INTRODUCTION TO THE WTO DISPUTE SETTLEMENT SYSTEM
IMPORTANCE OF THE WTO DISPUTE SETTLEMENT SYSTEM
The best international agreement is not worth very much if its obligations cannot be enforced when one of the signatories fails to comply with such obligations. An effective mechanism to settle disputes thus increases the practical value of the commitments the signatories undertake in an international agreement. The fact that the Members of the WTO established the current dispute settlement system during the Uruguay Round of Multilateral Trade Negotiations underscores the high importance they attach to compliance by all Members with their obligations under the WTO Agreement.
Settling disputes in a timely and structured manner is important. It helps to prevent the detrimental effects of unresolved international trade conflicts and to mitigate the imbalances between stronger and weaker players by having their disputes settled on the basis of rules rather than having power determine the outcome. Most people consider the WTO dispute settlement system to be one of the major results of the Uruguay Round. After the entry into force of the WTO Agreement in 1995, the dispute settlement system soon gained practical importance as Members frequently resorted to using this system.
THE DISPUTE SETTLEMENT UNDERSTANDING
The current dispute settlement system was created as part of the WTO Agreement during the Uruguay Round. It is embodied in the Understanding on Rules and Procedures Governing the Settlement of Disputes, commonly referred to as the Dispute Settlement Understanding and abbreviated “DSU” (referred to as such in this guide). The DSU, which constitutes Annex 2 of the WTO Agreement, sets out the procedures and rules that define today’s dispute settlement system. It should however be noted that, to a large degree, the current dispute settlement system is the result of the evolution of rules, procedures and practices developed over almost half a century under the GATT 1947.
Explanatory note: The annexes of the WTO Agreement contain all the specific multilateral agreements. In other words, the WTO Agreement incorporates all agreements that have been concluded in the Uruguay Round. References in this guide to the “WTO Agreement” in general, therefore, include the totality of these rules. However, the WTO Agreement itself, if taken in isolation from its annexes, is a short Agreement containing 16 Articles that set out the institutional framework of the WTO as an international organization. Specific references to the WTO Agreement (e.g. “Article ⅩⅥ of the WTO Agreement”) relate to these rules.
FUNCTIONS, OBJECTIVES AND KEY FEATURES OF THE DISPUTE SETTLEMENT SYSTEM
PROVIDING SECURITY AND PREDICTABILITY TO THE MULTILATERAL TRADING SYSTEM
A central objective of the WTO dispute settlement system is to provide security and predictability to the multilateral trading system (Article 3.2 of the DSU). Although international trade is understood in the WTO as the flow of goods and services between Members, such trade is typically not conducted by States, but rather by private economic operators. These market participants need stability and predictability in the governing laws, rules and regulations applying to their commercial activity, especially when they conduct trade on the basis of long-term transactions. In light of this, the DSU aims to provide a fast, efficient, dependable and rule-oriented system to resolve disputes about the application of the provisions of the WTO Agreement. By reinforcing the rule of law, the dispute settlement system makes the trading system more secure and predictable. Where non-compliance with the WTO Agreement has been alleged by a WTO Member, the dispute settlement system provides for a relatively rapid resolution of the matter through an independent ruling that must be implemented promptly, or the non-implementing Member will face possible trade sanctions.
PRESERVING THE RIGHTS AND OBLIGATIONS OF WTO MEMBERS
Typically, a dispute arises when one WTO Member adopts a trade policy measure that one or more other Members consider to be inconsistent with the obligations set out in the WTO Agreement. In such a case, any Member that feels aggrieved is entitled to invoke the procedures and provisions of the dispute settlement system in order to challenge that measure.
If the parties to the dispute do not manage to reach a mutually agreed solution, the complainant is guaranteed a rules-based procedure in which the merits of its claims will be examined by an independent body (panels and the Appellate Body). If the complainant prevails, the desired outcome is to secure the withdrawal of the measure found to be inconsistent with the WTO Agreement. Compensation and countermeasures (the suspension of obligations) are available only as secondary and temporary responses to a contravention of the WTO Agreement (Article 3.7 of the DSU).
Thus, the dispute settlement system provides a mechanism through which WTO Members can ensure that their rights under the WTO Agreement can be enforced. This system is equally important from the perspective of the respondent whose measure is under challenge, since it provides a forum for the respondent to defend itself if it disagrees with the claims raised by the complainant. In this way, the dispute settlement system serves to preserve the Members’ rights and obligations under the WTO Agreement (Article 3.2 of the DSU). The rulings of the bodies involved (the DSB, the Appellate Body, panels and arbitrations1) are intended to reflect and correctly apply the rights and obligations as they are set out in the WTO Agreement. They must not change the WTO law that is applicable between the parties or, in the words of the DSU, add to or diminish the rights and obligations provided in the WTO agreements (Articles 3.2 and 19.2 of the DSU).
CLARIFICATION OF RIGHTS AND OBLIGATIONS THROUGH INTERPRETATION
The precise scope of the rights and obligations contained in the WTO Agreement is not always evident from a mere reading of the legal texts. Legal provisions are often drafted in general terms so as to be of general applicability and to cover a multitude of individual cases, not all of which can be specifically regulated. Whether the existence of a certain set of facts gives rise to a violation of a legal requirement contained in a particular provision is, therefore, a question that is not always easy to answer. In most cases, the answer can be found only after interpreting the legal terms contained in the provision at issue.
In addition, legal provisions in international agreements often lack clarity because they are compromise formulations resulting from multilateral negotiations. The various participants in a negotiating process often reconcile their diverging positions by agreeing to a text that can be understood in more than one way so as to satisfy the demands of different domestic constituents. The negotiators may thus understand a particular provision in different and opposing ways.
For those reasons, as in any legal setting, individual cases often require an interpretation of the pertinent provisions. One might think that such an interpretation cannot occur in WTO dispute settlement proceedings because Article Ⅸ:2 of the WTO Agreement provides that the Ministerial Conference and the General Council of the WTO have the “exclusive authority to adopt interpretations” of the WTO Agreement. However, the DSU expressly states that the dispute settlement system is intended to clarify the provisions of the WTO Agreement “in accordance with customary rules of interpretation of public international law” (Article 3.2 of the DSU).
The DSU, therefore, recognizes the need to clarify WTO rules and mandates that this clarification take place pursuant to customary rules of interpretation. In addition, Article 17.6 of the DSU implicitly recognizes that panels may develop legal interpretations. The “exclusive authority” of Article Ⅸ:2 of the WTO Agreement must therefore be understood as the possibility to adopt “authoritative” interpretations that are of general validity for all WTO Members – unlike interpretations by panels and the Appellate Body, which are applicable only to the parties and to the subject matter of a specific dispute. Accordingly, the DSU mandate to clarify WTO rules is without prejudice to the rights of Members to seek authoritative interpretations under Article Ⅸ:2 of the WTO Agreement (Article 3.9 of the DSU).
As regards the methods of interpretation, the DSU refers to the “customary rules of interpretation of public international law” (Article 3.2 of the DSU). While customary international law is normally unwritten, there is an international convention that has codified some of these customary rules of treaty interpretation. Notably, Articles 31, 32 and 33 of the Vienna Convention on the Law of Treaties embody many of the customary rules of interpretation of public international law. While the reference in Article 3.2 of the DSU does not refer directly to these Articles, the Appellate Body has ruled that they can serve as a point of reference for discerning the applicable customary rules.2 The three Articles read as follows:
Article 31
General rule of interpretation
1. 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, in addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended.
Article 32
Supplementary means of interpretation
Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of Article 31, or to determine the meaning when the interpretation according to Article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable.
Article 33
Interpretation of treaties authenticated in two or more languages
1. When a treaty has been authenticated in two or more languages, the text is equally authoritative in each language, unless the treaty provides or the parties agree that, in case of divergence, a particular text shall prevail.
2. A version of the treaty in a language other than one of those in which the text was authenticated shall be considered an authentic text only if the treaty so provides or the parties so agree.
3. The terms of the treaty are presumed to have the same meaning in each authentic text.
4. Except where a particular text prevails in accordance with paragraph 1, when a comparison of the authentic texts discloses a difference of meaning which the application of Articles 31 and 32 does not remove, the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted.
As can be seen from these articles on treaty interpretation, the WTO Agreement is to be interpreted according to the ordinary meaning of the words in the relevant provision, viewed in their context and in the light of the object and purpose of the agreement. The ordinary meaning of a term in a provision is to be discerned on the basis of the plain text. The definitions given to this term in a dictionary can be of assistance in that purpose. “Context” refers to the kinds of conclusions that can be drawn on the basis of, for example, the structure, content or terminology in other provisions belonging to the same agreement, particularly the ones preceding and following the rule subject to interpretation. The “object and purpose” refers to the explicit or implicit objective of the rule in question or the agreement as a whole.
In practice, panels and the Appellate Body seem to rely more on the ordinary meaning and on the context than on the object and purpose of the provisions to be interpreted. The negotiating history of the agreement is merely a subsidiary tool of interpretation (Article 32 of the Vienna Convention). This tool is to be used only as confirmation of the interpretation according to the ordinary meaning, context and object and purpose or if that interpretative result is ambiguous, obscure, manifestly absurd or unreasonable. One of the corollaries of the rules on interpretation is that meaning and effect must be given to all terms of an agreement, rather than reducing whole parts of an agreement to redundancy or inutility.3 Conversely, the process of interpretation does not permit reading words into an agreement that are not there.4 With respect to Article 33 of the Vienna Convention, the WTO Agreement is authentic in English, French and Spanish.
“MUTUALLY AGREED SOLUTIONS” AS “PREFERRED SOLUTION”
Although the dispute settlement system is intended to uphold the rights of aggrieved Members and to clarify the scope of the rights and obligations, which gradually achieves higher levels of security and predictability, the primary objective of the system is not to make rulings or to develop jurisprudence. Rather, like other judicial systems, the priority is to settle disputes, preferably through a mutually agreed solution that is consistent with the WTO Agreement (Article 3.7 of the DSU). Adjudication is to be used only when the parties cannot work out a mutually agreed solution. By requiring formal consultations as the first stage of any dispute,5 the DSU provides a framework in which the parties to a dispute must always at least attempt to negotiate a settlement. Even when the case has progressed to the stage of adjudication, a bilateral settlement always remains possible, and the parties are always encouraged to make efforts in that direction (Articles 3.7 and 11 of the DSU).
PROMPT SETTLEMENT OF DISPUTES
The DSU emphasizes that prompt settlement of disputes is essential if the WTO is to function effectively and the balance of rights and obligations between the Members is to be maintained (Article 3.3 of the DSU). It is well known that, to be achieved, justice must not only provide an equitable outcome but also be swift. Accordingly, the DSU sets out in considerable detail the procedures and corresponding deadlines to be followed in resolving disputes. The detailed procedures are designed to achieve efficiency, including the right of a complainant to move forward with a complaint even in the absence of agreement by the respondent (Articles 4.3 and 6.1 of the DSU). If a case is adjudicated, it should normally take no more than one year for a panel ruling and no more than 16 months if the case is appealed (Article 20 of the DSU). If the complainant deems the case urgent, consideration of the case should take even less time (Articles 4.9 and 12.8 of the DSU).
These time-frames might still appear long, considering that time for implementation will have to be added after the ruling.6 Also, for the entire duration of the dispute, the complainant may still suffer economic harm from the challenged measure; and even after prevailing in dispute settlement, the complainant will receive no compensation for the harm suffered before the time by which the respondent must implement the ruling.
However, one must take into account that disputes in the WTO are usually very complex in both factual and legal terms. Parties generally submit a considerable amount of data and documentation relating to the challenged measure, and they also put forward very detailed legal arguments. The parties need time to prepare these factual and legal arguments and to respond to the arguments put forward by the opponent. The panel (and the Appellate Body) assigned to deal with the matter needs to consider all the evidence and arguments, possibly hear experts, and provide detailed reasoning in support of its conclusions. Considering all these aspects, the dispute settlement system of the WTO functions relatively fast and, in any event, much faster than many domestic judicial systems or other international systems of adjudication.
PROHIBITION AGAINST UNILATERAL DETERMINATIONS
WTO Members have agreed to use the multilateral system for settling their WTO trade disputes rather than resorting to unilateral action (Article 23 of the DSU). That means abiding by the agreed procedures and respecting the rulings once they are issued – and not taking the law into their own hands.
If Members were to act unilaterally, this would have obvious disadvantages that are well known from the history of the multilateral trading system. Imagine that one Member accuses another Member of breaking WTO rules. As a unilateral response, the accusing Member could decide to take a countermeasure, i.e. to infringe WTO obligations with regard to the other Member (by erecting trade barriers). Under traditional international law, that Member could argue that it has acted lawfully because its own violation is justified as a countermeasure in response to the other Member’s violation that had occurred first. If, however, the accused Member disagrees on whether its measure truly infringes WTO obligations, it will not accept the argument of a justified countermeasure. On the contrary, it may assert that the countermeasure is illegal and, on that basis, it may feel justified in taking a countermeasure against the first countermeasure. The original complainant, based on its legal view on the matter, is likely to disagree and to consider that second countermeasure illegal. In response, it may adopt a further countermeasure. This shows that, if the views differ, unilateral actions are not able to settle disputes harmoniously. Things may spiral out of control and, unless one of the parties backs down, there is a risk of escalation of mutual trade restrictions, which may result in a “trade war”.
To prevent such downward spirals, the DSU mandates the use of a multilateral system of dispute settlement to which WTO Members must have recourse when they seek redress against another Member under the WTO Agreement (Article 23.1 of the DSU). This applies to situations in which a Member believes that another Member violates the WTO Agreement or otherwise nullifies or impairs benefits under the WTO agreements or impedes the attainment of an objective of one of the agreements.7
In such cases, a Member cannot take action based on unilateral determinations that any of these situations exist, but may only act after recourse to dispute settlement under the rules and procedures of the DSU. Whatever actions the complaining Member takes, it may only take them based on the findings of an adopted panel or Appellate Body report or arbitration award (Article 23.2(a) of the DSU). The Member concerned must also respect the procedures foreseen in the DSU for the determination of the time-period for implementation8 and impose countermeasures only on the basis of an authorization by the DSB (Article 23.2(b) and (c) of the DSU). This excludes unilateral actions such as those described above.
EXCLUSIVE JURISDICTION
By mandating recourse to the multilateral system of the WTO for the settlement of disputes, Article 23 of the DSU not only excludes unilateral action, it also precludes the use of other fora for the resolution of a WTO-related dispute.
COMPULSORY NATURE
The dispute settlement system is compulsory. All WTO Members are subject to it, as they have all signed and ratified the WTO Agreement as a single undertaking,9 of which the DSU is a part. The DSU subjects all WTO Members to the dispute settlement system for all disputes arising under the WTO Agreement. Therefore, unlike other systems of international dispute resolution, there is no need for the parties to a dispute to accept the jurisdiction of the WTO dispute settlement system in a separate declaration or agreement. This consent to accept the jurisdiction of the WTO dispute settlement system is already contained in a Member’s accession to the WTO. As a result, every Member enjoys assured access to the dispute settlement system and no responding Member may escape that jurisdiction.
PARTICIPANTS IN THE DISPUTE SETTLEMENT SYSTEM
PARTIES AND THIRD PARTIES
The only participants in the dispute settlement system are the Member governments of the WTO, which can take part either as parties or as third parties. The WTO Secretariat, WTO observer countries, other international organizations, and regional or local governments are not entitled to initiate dispute settlement proceedings in the WTO.
The DSU sometimes refers to the Member bringing the dispute as the “complaining party” or the “complainant” (this guide mostly uses the term “complainant”). No equivalent short term is used for the “party to whom the request for consultations is addressed”. The DSU sometimes also speaks of “Member concerned”. In practice, the terms “respondent” or “defendant” are commonly used; this guide mostly uses the term “respondent”.
NO NON-GOVERNMENTAL ACTORS
Since only WTO Member governments can bring disputes, it follows that private individuals or companies do not have direct access to the dispute settlement system, even if they may often be the ones (as exporters or importers) most directly and adversely affected by the measures allegedly violating the WTO Agreement. The same is true of other non-governmental organizations with a general interest in a matter before the dispute settlement system (which are often referred to as NGOs). They, too, cannot initiate WTO dispute settlement proceedings.
Of course, these organizations can, and often do, exert influence or even pressure on the government of a WTO Member with respect to the triggering of a dispute. Indeed, several WTO Members have formally adopted internal legislation under which private parties can petition their governments to bring a WTO dispute.10
There are divergent views among Members on whether non-governmental organizations may play a role in WTO dispute settlement proceedings, for example, by filing amicus curiae submissions with WTO dispute settlement bodies. According to WTO jurisprudence, panels and the Appellate Body have the discretion to accept or reject these submissions, but are not obliged to consider them.11
SUBSTANTIVE SCOPE OF THE DISPUTE SETTLEMENT SYSTEM
THE “COVERED AGREEMENTS”
The WTO dispute settlement system applies to all disputes brought under the WTO agreements listed in Appendix 1 of the DSU (Article 1.1 of the DSU). In the DSU, these agreements are referred to as the “covered agreements”. The DSU itself and the WTO Agreement (in the sense of Articles Ⅰ to ⅩⅥ) are also listed as covered agreements. In many cases brought to the dispute settlement system, the complainant invokes provisions belonging to more than one covered agreement.
The covered agreements also include the so-called Plurilateral Trade Agreements contained in Annex 4 to the WTO Agreement (Appendix 1 of the DSU), which are called “plurilateral” as opposed to “multilateral” because not all WTO Members have signed them. However, the applicability of the DSU to those Plurilateral Trade Agreements is subject to the adoption of a decision by the parties to each of these agreements setting out the terms for the application of the DSU to the individual agreement, including any special and additional rules or procedures (Appendix 1 of the DSU). The Committee on Government Procurement has taken such a decision12, but not the Committee on Trade in Civil Aircraft for the Agreement on Trade in Civil Aircraft. Two other plurilateral agreements, the International Dairy Agreement and the International Bovine Meat Agreement, are no longer in force.
A SINGLE SET OF RULES AND PROCEDURES
By applying to all these covered agreements, the DSU provides for a coherent and integrated dispute settlement system. It puts an end to the former “GATT à la carte”, where each agreement not only had a different set of signatories but also separate dispute settlement rules.13 Subject to certain exceptions, the DSU is applicable in a uniform manner to disputes under all the WTO agreements. In some instances, there are so-called “special and additional rules and procedures” on dispute settlement contained in the covered agreements (Article 1.2 and Appendix 2 of the DSU). These are specific rules and procedures “designed to deal with the particularities of disputes under a specific covered agreement”. They take precedence over the rules in the DSU to the extent that there is a difference between the rules and procedures of the DSU and the special and additional rules and procedures (Article 1.2 of the DSU). Such a “difference” or conflict between the DSU and the special rules exists only “where the provisions of the DSU and the special or additional rules and procedures of a covered agreement cannot be read as complementing each other” because they are mutually inconsistent such that adherence to the one provision would lead to a violation of the other provision.14 Only in that case and to that extent, do the special additional provisions prevail and do the DSU rules not apply.