WTO DSM

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Article 3.2 of the DSU stipulates that the WTO dispute settlement system is 'a central element in providing security and predictability to the multilateral trading system'. As of 1 March 2013, the total number of adopted WTO panel and Appellate Body reports (including Article 21.5 disputes) was approaching 300. Does such a high number of adopted reports demonstrate that the WTO system is fulfilling its functions set out in Article 3.2? What are the mechanisms through which 'security and predictability' is achieved? Are there any threats to such 'security and predictability'? Discuss.

This dispute settlement system is the centerpiece of the WTO and can indeed be considered a "giant leap" in the field of public international law. WTO dispute settlement is founded on certain underlying principles set out in the opening paragraphs of the Settlement of Dispute DSU. Article 3.2 DSU describes the WTO Dispute system as 'a central element in providing security and predictability to the multilateral trading system. It also stipulates that the aim of the dispute settlement mechanism is to secure a positive solution to a dispute. And finally it says that ' the first objective of the dispute settlement mechanism is to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements. These principles inform the rules set out in the DSU and govern dispute settlement generally. It is intended to provide security and predictability to the trading system, not ad hoc solution to specific disputes.

Article 3.2 says that ' the first objective of the dispute settlement mechanism is to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements The DSU encourages members to seek a mutually agreed solution. Article 3.7 sets forth the 'philosophy' of the WTO dispute settlement system, a solution mutually acceptable to the parties and consistent with the covered agreements is clearly to be preferred, in the absence of a mutually agreed solution, the first objective of the dispute settlement mechanism is to secure the withdrawal of measures inconsistent with the covered Agreements and compensation (within the meaning of Article 22, that is, not in the form of traditional compensation for damages). However, when a Member believes that another party has taken an action that impairs "benefits accruing to it directly or indirectly", it may request consultations (Article 4) to resolve the conflict through informal negotiations. If consultations fail to yield mutually acceptable outcomes after 60 days, Members may request the establishment of a panel to resolve the dispute (Article 6) .Panelists hear the evidence and present a report to the DSB recommending a course of action within six months. Third-party member nations may also involve themselves in the dispute settlement process. All deliberations and communications are confidential, and only the final panel reports become part of the public record.

Once panel reports have been prepared, they are presented to the Dispute Settlement Body, which either adopts the report or decides by consensus not to accept it. Alternatively, if one of the parties involved decides to appeal the decision, the report will not be considered for adoption until the completion of the appeal. In the case of an appeal, a three-person Appellate Body the panel report's legal reasoning and procedure. An Appellate Body report is adopted unconditionally unless the DSB votes by consensus not to accept its findings within 30 days of circulation to the membership. The Appellate body has consistently overruled panel interpretations of WTO Agreements; however, its own interpretations have also created doubts. In Japan Alcohol case, where the panel's interpretation of 'like product' was appealed, the Appellate Body's definition of 'like product' was not helpful either. The Appellate Body's affirmation of the panel's interpretation in US – Shrimp also raises ambiguity. This sort of interpretation encourages respondent to file review of the questioned measures and continue violations until the Appellate Body circulates its report. 

Moreover Article 3.2 stipulates that the aim of the dispute settlement mechanism is to secure a positive solution to a dispute. With this regard, the Panel/Appellate Body settles on an alleged violation, while the 21.5 Panel decides if the criteria for compliance have been met. The Respondent then has an obligation of coming into compliance with the Panel/AB recommendation. The Respondent has the choice to and usually does request a reasonable time period to bring its measure into compliance (Article 21.3 DSU).The DSB continues its surveillance until the recommendations and rulings are fully implemented. The implementation should not exceed 15- 18 months. However, as a 'last resort', if the Member fails to bring the inconsistent measure into conformity within a reasonable period of time, the complainant has the possibility of 'suspending the application of concessions or other obligations (Article 22). Whereas the DSU the authorized level of suspension is to be made "equivalent to the level of nullification or impairment" (Article 22.4)
However, there has been some debate about the primacy of Articles 21.5 and 22.6 of the DSU, highlighted by the WTO banana case (Salas and Jackson, 2000; Stoler, 2003). The former provides for referral back to a panel where there is disagreement about a Member's compliance with a panel ruling. At the same time, the latter provides for automatic retaliation in such a case and the DSU provides no indication of which Article takes precedence. This is known as the problem of sequencing has been resolved by the practice of concluding sequencing agreements that set out the deadlines for Article 21.5 compliance reviews and Article 22.6 arbitration. Moreover procedures can take much longer than originally estimated by the drafters of the DSU. For example in US-Zeroing (Japan), it took 246 days more than was provided for in Article 21.5. When considering the losses suffered by the Complainant, 246 days can mean millions of dollars.
In the event of non-implementation not all Members have the same practical ability to resort to the suspension of obligations. WTO countermeasure provisions fail on many counts: on effectiveness; on defeating the foundational principles of the WTO, such as free trade; by causing "double-injury" to those who win the case; on being "the epitome of mercantilism;" and lastly, on favoring a power-based system and undermining the rule-based system of adjudication. High profile cases such as EC – Banana III and US – Offset Act (Byrd Amendment) are the best examples of such negotiations. The cases such as Japan – Alcoholic Beverages II wherein Japan increased its own domestic tax, suggest the Members' willingness to exercise their regulatory autonomy. 

Furthermore, article 3.2 DSU describes the WTO Dispute system as 'a central element in providing security and predictability to the multilateral trading system .However, Security and predictability of the trading system depend on to what extent legal certainty and predictability can be reached in the reports of panels and the Appellate Body. The DSU covers almost all disputes arising from WTO Agreements. The agreements to which it applies are called covered agreements and are listed in Appendix 1 to the DSU. They include: the multilateral agreements on trade in goods, GATS, TRIPS Agreement, the DSU itself and the plurilateral trade agreements. Conversely, due to a too narrow, or at least unclear, concept of conflicts and due to shortcomings in the understanding and interpretation of rules on conflict enshrined in WTO law, the results of panels and the Appellate Body cannot be easily predicted whenever an obligation of one WTO rule has to be applied in a context where another WTO rule grants a right or provides for a slightly different obligation. Panels and Appellate Body still fall short of providing clear guidance as regards the relationship between the different WTO agreements.

Reform is an urgent necessity for the continued stability and predictability of the entire regime. It may not come about quickly but the warning signals are there already. Many in the large industrial countries are now becoming uncomfortable with tariff sanctions and proposing alternatives. The DSU itself is indeed a milestone in the history of international legal relations. It defined a benchmark for other international organizations and shows how systems can be crafted to constrain sovereign and equal states legally. In the present age of globalization, states are willing to trade part of their sovereignty for benefits received from coordinated efforts and international governance. Shallow integration is being followed by deep integration, which ranges from consultation, to coordination and harmonization, to confederation (Lawrence 1996). The points of friction between these members of the international community are also increasing by the same degree. In such a world, states need to devise new ways to resolve their disputes on the international


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