Asbestos AB additional procedure setting additional procedure setting

requirements for admissionrequirements for admission no amicus was no amicus was acceptedaccepted

Developing countries’ Criticism: WTO = ContractDeveloping countries’ Criticism: WTO = Contract- NGOs are unfriendly; NGOs are unfriendly; - Fair prompt and effective resolution of trade disputesFair prompt and effective resolution of trade disputes- Undue burden on other participants (lack of legal Undue burden on other participants (lack of legal

resources)resources) WTO member can also file amicus curiae briefs.WTO member can also file amicus curiae briefs.

Causes of ActionCauses of Action

When do Members have access?When do Members have access?1) Violation complaints (presumption that 1) Violation complaints (presumption that

the benefits are impaired or nullified- the benefits are impaired or nullified- doubtful whether it may rebutted) most doubtful whether it may rebutted) most common type of complaintcommon type of complaint

2) Nullification or impairment of benefits 2) Nullification or impairment of benefits (the aggrieved party needs to show (the aggrieved party needs to show impairment of benefits) none successful impairment of benefits) none successful so farso far

3) Situation complaints. No cases.3) Situation complaints. No cases.

Standing to Bring ClaimsStanding to Bring Claims EC-BananasEC-Bananas EC questions the EC questions the legal interestlegal interest of the US to bring a of the US to bring a

dispute about bananas because US bananas dispute about bananas because US bananas production is minimal; no export of bananasproduction is minimal; no export of bananas

AB: Members have broad discretion in deciding AB: Members have broad discretion in deciding whether to bring a casewhether to bring a case

- Actio popularis Actio popularis

Third parties: a) Opportunity to be heardb) No right of appealc) Original complaints => Parties

Number of DisputesNumber of Disputes

29

35

50

41

3034

23

37

26

19

12

20

13

1914

17

5

05

101520253035404550

1995 1997 1999 2001 2003 2005 2007 2009 2011

424 disputes as of 20 April 2011

89%

11%

At least one violationNo violation

Success RateSuccess Rate

This disparity transcends case type, country identity, income level and other litigant-specific characteristics.

Atypical Measures Atypical Measures subject to WTO DSMsubject to WTO DSM

1) Private actions attributable to a government (Korea 1) Private actions attributable to a government (Korea beef) case by case assessmentbeef) case by case assessment

2) Measures no longer in force can be the subject of 2) Measures no longer in force can be the subject of examination if they currently affect the operation of a examination if they currently affect the operation of a covered agreement.covered agreement.

3) Legislation as such: only legislation that mandates a 3) Legislation as such: only legislation that mandates a violation of GATT obligations can be found in violation of violation of GATT obligations can be found in violation of these obligations.these obligations.

-GATT panels: legislation which gives discretion to -GATT panels: legislation which gives discretion to executive authorities to act inconsistently with GATT executive authorities to act inconsistently with GATT cannot be challenged (only the application inconsistent cannot be challenged (only the application inconsistent with GATT of such discretionary measures can be with GATT of such discretionary measures can be challenged).challenged).

-WTO panel: legislation with discretion can violate WTO law -WTO panel: legislation with discretion can violate WTO law too, as it ‘constitute an ongoing threat and can produce too, as it ‘constitute an ongoing threat and can produce a chilling effect’ on the individual economic operators a chilling effect’ on the individual economic operators and WTO Membersand WTO Members

Rules of InterpretationRules of Interpretation 3.2 DSU = goal of the DSS is to clarify provisions

in accordance with customary rules of treaty interpretation

Article 31 and 32 of the Vienna Convention Law of Treaties (VCLT)= customary international law

Textual, systemic and teleological interpretation= Textual, systemic and teleological interpretation= one holistic rule of interpretation rather than a one holistic rule of interpretation rather than a sequence of separate tests to be applied in a sequence of separate tests to be applied in a hierarchical order.hierarchical order.

Principle of effectiveness (Principle of effectiveness (ut res magis valeat quam ut res magis valeat quam pereatpereat))

Article 31(3) (c) =WTO law is not to be read in Article 31(3) (c) =WTO law is not to be read in clinical isolation from public international law clinical isolation from public international law

- Evolutionary interpretation- Evolutionary interpretation - only those rules of international law applicable in - only those rules of international law applicable in

the relations between all WTO members ( EC the relations between all WTO members ( EC biotech- award criticized)biotech- award criticized)

Rules of InterpretationRules of Interpretation Article 31 VCLT: General rule of interpretation1. A treaty shall be interpreted in good faith in

accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

2. The context for the purpose of the interpretation of a treaty shall comprise…its preamble and annexes…

3. There shall be taken into account, together with the context: […] (c) any relevant rules of international law applicable in the relations between the parties. […]

Article 32 VCLTArticle 32 VCLT supplementary means of supplementary means of interpretationinterpretation (preparatory works- historical (preparatory works- historical background- negotiating history) if the interpretation background- negotiating history) if the interpretation according to Article 31 leaves the meaning obscure or according to Article 31 leaves the meaning obscure or leads to absurd results.leads to absurd results.

Burden of ProofBurden of Proof The party who asserts a fact bears the burden of proof The party who asserts a fact bears the burden of proof

(needs to provide proof).(needs to provide proof).- Sufficient evidence is produced= the burden shifts to - Sufficient evidence is produced= the burden shifts to

the other party. the other party. Actori incumbit probatioActori incumbit probatio = the burden of proof is on = the burden of proof is on

the complaining party to establish a the complaining party to establish a prima facie caseprima facie case of inconsistency with WTO lawof inconsistency with WTO law

- prima facie case = evidence and legal argument- prima facie case = evidence and legal argument - rebuttal - rebuttal - the panel balances all evidence on record; not bound - the panel balances all evidence on record; not bound

by the arguments of the parties- by the arguments of the parties- Jura novit curiaJura novit curia -if uncertainty remains -if uncertainty remains benefit of doubt to the benefit of doubt to the

defending partydefending party

Legal responsibility of the defendant to raise a defenceLegal responsibility of the defendant to raise a defence

The WTO DSM: InstitutionsThe WTO DSM: Institutions

Dispute Settlement Body (political body)Dispute Settlement Body (political body)- Establishes panels; appoints Members of ABEstablishes panels; appoints Members of AB- Adopts panel and AB reportsAdopts panel and AB reports- Supervises the implementationSupervises the implementation- Authorizes sanctionsAuthorizes sanctions Panels Panels (3 or 5 persons) (quasi-judicial)- Well qualified individuals- Selected from a roster of persons suggested by

Members- Serve in their individual capacities (independence) Appellate Body Appellate Body (7 persons -4 years mandate)(7 persons -4 years mandate)- Reviews panel rulingsReviews panel rulings- Standing institutionStanding institution- Demonstrated expertise in int’l trade lawDemonstrated expertise in int’l trade law- Not affiliated with any governmentNot affiliated with any government

Legal EffectLegal Effect Reports are binding on the parties to the Reports are binding on the parties to the

dispute once the DSB adopts them.dispute once the DSB adopts them.- No legal effect on No legal effect on otherother WTO members WTO members- No precedents!No precedents!- Article 3.2 DSU "[r]ecommendations and Article 3.2 DSU "[r]ecommendations and

rulings of the DSB rulings of the DSB cannot add to or diminish cannot add to or diminish the rights and obligations provided in covered the rights and obligations provided in covered agreementsagreements".".

- Ministerial Conference and General Council Ministerial Conference and General Council have the exclusive authority to adopt have the exclusive authority to adopt interpretations of the covered agreements (IX interpretations of the covered agreements (IX WTO Agreement) WTO Agreement)

85%

15%

Compliance withinRPoTNo compliance withinRPoT

Compliance with Compliance with Recommendations and RulingsRecommendations and Rulings

RemediesRemedies

1)1) Withdrawal of the WTO-inconsistent Withdrawal of the WTO-inconsistent measuremeasure

2)2) CompensationCompensation

3)3) Retaliation (suspension of Retaliation (suspension of concessions)concessions)

WithdrawalWithdrawal (immediate) withdrawal of the WTO-inconsistent (immediate) withdrawal of the WTO-inconsistent

measure= obligation to cease the illegal measure= obligation to cease the illegal conductconduct

If this impracticable If this impracticable reasonable period of time reasonable period of time for implementation (no > 15 months) for implementation (no > 15 months) (Art. 21)(Art. 21)

- A period set by the DSB after proposal by the A period set by the DSB after proposal by the Member concerned;Member concerned;

- A period agreed by the partiesA period agreed by the parties- A period determined through arbitrationA period determined through arbitration The domestic or political situation in the Member The domestic or political situation in the Member

concerned is of no relevance in determining the concerned is of no relevance in determining the reasonable period of time;reasonable period of time;

Particular attention should be paid to matters Particular attention should be paid to matters affecting DCsaffecting DCs

Sequencing ProblemSequencing Problem Sequencing problemSequencing problem: lack of guidance over what a losing : lack of guidance over what a losing

party must do to comply.party must do to comply.1)1) Loosing party takes minimal steps and declare itself in full Loosing party takes minimal steps and declare itself in full

compliance;compliance;2)2) The winning party disagrees! The winning party disagrees!

EC BananasEC Bananas1) compliance panel under art. 211) compliance panel under art. 21 Revised banana regulations violated the GATT and the Revised banana regulations violated the GATT and the

GATSGATS2) Arbitral panel under art. 222) Arbitral panel under art. 22Set the amount of compensation due to continued nullification Set the amount of compensation due to continued nullification

or impairment of trade benefitsor impairment of trade benefits

Confusion, amendment would be better (Shoenbaum, Confusion, amendment would be better (Shoenbaum, Palmeter and Mavroidis)Palmeter and Mavroidis)

CompensationCompensation Failure to comply with recommendations and rulings Failure to comply with recommendations and rulings

of the DSB within a reasonable period of timeof the DSB within a reasonable period of time

C o m p e n s a t i o n C o m p e n s a t i o n Temporary, until implementation takes placeTemporary, until implementation takes placeAdditional trade concessions by the losing party in Additional trade concessions by the losing party in

related trade areasrelated trade areasForward looking (only damages that will be suffered in Forward looking (only damages that will be suffered in

the future)the future)Voluntary (parties have to agree)Voluntary (parties have to agree)

Option to buy out treaty obligations?Option to buy out treaty obligations?

RetaliationRetaliation

If no satisfactory compensation is agreed,If no satisfactory compensation is agreed,

Any Party having invoked the dispute Any Party having invoked the dispute settlement procedure May request settlement procedure May request authorization from the DSB to retaliate;authorization from the DSB to retaliate;

-no need for the parties to agree-no need for the parties to agree-trade destructive, poisons int’l relations, -trade destructive, poisons int’l relations,

inadequate to offset the lossesinadequate to offset the losses-not a genuine option for developing -not a genuine option for developing

countriescountriesBut seeBut see Gambling case Antigua Barbuda v US Gambling case Antigua Barbuda v US

Retaliation

ParallelSame sector

Cross-sectorDifferent sectors Same agreements

Cross-Agreement

Suspension of Suspension of concessions, concessions, equivalent toequivalent to the the nullification or nullification or impairment of impairment of benefitsbenefits

Authorized Authorized and and monitored monitored by the DSBby the DSB

TowardsTowards Stare Decisis Stare Decisis??

- Evidence of treaty practiceEvidence of treaty practice- Persuasive or ‘informal’ precedents: they Persuasive or ‘informal’ precedents: they

create ‘legitimate expectations’ among create ‘legitimate expectations’ among parties (US-Japan Alcoholic Beverages, US parties (US-Japan Alcoholic Beverages, US Shrimp Turtle)Shrimp Turtle)

- Systemic considerationsSystemic considerations- binding precedent binding precedent common law common law

jurisdictions, but civil law jurisdictions jurisdictions, but civil law jurisdictions comprise the majority of WTO memberscomprise the majority of WTO members

- Zeroing casesZeroing cases: acts of rebellion or : acts of rebellion or declarations of independence?declarations of independence?

Critical AssessmentCritical Assessment

ProsPros Rule-oriented settlements v. power-oriented Rule-oriented settlements v. power-oriented

dispute settlementsdispute settlements Quasi-judicial modeQuasi-judicial mode Very successful mechanismVery successful mechanism ConsCons Making law instead of interpreting lawMaking law instead of interpreting law No mechanisms to correct AB’s mistakesNo mechanisms to correct AB’s mistakes(Matsushita Shoenbaum Mavroidis (Matsushita Shoenbaum Mavroidis peer review peer review

group)group) need to open the dispute settlement processneed to open the dispute settlement process