LESSON 3

WTO DISPUTE
SETTLEMENT
MECHANISM
 CONTENTS

 Dispute Settlement Mechanisum of

GATT 1947 ;
 Aims and objectives ;
 Jurisdiction ;
 Dispute Settlement Body ;
 The order of dispute settlement ;
 Compensation, Retaliation .
 LEGAL BASIS

- Firstly governed by the

Agreement on Rules and
Procedures for Dispute
Settlement (DSU) ;
- Main provisions in Article
XXII and XXIII GATT
1947/1994.
 DISPUTE SETTLEMENT
MECHANISM OF GATT

- Is the foundation for

WTO Dispute Settlement
Mechanism ;
- Consist of spirits and
characteristics of the
latter WTO.
- Following with 3 steps
below:
 DISPUTE SETTLEMENT
MECHANISM OF GATT
Step 1: Consultation – Article XXII

1. Each contracting party shall accord sympathetic consideration to,

and shall afford adequate opportunity for consultation regarding,
such representations as may be made by another contracting party
with respect to any matter affecting the operation of this Agreement
.
2. The CONTRACTING PARTIES may, at the request of a
contracting party , consult with any contracting party or parties in
respect of any matter for which it has not been possible to find a
satisfactory solution through consultation under paragraph 1
 - Bilateral consultations between the parties provide an opportunity
to discuss satisfactory solutions without litigation .
 DISPUTE SETTLEMENT
MECHANISM OF GATT

 If the Consultations fail ;

- Step 2:
 The complaints proposes to establish Working Party
consisting of representatives from many countries :
 Studying , Drafting Reports ;
 Proposes recommendation based on regulations .
 Panel Mechanism since 1955 :
 Including independent experts of the parties in the
dispute ;
 An ad hoc mechanism – established to settle case by case .
 DISPUTE SETTLEMENT
MECHANISM OF GATT

- Step 3: Constrained only when approved by the Contracting

Parties :
 Request the losing party to enforce the
recommendations, withdraw or cancel inappropriate
measures ;
 Allowed the winning party ( damaged party ) to perform
countermeasures .
The mechanism is consistent with reconciliation spirit,
only carries “reporting” purposes and only binding
when adopted by the Contracting Parties.
 DISPUTE SETTLEMENT
MECHANISM OF GATT
article XXIII: Nullification or Impairment
 1. If any contracting party should consider that any benefit accruing to it directly
or indirectly under this Agreement is being nullified or impaired or that the
attainment of any objective of the Agreement is being hindered as the result of :
 a) the failure of another contracting party to carry out its obligations under this
Agreement, or
 b ) the application by another contracting party of any measure, whether or not
it conflicts with the provisions of this Agreement, or ;
 c) the existence of any other situation ,
 the contracting party may, with a view to the satisfactory adjustment of the
matter, make written representations or proposals to the other contracting party
or parties which it considers to be concerned. Any contracting party thus
approximately shall give sympathetic consideration to the representations or
proposals made to it .
 DISPUTE SETTLEMENT
MECHANISM OF GATT

2. If no satisfactory adjustment is effective between the

contracting parties concerning within a reasonable time
… the matter may be referred to the CONTRACTING
PARTIES. The CONTRACTING PARTIES shall promptly
investigate any matter so referred to them and shall make
appropriate recommendations to the contracting
parties ... If the CONTRACTING PARTIES consider that
the circumstances are serious enough … they may
authorize a contracting party or parties to suspend the
 DISPUTE SETTLEMENT
MECHANISM OF GATT
 ( Article XXII and XXIII)
 Pros:
 Protecting legitimate rights and interests of contracting parties ;
 ' Clarify ' WTO rules .
 Cons :
Operation on a consensus basis ;
There is no consistency yet ;
No specialized agencies/bodies => Not concerned and trusted .
 WTO DISPUTE SETTLEMENT
MECHANISM
AIMS
Article III.2 DSU
“ The dispute settlement system of the Article XXIII DSU
WTO is a central element in providing “1.When Members seek the
security and predictability to the redress of a violation … they
multilateral trading system …” shall have recourse to, and
abide by, the rules and
procedures of this
Article III.3 DSU Understanding .
“… is essential to the effective … obtain DSB authorization
functioning of the WTO and the … before suspending
maintenance of a proper balance concessions or other
between the rights and obligations of obligations under the
covered agreements …”
Members .”
 WTO DISPUTE SETTLEMENT
MECHANISM
AIMS

- Affirming the provisions of the WTO Law;

- Security and predictability to the multilateral trading system ;
- Maintenance of a proper balance between the rights and
obligations of Members ;
- All disputes must be brought before the Dispute Settlement
Body.
 WTO DISPUTE SETTLEMENT
MECHANISM
AIMS
Article III.2 DSU
“… and to clarify the existing provisions of those agreements …”

Article XIX.2 DSU

“… in their findings and recommendations, the panel and
Appellate Body cannot add to or diminish the rights and
obligations provided in the covered agreements .”

Article XVII.6 DSU

“… and legal interpretations developed by the panel. ”
 WTO DISPUTE SETTLEMENT
MECHANISM
AIMS

- Interpret and Clarify the WTO Law.

Panel/Appellate Body Reports–

“case law” are important
sources of law interpretation.
 OBJECTIVES
- Priority for the solutions agreed by the parties (Article III.7 DSU):
 Priority is settled by “non - litigation”;
 Consultation is required (Article VI.2 DSU).
- Quickly settle:
 Consecutive settlement (Article IV.3, VI.1 DSU);
 Specify the time limit for settlement (Article XX, IV.9, XII.8 DSU);
 The “reverse – consensus” mechanism plays its optimal role.
- Multilateralism (Article XXIII DSU):
 All disputes are subject to the Dispute Settlement Mechanism of WTO.
- Exclusive for WTO Members (Article I.1 DSU):
 Only representatives of Members have the right to participate;
 Third parties have particular rights (Article X DSU);
 Other regulations (status of amicus curiae ).
 JURISDICTION

Article I.1 DSU:

“ The rules and procedures of this Understanding shall
apply to disputes brought to the consultation and dispute
settlement provisions of the agreements listed in Appendix
1 to this Understanding (referred to in this Understanding
as the “covered agreements ” ) … ”
 JURISDICTION
Scope of Regulations
Disputes arise :
- “ between the Members ”;
- From “ covered agreements ”: The Agreements listed in Annex 1 :
 Agreement on establishment of the WTO ;
 GATT 1994 and all multilateral agreements on Trade in Goods ;
 GATS;
 TRIPS;
 DSU.
In case there is a difference between the rules and procedures of
this Understanding and the special or additional rules and
procedures, the special or additional rules and procedures shall
prevail (Article I.2 DSU) .
 JURISDICTION

Right to complain

Article XXIII.1 DSU

“ When Members seek the redress of a violation of obligations or
other nullification or deterioration of benefits under the covered
agreements or an impediment to the attainment of any objective of
the covered agreements …”
- Must be Members;
- Measures must be on the basis of Article
XXIII.1.
The WTO Dispute Settlement Mechanism is “mandatory”, the
complaining member has no choice but to participate.
 BASIS OF COMPLAINTS

Complaints classification : Article XXIII.1 GATT

If any contracting party should consider that any benefit accruing to it
directly or indirectly under this Agreement is being nullified or
impaired or that the attainment of any objective of the Agreement is
being hindered as the result of :
a) the failure of another contracting party to carry out its obligations
under this Agreement, or
b) the application by another contracting party of any measure,
whether or not it conflicts with the provisions of this Agreement, or
c) the existence of any other situation .
 COMPLANT CLASSIFICATION

-Violation complaint ( Article III.8 DSU ) : Complaints arise

when there is an infringement of the obligations assumed under a
covered agreement .
Appellate Body Report, India – Quantitative Restrictions

-Non – violation complaint ( Article XXVI.1 DSU ) : complaints

arise when a party to the dispute considers that any benefit
accruing to it directly or indirectly under the relevant covered
agreement is being nullified or impaired or the attainment of any
objective of that Agreement is being impeded as a result of the
application by a Member of any measure, whether or not it
conflicts with the provisions of that Agreement .
EC-Asbestos, EEC-Oilseeds
 COMPLANT CLASSIFICATION

-Complaint under “ the existence of any other situation ”: the

complaint must also demonstrate the damage suffered or the
impediment caused to achieve an objective of the Agreement. Report
adopted by “consensus” mechanism (Article XXVI.2 DSU).

A Member does not require a legal benefit to

initiate a lawsuit (not specified)
EC – Banana III

Legal benefits?
 DISPUTE SETTLEMENT BODY
( DSB ):

-In essence the General Council operates as a Dispute Settlement

Body (Article IV.3 WTO Agreement) .
-Functions ( Article II.1 ) :
 Receive notification of consultation ;
 Establishes and decides on Panel's members ;
 Adopt and be responsible for Reports of the Panel and
Appellate Body ;
 maintain surveillance of implementation of rulings and
recommendations.
authorize suspension of concessions and other obligations ;
-Decision – making mechanism : both consensus and reverse -
consensus .
 DISPUTE SETTLEMENT BODY
( DSB ):

PANEL :
-Is an ad hoc dispute settlement body at first instance ;
-Consist of from 3 - 5 expert members who are not members related to
the dispute ;
-Have the duty to investigate a particular matter in dispute on the basis
of WTO rules raised by the complaining Member ( Article XI DSU ) ;
-Given a report to be submitted to the DSB for approval , proposes
recommendations toward the dispute parties .
 DISPUTE SETTLEMENT BODY
( DSB )
APPELLATE BODY
-New institution in the WTO Dispute Settlement Mechanism ;
-Allow to review the Report of the Panel ;
-Consist of 7 members appointed by DSB for 4 – years period ( can be
re – elected once ) selected among prestigious and professional people;
-The appellate trial in each case shall be conducted by 3 members
independently ;
-Review only the legal and regulatory interpretations in the Panel
Report ;
-Given a Report that may maintain, amend or reverse the Panel's
conclusion;
-The Report bears a final decision, not either be protested or
complaining .
Source : _ http//
www.wto.org
 THE ORDER OF DISPUTE
SETTLEMENT
Consultation : ( Article IV )
-Mandatory procedures conducted between the parties to find a
common voice ;
-“Each Member undertakes to accord sympathetic
consideration to and afford adequate opportunity for
consultation ".

Good Offices, Conciliation and Mediation :

( Article V DSU)
- Request of the parties , conduct on a voluntary basis , at
any time within dispute settlement period ;
- Time , money saving , preserve the relationship of the
parties related to the dispute ;
 THE ORDER OF DISPUTE
SETTLEMENT

Panel Establishment : ( Article XX DSU)

-If the Consultation is not successful , a written Panel is
established ( Article VI DSU );
-Operate according to regulations . ( Article 12 DSU )

Adopt of the Panel Report (Panel Procedures) :

- The Panel Report is constraint only when approved by DSB ;
-The dispute shall be reviewed at the AB in case the Report is
appealed or disagreed by a party .
 THE ORDER OF DISPUTE
SETTLEMENT

Appellate Review : ( Article XVII DSU )

- The parties may appeal a legal issues on the Report of the
Panel ;
- Only review legal issues and issues stated in the notice of
appellate ;
- May maintain, amend or reverse the Panel decisions .
 THE ORDER OF DISPUTE
SETTLEMENT

Arbitration : ( Article XXIII.1 )

- Applied in the following conditions:
 Determine the time limit for implementing
recommendations;
 Determine the level of retaliation.
- Is Panel's members or be appointed;
- Solely consider the performance level.
 THE ORDER OF DISPUTE
SETTLEMENT

Implimentation :
A recommended measure:
- Immediately amended or abolished ( Article XIX.1 and
III.7 DSU );
- In case of not immediately, it must be within a
reasonable period of time:
 DSB decisions;
 Agreed in 45 days;
 The Arbitrator decides within 90 days.
 THE ORDER OF DISPUTE
SETTLEMENT

Compensation and Retaliation :

- Are temporary measures ;
Non – implementation after “reasonable period of time” :
- Compensation ( Article XXII ) :
 Conduct on the principle of voluntary and appropriate ;
 Implementation of concessions or market access
commitments of the losing Party ;
 Based on future predictable damages related to the
dispute .
 THE ORDER OF DISPUTE
SETTLEMENT

-Retaliation ( Article XXII.3 ) :

 Failure to agree on the compensation level after 20 days
upon expiry of a reasonable period of time ;
 Request for approval from DSB (DSB prohibits
unilateral retaliation) ;
 Pending the implementation of tariff concessions and
other obligations, other agreements;
 Cross – retaliation: “same sectors” and “other sectors”.
Agreement to settle the dispute within the framework of WTO by
Arbitration?
 PROS

 Proceed more cautiously through 2 steps (Panel and

Appellate Body);
 Strictly on deadlines;
 Automatic approval mechanism (reverse - consensus)
 Provides a final solution to maintain the rights of the
affected Parties;
 Priority is given to developing countries.

CONS?