Chanderprabhu Jain College of Higher Studies

&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)

E-NOTES

Class : BBA LL.B VIII Semester

Paper Code : LLB 408

Subject : International Trade Law

Faculty Name : Ms. Shivali Rawat

UNIT-2

HISTORICAL BACKGROUND OF GATT 1947

Introduction:

The General Agreement on Tariffs and Trade (GATT), signed on October 30, 1947, by 23
countries, was a legal agreement minimizing barriers to international trade by eliminating or
reducing quotas, tariffs, and subsidies while preserving significant regulations.1 The GATT was
intended to boost economic recovery after World War II through reconstructing and liberalizing
global trade. The GATT went into effect on January 1, 1948.

Since that beginning it has been refined, eventually leading to the creation of the World Trade
Organization (WTO)on January 1, 1995, which absorbed and extended it.3 By this time 125
nations were signatories to its agreements, which covered about 90% of global trade.

The Council for Trade in Goods (Goods Council) is responsible for the GATT and consists of
representatives from all WTO member countries. As of September 2020, the chair of the Goods
Council is Swedish Ambassador Mikael Anzén.
The council has 10 committees that address subjects including market access, agriculture,
subsidies, and anti-dumping measures.

History of the General Agreement on Tariffs and Trade (GATT)

The GATT held eight rounds of meetings between April 1947 and December 1993. Each of the
conferences had significant achievements and outcomes.
The first meeting was in Geneva, Switzerland, and included 23 countries. The focus in this opening
conference was on tariffs. The members established tax concessions touching over US$10 billion
1
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
of trade around the globe.

The second series of meetings began in April 1949 and were held in Annecy, France. Again, tariffs
were the primary topic. Thirteen countries were at the second meeting, and they accomplished an
additional 5,000 tax concessions reducing tariffs.

Starting in September 1950 the third series of GATT meetings occurred in Torquay, England. This
time 38 countries were involved, and almost 9,000 tariff concessions passed, reducing tax levels by
as much as 25%.

Japan became involved in the GATT for the first time in 1956 at the fourth meeting along with 25
other countries. The meeting was in Geneva, Switzerland, and again the committee reduced
worldwide tariffs, this time by US$2.5 billion.

This series of meetings and reduced tariffs would continue, adding new GATT provisions in the
process. The average tariff rate fell from around 22%, when the GATT was first signed in
Geneva in 1947, to around 5% by the end of the Uruguay Round, concluded in 1993, which also
negotiated the creation of the WTO.

In 1964 the GATT began to work toward curbing predatory pricing policies. These policies are
known as dumping. As the years have passed, the countries have continued to attack global issues,
including addressing agriculture disputes and working to protect intellectual property.

Why Was the GATT Created?

The GATT was established in 1948 to regulate world trade. It was created to boost economic
recovery after the Second World War by reducing or eliminating trade tariffs, quotas and subsidies.
During the Great Depression, a breakdown of international relations and an increase in trade
regulation made poor economic conditions worse. These factors contributed to the outbreak of the
Second World War. After the war, the Allies believed that a multilateral framework for world trade
would loosen the protectionist policies that defined the 1930s. It would also create an economic
interdependency that would encourage partnership and reduce the risk of conflict. The idea was to
establish a code of conduct that would progressively liberalize (remove or loosen restrictions on)
international trade. Within this code of conduct, consultation on trade issues among member
nations could take place and be resolved. Data on world trade characteristics and trends could be
collected and shared.

GATT Negotiations

The GATT was first discussed at the United Nations Conference on Trade and Employment in
Havana, Cuba, in 1947. It was there that the idea of creating the International Trade Organization
(ITO) was proposed. (See also United Nations) It was hoped that the ITO would complement the
World Bank and the International Monetary Fund (IMF) in fostering international economic
2
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
cooperation. While more than 50 nations were negotiating ITO and organizing its founding charter,
preparatory sessions were held regarding GATT. Several sessions were held. Canada and 22 other
nations then signed the GATT on 30 October 1947 in Geneva, Switzerland. The agreement came
into effect on 1 January 1948.

The GATT was initially seen as a provisional agreement that would be superseded by the ITO.
After the United States backed away from the ITO in 1950, the focus shifted to the GATT. (See
also Globalization.) Regular trade negotiations were conducted and refined among member states
on a regular basis. Eight multilateral trade conferences (called rounds) were held between 1947 and
1994. (See also International Trade.) The GATT was established at the first round in 1947.
Subsequent rounds were held in Annecy, France (1949), and Torquay, England (1951). All other
rounds were held in Geneva in 1956; 1960–62 (Dillon Round); 1964–67 (Kennedy Round); 1973–
79 (Tokyo Round); and 1986–94 (Uruguay Round).

The objectives of GATT are as follows:

1. To encourage full employment and large and steadily growing volume of real income and
effective demand.

2. To improve the world production and exchange of goods.

3. To ensure the full use of world resources.

4. To ensure a steady improvement in the living standards of people in member countries.

5. To settle the disputes through consultation within the framework of GATT.

For the achievement of these objectives, the preamble of the GATT agreement requires the
members to enter into reciprocal and mutually advantageous arrangement directed to the,
substantial reduction of tariffs and other barriers to trade and elimination of discrimination
treatment in international commerce.

The Basic Principles of the Gatt

Most-Favored-Nation (MFN) Treatment:

This is the fundamental principle of the GATT and it is not a coincidence that it appears in Article-
1 of the GATT 1947. It states that each contracting party to the GATT is required to provide to all
other contracting parties the same conditions of trade as the most favourable terms it extends to any
one of them, i.e., each contracting party is required to treat all contracting parties in the same way
that it treats its “most-favoured nation”.

Reciprocity:
3
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)

GATT advocates the principles of “rights” and “obligations”. Each contracting party has a right,
e.g. access to markets of other trading partners on a MFN basis but also an obligation to reciprocate
with trade concessions on a MFN basis. In a way, this is closely associated with the MFN principle.

Transparency:

Fundamental to a transparent system of trade is the need to harmonize the system of import
protection, so that barriers on trade can be reduced through the process of negotiations. The GATT
therefore, limited the use of quotas, except in some specific sector such, as agriculture and
advocated import regimes that are based on “tariff-only”.

In addition, the GATT and now the WTO, required many notifications from contracting parties on
their agricultural and trade policies so that these can be examined by other parties to ensure that
they are GATT/WTO compatible.

Tariff Binding and Reduction:

When GATT was established, tariffs were the main form of trade protection and negotiations in the
early years focused primarily upon tariff binding and reduction. The text of the 1947, GATT lays
out the obligations on the contracting parties in this regard.

GATT trade rounds

Year Place/name Subjects covered Countries

1947 Geneva Tariffs 23

1949 Annecy Tariffs 13

1951 Torquay Tariffs 38

1956 Geneva Tariffs 26

1960- Geneva Tariffs 26

1961 Dillon
Round

1964- Geneva Tariffs and anti-dumping measures 62

1967 Kennedy
Round

4
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
1973- Geneva Tariffs, non-tariff measures, “framework” 102
1979 Tokyo agreements
Round

1986- Geneva Tariffs, non-tariff measures, rules, 123

1994 Uruguay services, intellectual property, dispute
Round settlement, textiles, agriculture, creation of
WTO, etc

URUGUAY ROUND AND MARRAKESH AGREEMENT

Uruguay Round
The Uruguay Round was the 8th round of Multilateral Trade Negotiations (MTN) conducted within
the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986 to
1994 and embracing 123 countries as "contracting parties".

The negotiations and process ended with the signing of the Final Act of the Marrakesh Agreement
in April 1994 at Marrakesh, Morocco.

The round led to the creation of the World Trade Organization (WTO), with GATT remaining as
an integral part of the WTO agreements.

The Uruguay Round was, without a doubt, the largest trade negotiation ever, and may very well
have been the largest negotiation ever. It set out rules and principles to cover all global trade, from
banking to consumer products.

The main achievements of the Uruguay Round included:

 A trade-weighted average tariff cut of 38%;

 Conclusion of the Agreement on Agriculture which brought agricultural trade for the first time
under full GATT disciplines;
 Adoption of the General Agreement of trade in Services (GATS);
 The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS);
 The Agreement on Trade-Related Investment Measures (TRIMS);
 The creation of unified and predictable dispute settlement mechanism (Dispute Settlement
Body-DSB);
 Confirmation f the trade Policy Review Mechanism (TPRM);
 The establishment of the WTO, which administers 15 multilateral, and four pluri-lateral trade
agreements;

5
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
 The Uruguay Round had extended considerably the realm of world trade rules with agreements
on intellectual property and trade in services in ex-change for finally tackling agricultural
protectionism on a broader scale and getting rid of the textile and clothing quotas.

The Marrakesh Agreement Of 1994

The Marrakesh Agreement of 1994 is the culmination of the GATT’s Uruguay Round that was
introduced in 1986 and led to the establishment of the World Trade Organisation (WTO). The
Marrakesh Declaration was signed by 123 nations on 15th April 1994 and WTO came into being
on 1st January 1995.

Marrakesh Agreement – On 15 April 1994, the deal was signed by ministers from most of the 123
participating governments at a meeting in Marrakesh, Morocco.

Marrakesh Agreement included among other provisions, commitments to reopen the negotiations
over agriculture and services. Hence, it was taken up in WTO’s Doha Round of Negotiations.

Along with the establishment of the WTO, the Marrakesh Declaration mentioned its functions and
scope. Marrakesh Agreement is called the following agreements were covered in the Marrakesh
Declaration.

 Multilateral Agreements on Trade in Goods

 General Agreement on Trade in Services and Annexes
 Agreement on Trade-Related Aspects of Intellectual Property Rights
 Plurilateral Trade Agreements
 Agreement on Agriculture
 Agreement on Sanitary and Phytosanitary measures
 Agreement on Textiles and Clothing
 Agreement on Technical Barriers to Trade
 Agreement on Trade-Related Investment Measures
 Agreement on Anti-Dumping
 Agreement on Customs Evaluation
 Agreement on Preshipment Inspection
 Agreement on Rules of Origin
 Agreement on Import Licensing Procedures
 Agreement on Subsidy and Countervailing Measures
 Agreement on Safeguards
 General Agreement on Trade in Services
 Agreement on Trade-Related Aspects of Intellectual Property Rights

Defects of GATT:

The major defects of GATT are as follows:

6
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)

1. No Enforcement Authority:

The GATT has attempted to prescribe an international code of conduct in the sphere of trade. But
there was no enforcement authority to oversee the compliance of GATT regulations by contracting
parties and to settle their trade disputes.

2. Problems in the Formulation of General Rules:

The members of GATT are much diversify in nature, they had varied in economic and political
motives and they were also at different stages of development. These reasons created difficulty in
framing and implementing uniform general rules of conduct concerning trade, tariffs and payment.

3. Less Benefits for the LDC’s:

The most of the members of GATT were in the category of the LDC’s. The GATT had provided
less benefit to these countries. At present, there are more restrictive trade arrangements in the
world. The Commodity-to-Commodity based approach has proved to be detrimental to the interests
of LDC’s.

This approach creates difficulty in their future planning of production and exports. The GATT also
not given any compensation to the less developed countries on account of damage to their
economies caused by the actions of developed countries.

4. Quantitative Trade Restrictions:

The GATT had certainly ensured the sealing down of tariff structure but the quantitative trade
restrictions remained for a long time outside the GATT ambit. Consequently, the developed
countries had used with impunity the quantitative trade restrictions such, as import quotas, export
subsidies, voluntary export restraints, health and safety regulation etc.

Even though the 1993, agreement of GATT disapproved the adoption of quantitative trade
restrictions and the substitution of tariffs in their place, it did not prohibit the contracting parties
from taking recourse to them.

GATT 1994

The Articles of the General Agreement on Tariffs & Trade (GATT) were originally agreed in 1947
(referred to as GATT 1947) and subsequently, with some revisions, in 1994 (referred to as GATT
1994) as part of the Uruguay Round negotiations that created the World Trade Organization
(WTO). The GATT Articles are only one component of the WTO Agreements that were
incorporated into the Marrakesh Declaration of 15 April 1994 which marked the conclusion of the
Uruguay Round. The remaining WTO Agreements are summarized briefly in Milner & Read,
Introduction: Trade Liberalization, Competition & the WTO, also on the reading list.
7
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
For the purpose of this exercise, any queries relating to the meaning, interpretation and application
of these Articles should, in the first instance, be referred to the Executive Director of the WTO
(John Mackness).

Article I: General Most-Favoured-Nation Treatment

This outlines the concept of Most-Favoured-Nation (MFN) treatment and states that trade
concessions granted to one Member are applied immediately and without conditions to all other
Members.

Article II: Schedules of Concessions

All trade concessions made by Members must be stated and incorporated into the legal agreement –
‘bound’ rates. No other Member may be treated less favourably than any ‘bound’ rate.

Article III: National Treatment on Internal Taxation & Regulation

Members may not use internal measures to discriminate between domestic goods and those
imported from Members; that is to say that imports from Members are accorded National
Treatment.

Article V: Freedom of Transit

Apart from standard customs procedures, no trade measures or other regulations to be applied by
Members to goods in transit between other Members.

Article VI: Anti-Dumping & Countervailing Duties

Members may apply duties and other measures can be applied to goods originating in other
Members which are dumped and/or enjoy export subsidies subject to specific conditions.

Article VII: Valuation for Customs Purposes

The fair valuation of imports from Members for customs purposes in determining any liability for
duties etc.

Article VIII: Fees & Formalities Connected with Importation & Exportation These should be a fair
reflection of cost and not be used as a means of protection. Article IX: Marks of Origin
These should be applied no less favourably to Members than third countries. They should be low
cost and not materially damage the goods. Members should also prevent their fraudulent use.
Article X: Publication & Administration of Trade Regulations

All trade measures of Members should be published and therefore transparent. Article XI: General
Elimination of Quantitative Restrictions
Trade restrictions should be in the form of duties, taxes and other charges whether effective
through quotas, import and export licences and other measures, ultimately requiring the
tariffication of all quantitative restrictions. All new trade measures to be in the form of tariffs.

Article XII: Restrictions to Safeguard the Balance of Payments

Conditions relating to the use and subsequent removal of emergency trade measures to safeguard
the Balance of Payments position of Members.
8
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)

Article XIII: Non-Discriminatory Administration of Quantitative Restrictions

No discrimination between Members in the application of quantitative restrictions and the
allocation of such restrictions should reflect their underlying trade shares. Details of any
restrictions should be transparent and negotiated with affected Members.

Article XIV: Exceptions to the Rule of Non-Discrimination Applies to Articles XII and XVIII.

Article XVI: Subsidies

Any subsidies affecting exports to and imports from Members should be notified in writing.
Members should recognise the deleterious impact of subsidies and avoid their general and specific
use.

Article XVII: State Trading Enterprises

Member should notify the operations of State Trading Enterprises (STEs), including Marketing
Boards. STEs should not be accorded favourable government assistance in the form of
discriminatory measures and they should act in a general manner consistent with commercial
considerations.

Article XVIII: Governmental Assistance to Economic Development

Recognition of the position of developing countries and their need for derogations from some trade
measures with respect to the GATT Articles, including the support of Infant Industries and
remedying Balance of Payments problems.

Article XIX: Emergency Action on Imports of Particular Products

Scope for remedial action, including the suspension of trade measures, if imports of certain
products increase in such a manner as to be injurious to like products, domestic producers and
competition.

Article XX: General Exceptions

Permission for non-arbitrary and non-discriminatory measures against certain imports for reasons
including: public moral grounds; health; prison labour; and national historic/cultural treasures.

Article XXI: Security Exceptions

Nothing in this Agreement is construed to commit Members to actions etc contrary to their national
security.

Article XXIII: Nullification & Impairment

Any Member whose benefits under the Agreement are being nullified or impaired by the failure of
other Members to fulfil their obligations may make representations and seek satisfactory
adjustment.

Article XXIV: Territorial Application – Frontier Traffic – Customs Unions & Free Trade Areas
Conditions and measures relating to the formation of customs unions and free trade areas by
Members.
9
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)

Article XXVIII: Modification of Schedules & Tariff Negotiations

Regulations concerning the modification of the schedule of trade regulations (‘bound’ rates). The
use of negotiations to further reduce tariffs and other trade measures between Members on a
reciprocal and mutually advantageous basis.

Article XXXIII: Accession

A non-Member may accede to the Agreement on terms agreed between itself and other Members
by a two-thirds majority.

Article XXXVI: Principles & Objectives

That the facilitation of economic progress by developing country Members requires more
favourable access to world markets without reciprocity for commitments made by developed
Members. This is in the form of Special & Differential (S&D) treatment for developing countries
under the Generalized System of Preferences (GSP).

Article XXXVII: Commitments

Commitments by developed Members to accord higher priority and have special regard to the
elimination of trade barriers on products of interest to developing countries. Developing countries
also undertake to do this with respect to other developing Members.

Article XXXVIII: Joint Action

That Members should collaborate to improve the situation of developing Members with respect to
the latter’s problems, including those relating to trade.

GATT 1947 and GATT 1994: what’s the difference?

The GATT 1947 is a defunct international treaty predating the WTO Agreement. Originally, the
GATT 1947 was to become part of the Havana Charter for an International Trade Organization that
was negotiated during the United Nations Conference on Trade and Employment held in Cuba
from 21 November 1947 to 24 March 1948. As of 1 January 1948, the GATT 1947 was applied
through a Protocol of Provisional Application. As the Havana Charter never came into force, the
GATT 1947 remained provisionally in force until its provisions became part of the GATT 1994,
itself a component of the WTO Agreement.

In December 1994 i.e. following the adoption, but preceding the entry into force of, the WTO
Agreement, the GATT CONTRACTING PARTIES decided that “[t]he legal instruments through
which the contracting parties apply the GATT 1947 are herewith terminated one year after the date
of entry into force of the WTO Agreement”, i.e. on 1 January 1996 (document PC/12, L/7583).
The WTO Agreement, which established the World Trade Organization, entered into force on 1
January 1995. Annex 1A of the WTO Agreement contains the GATT 1994, which incorporates by
reference (and with a few adjustments to reflect the fact that, contrary to the GATT 1947, the WTO
is an authentic international organization) “the provisions of the GATT 1947”; the GATT 1994
10
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
also includes six Understandings on Articles of the GATT 1947, tariffs and accession Protocols,
and GATT decisions adopted between 1948 and 1994 as part of what is often called the “GATT
acquis”. The GATT 1994 and the GATT 1947 are “legally distinct”, as confirmed by Article II:4
of the WTO Agreement.

The provisions of the GATT 1947, incorporated into the GATT 1994, continue to have legal effect
as part of the GATT 1994, itself a component of the WTO Agreement.

Difference between GATT and WTO

General Agreement on Tariffs and Trade (GATT) was made in the year 1947, that aimed at
initiating an international trade, by liberalizing policies and removing tariffs. It was succeeded by
World Trade Organization (WTO), which is a global organization, that encourages and facilitates
inter-country trade and also helps in resolving trade disputes.
GATT is a multilateral agreement, between several nations of the world, that regulates international
trade. Its primary objective is to reduce tariffs to a substantial amount along with abolishing other
trade barriers. But, in the year 1995, WTO replaced GATT. WTO has more powers and augmented
functions in dealing with the international economic affairs.

About GATT

GATT expands to General Agreement on Tariffs and Trade, is an international trade treaty, that
came into existence in the year 1947, just after the second world war, as a result of Bretton Woods
Agreement. It is a multilateral legal agreement which was signed by 23 nations. It was enacted to
bolster the economic recovery which aimed at expanding world trade, by abolishing those trade
barriers, such as reducing tariff, quota, subsidies etc.
There are three main provisions made in this regard, which are:

1. When it’s about the tariff, all the member nations are considered as equal.
2. Restriction on the number of imports and exports are prohibited but subject to certain
exceptions.
3. Special provisions are made to encourage trade of developing nations.

Over the years, changes have been made to the agreement. GATT remained till 1994, after which it
was replaced by WTO and at that time the total number of contracting parties (member nations)
were 123.

About WTO

WTO stands for World Trade Organization, is the sole international body concerned with the
provisions of cross-country trade, based in Geneva, Switzerland. Basically, there is an agreement
11
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
called WTO agreement, which is duly signed and negotiated by member nations of the world and
confirmed in their parliaments.

In the real sense, WTO is a place, where the governments of member countries attempt to resolve
their trade problems, encountered by them during the trade with other countries. The member
governments (who can be ministers or their ambassadors or delegates) operate WTO and all
decisions are also taken by consensus.

The organization helps the producer of goods and services deal in just and fair manner, to carry out
their business throughout the world. It is aimed at liberalizing trade, for the benefit of all the
nations, but it also imposes certain barriers, such as to provide protection to consumers or stop the
spreading a disease.

The Relationship Between the GATT 1994 and Other WTO Agreements

The provisions of the GATT 1994 apply to a disputed measure even where the provisions of other
WTO agreements are applicable, to the extent that the provisions of the GATT 1994 do not conflict
with any of the provisions of the other applicable WTO agreements. In other words, if there is no
conflict, the measure at issue should be examined against all the relevant provisions of thedifferent
WTO agreements, including the GATT 1994.

The Appellate Body defined the term “conflict” in Guatemala – Cement I. 8 There is a conflict
when adherence to one provision will lead to a violation of another provision. Following the terms
of the Appellate Body, an interpreter must identify an inconsistency or a difference between the
provisions examined before determining which one of the provisions will prevail.9 In the event of a
conflict, and to the extent of that conflict, the GATT 1994 never prevails. The other WTO
agreements on trade in goods contained in Annex 1A to the WTO Agreement always prevail over
the GATT 1994. Moreover, the WTO Agreement always prevails over any of the multilateral trade
agreements, including the GATT 1994 and all the other agreements on trade in goods included in
Annex 1A to the WTO Agreement.

Dispute Settlement Procedures under WTO

WTO dispute settlement procedures effectively function as a mechanism for reaching objective
resolutions based on internationally agreed rules, avoiding economic disputes between countries
from taking longer than necessary or turning into a political issue. The WTO Agreement provides
for the discipline applicable to all dispute settlement procedures is the “Understanding on Rules
and Procedures Governing the Settlement of Disputes” or Dispute Settlement Understanding
(DSU). The WTO dispute settlement mechanism also contains provisions for special or extra
procedures under agreements such as Articles XXII and XXIII of GATS (General Agreement on
Trade in Services) as well as the procedures and rules of the Appellate Body. The mechanism
covers the procedures for mediation, conciliation, good offices and arbitration, and the core part of
those procedures includes “consultation” and “panel procedures” and a series of other procedures
12
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
relevant to them. This section begins with an introduction of a series of dispute settlement
procedures including “consultation” and “panel procedures” as provided for by DSU, and then
gives an explanation about the ongoing DSU review negotiations in the WTO Doha Round.
Finally, actual dispute cases that Japan is involved in are explained.

Dispute Settlement Procedures under WTO

Type of Disputes

Subject to the mechanism Paragraph 1, Article 1 of the DSU provides that the rules and procedures
of the DSU shall apply to the following.

1) Disputes brought pursuant to the consultation and dispute settlement provisions of the
Agreements listed in Appendix 1 to the DSU; and
2) Consultations and the settlement of disputes between Members concerning their rights and
obligations under the provisions of the Agreement Establishing the World Trade Organization
(WTO Agreement). Based on the above, the DSU rules and procedures apply to the following
specific agreements: -

1. WTO Agreement - General Agreement on Tariffs and Trade (GATT)

2. Agreement on Agriculture
3. Agreement on Sanitary and Phytosanitary Measures (SPS)
4. Agreement on Technical Barriers to Trade (TBT)
5. Agreement on Trade-Related Investment Measures (TRIM)
6. Agreement on Implementation of Article VI of GATT 1994 (Anti-dumping measures)
7. Agreement on Subsidies and Countervailing Measures (SCM)
8. Agreement on Safeguards (SG) - General Agreement on Trade in Services (GATS)
9. Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
10. Government Procurement Agreement (GPA)

Consultation

Traditionally, GATT attached significant importance to bilateral consultation, and many disputes
actually were settled in this manner. GATT provides for some special consultation and review
procedures, such as the one mentioned in Article XIII at paragraph 2 (specifying that a contracting
party shall, upon request by another contracting party regarding fees or charges connected with
importation/exportation, review the operation of its laws and regulations), as well as in the “1960
GATT decision on arrangements for consultations on restrictive business practices” (specifying
that a contracting party shall, upon request by another contracting party regarding the business
practice by which international trade competitions would be limited, give sympathetic
consideration and provide an adequate opportunity for consultation). However, paragraph 1 of
Article XXII and paragraph 1 of Article XXIII of GATT play the central role in prescribing that
“formal” consultation to take place prior to panel procedures.
13
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)

Panel procedures

1) Establishing a panel Paragraph 2, Article XXIII of GATT provides that if no satisfactory

adjustment is effected through consultations between the contracting parties concerned, the dispute
concerned may be referred to the DSB (Dispute Settlement Body, or “Contracting Parties” under
the former GATT) with respect to alleged “nullification or impairment of any benefit otherwise to
accrue under GATT” as mentioned above. In the past, such disputes referred to the Contracting
Parties were brought to a working group consisting of the disputing parties and neutral parties. The
working group was supposed to confirm claims of the respective disputing parties and discuss
them, but was not required to make a legal judgment. The function of the working groups was
limited to the facilitation of negotiations and dispute settlement. Later, however, the “panel”
procedure was introduced and has become the regular practice. A panel is composed of panelists
who do not represent a government or any organization, but are supposed to serve in their
individual capacities. A panel is principally to make a legal judgment regarding the matters in
dispute. Also, the WTO dispute settlement mechanism employs a two-tier appellate system,
establishing the Appellate Body. GATT provides that consultations pursuant to paragraph 1 of its
Article XXIII should precede the establishment of a panel in accordance with paragraph 2 of
Article XXIII, but it was generally accepted that a panel could be established after consultations
under Article XXII even if there had been no consultation under Article XXIII. The WTO dispute
settlement mechanism does not differentiate consultations under Article XXII from those under
Article XXIII of GATT.

If consultations fail to settle a dispute within 60 days after the date of receipt of a request for
consultations, the complaining party may submit a written request to the DSB for the establishment
of a panel (paragraph 7, Article 4 of DSU). It is provided that such written request should indicate
whether consultations were held, identify the specific measures at issue and provide a brief
summary of the legal basis of the complaint sufficient to present clearly the problem of
inconsistency with trade agreements in question (paragraph 2, Article 6 of DSU). As a rule,
decisions of the DSB are made by consensus, but the so-called “negative consensus method” is
applied to the issues of “establishment of panels” (paragraph 1 of Article 6), “adoption of reports of
a panel or Appellate Body” (paragraph 4 of Article 16 and paragraph 14 of Article 17) and
“compensation and the suspension of concessions” (paragraph 6 of Article 22), the requested action
is approved unless all participating Member countries present at the DSB meeting unanimously
object.

As far as the DSB’s establishment of a panel is concerned, paragraph 2, Article 6 of DSU specifies
that “a panel shall be established at the latest at the DSB meeting following that at which the
request first appears as an item on the DSB’s agenda, unless at that meeting the DSB decides by
consensus not to establish a panel.” Parties other than the complaining party which requested the
establishment of a panel are entitled to block the panel establishment but only once (paragraph 1,
Article 6 of DSU). This veto is most frequently employed by the respondent. Therefore, in most
cases, a panel is established at the second DSB meeting at which the request appears as an item on
the DSB’s agenda. Any Member that desires to be joined in the panel procedure as a third party
14
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
because of having a substantial interest in the matter concerned is required to express such desire at
the time of the establishment of a panel or within 10 days after the date of the panel establishment.

Composition of Panels

Once a panel is established, the next step is to select panelists. Selection of panelists is conducted
through proposals by the WTO Secretariat on panelists (paragraph 6, Article 8 of DSU). Generally,
the Secretariat summons the disputing parties and hears their opinions concerning desirable criteria
for selecting panelists, such as home country, work experience and expertise. Then, the Secretariat
prepares a list of nominees (generally six persons) providing their names and brief personal record,
and show the list to both parties. It is provided that citizens of the disputing parties or third parties
joined in the panel procedure may not serve on a panel concerned with that dispute, unless the
parties to the dispute agree otherwise (paragraph 3, Article 8 of DSU). It is also provided that either
disputing party “shall not oppose nominations except for compelling reasons” (paragraph 7, Article
8 of DSU). However, since the definition of a compelling reason is not very strict, frequently
nominations made by the WTO Secretariat are not accepted by either party, and sometimes this
happens several times. Also, it is provided that if there is no agreement on the panelists within 20
days after the date of the establishment of a panel, the Director-General, upon request of either
party, shall determine the composition of the panel after consulting with the parties to the dispute
(paragraph 7, Article 8 of DSU).

Making written submissions

After the composition of a panel is determined, the panel meets to determine the timetable for the
panel process and the working procedures it will follow throughout the dispute. Then, after three to
six weeks from the establishment of the panel, the complainant provides the panel a written
submission containing all facts relating to the issue concerned and its claims. The respondent also
provides a written submission to the panel in two to three weeks after the receipt of the
complainant’s written submission (Thus, disputing parties may disclose their own written
submissions to the public. Actually, the United States and EU disclose many of their written
submissions to the public, and Japan also releases some of its written submissions to the public on
websites.

Panel meeting

A panel generally meets two times. Meetings of a panel are held in the WTO building, instead of a
special facility such as a court. Traditionally, a panel meets in closed session, just like other
meetings of WTO. Generally, panel meetings last one to three days. The first meeting of a panel is
supposed to be held in one to two weeks after the receipt of the written submission submitted by
the respondent (paragraph 12, Appendix 3 of DSU). This first substantive meeting is to begin with
a briefing made by the chairman of the panel on how to proceed with the meeting. Then, the
complainant and the respondent, respectively, give oral statements regarding their own written
15
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
submissions. This is followed by questioning by the panel and in some cases a question-and-answer
session between the disputing parties. Next, a third party session is held, where oral statements and
a question-and-answer session occurs. As a rule, the presence of third parties is permitted only at
these third party sessions, and third parties may not be present at substantive meetings. The second
substantive meeting of a panel is supposed to be held after two to three months since the first
substantive meeting. The second meeting focuses mainly on counter-arguments against claims of
the other party made during the first substantive meeting. Unlike the first substantive meeting, third
parties are not permitted to attend the second substantive meeting. Unless otherwise agreed
between the disputing parties, third parties may not make written submissions or obtain written
submissions submitted by the disputing parties.

Interim report

Following the second substantive meeting, the panel issues an interim report to the disputing
parties. The interim report describes the findings and conclusions of the panel. An interim report
provides the first opportunity for disputing parties to tell whether their arguments are supported by
the panel or not. Disputing parties are entitled to submit comments or submit a request for the panel
to review and correct technical aspects of the interim report for correction.

Final panel report

The DSU provides (in paragraph 9 of its Article 12) that the period in which the panel conducts its
examination, from the date that the composition and terms of reference of the panel have been
agreed upon until the date the final report is issued to the disputing parties, “shall not exceed six
months as a general rule.” When the panel considers that it cannot issue its report within six
months, it is supposed to inform the DSB in writing of the reasons for the delay together with an
estimate of the period within which it will issue its report (paragraph 9, Article 12 of DSU). The
recent trend is that cases requiring an examination period exceeding six months are because of the
difficulty in confirming facts due to the existence of a highly technical matter or difficult
interpretations of a legal matter at issue. Generally, a final panel report is issued shortly after the
disputing parties comment on the interim report, first to disputing parties and then to all Members
in the three official languages of the WTO (English, French and Spanish). A panel report contains,
in its conclusion, the judgment reached by the panel as well as recommendations regarding
correction of the measures in question. This conclusion is referred to the DSB, where the “negative
consensus method” is applied for the adoption of the panel report. The DSB adopts the
“recommendation and rulings”, which are legally binding the parties concerned. Adoption of a
panel report is supposed to be completed between 21 and 60 days after the date the report has been
circulated to the Members (paragraphs 1 and 4 of Article 16 of DSU).

Appeal (review by the Appellate Body)

If there is an objection to a panel report, disputing parties may request the Appellate Body to
16
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
examine the appropriateness of the legal interpretations employed by the panel (paragraph 4,
Article 17 of DSU). The Appellate Body is a standing group composed of seven persons of
recognized authority with demonstrated expertise in law, international trade and the subject matter
of the covered agreements generally; the Appellate Body membership is broadly representative of
membership in the WTO.

Three persons out of the seven Appellate Body members are to serve on any one case. Persons
serving on the Appellate Body are selected by a consensus of all Members at the DSB and serve for
a four-year term. Each person may be reappointed once (paragraph 2, Article 17 of DSU). A Notice
of Appeal should be filed no later than the DSB meeting at which a panel report is scheduled to be
adopted. Since it is provided that the adoption of a panel report should be completed within 60 days
after the date of circulation of the panel report to the Members, an appeal is supposed to be made
within 60 days after the date of circulation (paragraph 4, Article 16 of DSU). It is provided (in
paragraph 6 of Article 17 of DSU) that an appeal should be limited to issues of law covered in the
panel report and legal interpretations developed by the panel. In principle, factual findings of a
panel may not be challenged. After the filing of a Notice of Appeal, the Appellate Body shows the
timetable for set out in its working procedures. The three major steps in the procedures are: (1)
filing of a written submission by the appellant; (2) filing of written submissions by the appellee and
third participants, respectively; and (3) meeting of the Appellate Body with the parties (oral
hearing). It is provided that the appellant’s filing of its written submission ((1) above) should shall
be made within 7 days after the filing of a Notice of Appeal, that the appellee’s filing of its written
submission ((2) above) should be made within 25 days after the date of the filing of a Notice of
Appeal, and that the meeting of the Appellate Body (oral hearing) ((3) above) is supposed to be
held between 35 and 45 days after the date of the filing of a Notice of Appeal. It is also provided
that the participation of a third party in appellate review procedures may be accepted only if such
party was joined in the panel procedure (paragraph 4, Article 17 of DSU). Third party participants
may file written submissions and also may be present at the meeting of the Appellate Body. During
a meeting of the Appellate Body (1) the appellant, (2) the appellee and (3) third participant(s),
respectively, make oral arguments in the order mentioned. This is followed by questioning by the
Appellate Body of the disputing parties as well as of third party participants; and each party is
required to address the questions. The Appellate Body takes the initiative in questioning, and either
disputing party is generally not allowed to ask a question to the other party. In general, following
the question-and-answer session, disputing parties and third party participants are provided with the
opportunity to make oral statements again at the end of the meeting. Following the meeting, the
Appellate Body is to circulate its report to the Members within 60 days after the date of filing of a
Notice of Appeal. The proceedings should not exceed 90 days in any case (paragraph 5, Article 17
of DSU). Unlike panel procedures, there is no rule concerning an interim report for appellate
review procedures.

Adoption of reports

A report prepared by the panel or the Appellate Body following the review process becomes the
formal written recommendations of the DSB when adopted by the DSB. Regarding the adoption of
panel reports, the DSU provides (in paragraph 1, Article 16) that “In order to provide sufficient
17
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
time for the Members to consider panel reports, the reports shall not be considered for adoption by
the DSB until 20 days after the date on which they have been circulated to the Members.” It is also
provided (in paragraph 4, Article 16 of DSU) that “within 60 days after the date of circulation of a
panel report to the Members, the report shall be adopted at a DSB meeting.”

Regarding the adoption of reports of the Appellate Body, the DSU provides (in paragraph 14,
Article 17) that “a report shall be adopted within 30 days after the date of circulation of the report
to the Members.” Together with a panel report, a report of the Appellate Body becomes the official
written recommendations and rulings of the DSB once it is adopted at a DSB meeting.

Implementation of recommendations

The DSU provides that at a DSB meeting held within 30 days after the date of adoption of the
panel or Appellate Body report, the Member to which the recommendations are directed is
supposed to express its intentions with respect to implementation of the recommendations
mentioned in the report. If it is impracticable to comply immediately with the recommendations,
the Member is given a reasonable period of time to do so. Such reasonable period of time may be
decided by mutual agreement between the disputing parties concerned.

However, in the absence of such mutual agreement, the parties may refer the decision to
arbitration. In principle, an arbitrator usually is one of the three Appellate Body members who
conducted the appellate review of the case concerned. The mandate of the arbitrator is to determine
the “reasonable period of time” within 90 days after the date of the adoption of report. It is
provided (in paragraph 3, Article 21 of DSU) that the reasonable period of time to implement the
recommendations mentioned in a panel or Appellate Body report should, as a general rule, not
exceed 15 months from the date of adoption of the report. It is also provided that the DSB should
keep under surveillance the implementation of adopted recommendations and that the Member
concerned should provide, after a certain period of time following the date of establishment of the
reasonable period of time, the DSB with a status report in writing of its progress in the
implementation of the recommendations until the issue of implementation is resolved (paragraph 6,
Article 21 of DSU).

In general, a panel or the Appellate Body recommends that the Member concerned bring a measure
determined to be inconsistent with a covered agreement into conformity with that agreement. It
does not usually give any specific instruction on how to implement the recommendations.
Therefore, it is not unusual that disagreement arises between disputing parties as to the existence or
consistency with the WTO Agreement of measures taken to comply with the recommendations. In
this respect, the DSU provides (in paragraph 5, Article 21) that “such disagreement as to the
existence or consistency with a covered agreement of measures taken to comply with adopted
recommendations or rulings” may be referred to a panel. Such panel established for the purpose of
determining whether there has been implementation of adopted recommendations or rulings
(“compliance panel”) is supposed to be composed of those panelists who served on the original
panel. The panel is required to issue a report within 90 days after the date when disagreement is
referred to the panel. Unlike regular panel procedures, establishment of the compliance panel does
18
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
not have to be preceded by consultations. Generally, such panels meet only once. When the
complaining party doubts that there has been appropriate implementation of adopted
recommendations or rulings, it may request review by a compliance panel repeatedly without
limitation. In addition, there is a precedent that compliance panel decisions may be appealed to the
Appellate Body for review, although DSU does not have any provision providing for such process.

Countermeasures

With the approval of the DSB, the complainant may take countermeasures, such as suspension of
concessions, against the party who respondent’s interests also in cases where it fails to implement
the recommendations adopted by the DSB within a given reasonable period of time, provided that
no agreement on compensation is reached between both parties.

Specifically, it is provided that the complainant may request the DSB to suspend the application, to
the Member concerned, of concessions or other obligations under covered agreements
(“countermeasures”) when such Member fails to bring the measures found to be inconsistent with a
covered agreement into compliance therewith within the said “reasonable period of time” or that a
panel or the Appellate Body confirms a failure of such member to fully implement adopted
recommendations (paragraph 2, Article 22 of DSU). There are rules as to the sectors and level of
countermeasures to be taken.

DSU Review Negotiation

The effectiveness of WTO dispute settlements has been greatly improved in comparison to that at
the time of GATT. However, it is also true that problems that were not clear when the DSU was
established have surfaced, including the increase in the burdens of panels and the Appellate Body
due to the quantitative and qualitative increase in disputes and inadequacy of DSU procedures. In
order to examine these problems, WTO Members agreed to initiate negotiations to improve and
clarify the DSU (DSU Review Negotiation).

Based on the Marrakech Ministerial Declaration in 1994, the DSU review negotiation started in the
special session of the WTO’s Dispute Settlement Body (DSB), with an eye toward aim of
completing the revision of DSU provisions from by the end of 1997.

Especially in October 2001, which was immediately before the Doha Ministerial Conference, 14
countries, including Japan and Canada, submitted a joint proposal to the General Council Meeting
about: (1) clarification of the sequencing of compliance panel and suspension of concession; (2)
shortening the period of various dispute settlement procedures; and (3) strengthening the rights of
third parties. These discussions on DSU review, the DSU Review Negotiation was included in the
Doha Ministerial Declaration although it was outside the framework of a single undertaking, and
the deadline for concluding the negotiations was set for May 2003 (Paragraph 30 of the Doha
Ministerial Declaration).

19
 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001: 2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
After the Doha Ministerial Declaration, Members submitted various proposals and the negotiations
could not be concluded by May 2003. In the framework agreement adopted in the General Council
Meeting in July 2004, it was agreed to continue the DSU Review Negotiation. After this General
Council Meeting, 7 countries, led by Canada and Norway, had discussions on the October 2001
submission, focusing on:
(1) Sequencing; and
(2) Procedures relating to termination of countermeasures.

The Hong Kong Ministerial Declaration confirmed the policy to “continue to work towards a rapid
conclusion of the negotiations” (Paragraph 34 of the Hong Kong Ministerial Declaration).
Currently, the DSU is functioning comparatively well, and discussions are continuing among the
participating countries, based on the basic understanding that revisions should be limited to the
minimum necessary.

The proposals currently being discussed include a joint proposal by Japan and the European
Communities on “post-retaliation” (procedure to lift countermeasures) and “sequencing
(procedures for clarifying the order of “judging whether the losing country is implementing DSB
recommendations or not” and “the winning country imposing sanctions on the losing country for
not implementing the recommendations”)”; “securing the transparency of dispute settlement
procedures” (opening panel meetings with the parties to the public) by the United States; and a
joint proposal by seven countries, including Mexico, Argentina and Brazil, on “augmentation of
third parties’ rights.” As mentioned above, this negotiation is outside the framework of the single
undertaking of the Doha Round, but most of the negotiating countries – excluding India and Brazil
– wish to conclude the negotiation at the same time as the Doha Round.

Sd/-
Ms. Shivali Rawat

20