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ROLL NO.
U.I.L.S, P.U.
09/12
CHANDIGARH
SEMESTER
8TH
SECTION
A
ACKNOWLEDGEMENT
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Kaur for providing me with this glorious opportunity to work on this
project and enhance my knowledge. I would also like thank the
department library for the immense contribution it played in the
completion of this project on time.
THANKING YOU!
AKSHIT GULERIA
09/12
TABLE OF CONTENTS
S.NO
PARTICULARS
PG.NO.
INTRODUCTION
FUNCTIONS, OBJECTIVES
AND KEY FEATURES OF THE
DISPUTE SETTLEMENT
SYSTEM
PARTICIPANTS IN THE
DISPUTE SETTLEMENT
SYSTEM
10
APPEALS
12
12
CASE STUDY
13
BENEFITS FOR
DEVELOPING COUNTRIES
14
10
OBSTACLES FOR
DEVELOPING COUNTRIES
16
11
12
IMPLICATIONS OF DISPUTE
SETTLEMENT
UNDERSTANDING
CONCERNING INDIA
CONCLUSION
18
21
13
BIBLIOGRAPHY
22
INTRODUCTION
As one of the major outcomes of the Uruguay Round, the WTO Dispute Settlement
Understanding (DSU) is regarded as one of the central pillars of todays multilateral trading
regime. It is expected that this new rule-oriented dispute settlement mechanism (DSM) can
replace the GATTs power-based dispute resolution system, thus can bring more equality and
protection to developing countries. Some researches support this claim. According to Holmes,
Rollo and Young, in the DSM of the WTO, there is no strong evidence of a bias against
developing countries either as complainants or respondents.1 In other words, the new DSM
enhances equality between developing member countries and developed ones.
TO
THE
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
MEMBERS
THE
RIGHTS
AND
OBLIGATIONS
OF
WTO
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). Introduction to the WTO dispute settlement
5
system 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
arbitrations) 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).
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.
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.
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
forum 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, 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 Members
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.
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
9
measures allegedly violating the WTO Agreement. The same is true of other nongovernmental 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. 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.
FIRST HEARING: the case for the complaining country and defence: the complaining
country (or countries), the responding country, and those that have announced they have an
interest in the dispute, make their case at the panels first hearing.
REBUTTALS: the countries involved submit written rebuttals and present oral arguments
at the panels second meeting.
EXPERTS: if one side raises scientific or other technical matters, the panel may consult
experts or appoint an expert review group to prepare an advisory report.
FIRST DRAFT: the panel submits the descriptive (factual and argument) sections of its
report to the two sides, giving them two weeks to comment. This report does not include
findings and conclusions.
INTERIM REPORT: The panel then submits an interim report, including its findings and
conclusions, to the two sides, giving them one week to ask for a review.
REVIEW: The period of review must not exceed two weeks. During that time, the panel
may hold additional meetings with the two sides.
FINAL REPORT: A final report is submitted to the two sides and three weeks later, it is
circulated to all WTO members. If the panel decides that the disputed trade measure does
break a WTO agreement or an obligation, it recommends that the measure be made to
conform with WTO rules. The panel may suggest how this could be done.
THE REPORT BECOMES A RULING: The report becomes the Dispute Settlement
Bodys ruling or recommendation within 60 days unless a consensus rejects it. Both sides can
appeal the report (and in some cases both sides do).
60 days
45 days
6 months
3 weeks
60 days
appeal)
Total
=
1 year (without appeal) 6090 days Appeals
report 30 days Dispute Settlement Body adopts appeals report
Total
1y 3m (with appeal)
11
APPEALS
Either side can appeal a panels ruling. Sometimes both sides do so. Appeals have to be based
on points of law such as legal interpretation they cannot rexamine existing evidence or
examine new issues.
Each appeal is heard by three members of a permanent seven-member Appellate Body set up
by the Dispute Settlement Body and broadly representing the range of WTO membership.
Members of the Appellate Body have four-year terms. They have to be individuals with
recognized standing in the field of law and international trade, not affiliated with any
government.
The appeal can uphold, modify or reverse the panels legal findings and conclusions.
Normally appeals should not last more than 60 days, with an absolute maximum of 90 days.
The Dispute Settlement Body has to accept or reject the appeals report within 30 days and
rejection is only possible by consensus.
12
CASE STUDY
On 23 January 1995, Venezuela complained to the Dispute Settlement Body that the United
States was applying rules that discriminated against gasoline imports, and formally requested
consultations with the United States. Just over a year later (on 29 January 1996) the dispute
panel completed its final report. (By then, Brazil had joined the case, lodging its own
complaint in April 1996. The same panel considered both complaints.) The United States
appealed. The Appellate Body completed its report, and the Dispute Settlement Body adopted
the report on 20 May 1996, one year and four months after the complaint was first lodged.
The United States and Venezuela then took six and a half months to agree on what the United
States should do. The agreed period for implementing the solution was 15 months from the
date the appeal was concluded (20 May 1996 to 20 August 1997).
The case arose because the United States applied stricter rules on the chemical characteristics
of imported gasoline than it did for domestically-refined gasoline. Venezuela (and later
Brazil) said this was unfair because US gasoline did not have to meet the same standards it
violated the national treatment principle and could not be justified under exceptions to
normal WTO rules for health and environmental conservation measures. The dispute panel
agreed with Venezuela and Brazil. The appeal report upheld the panels conclusions (making
some changes to the panels legal interpretation). The United States agreed with Venezuela
that it would amend its regulations within 15 months and on 26 August 1997 it reported to the
Dispute Settlement Body that a new regulation had been signed on 19 August.
13
SPECIAL
FAVORABLE
CONDITIONS
TO
Considering the concrete DSU provisions, because of the increasing concern on developing
countries particular needs and interests, the DSU provides plenty of provisions offering
special favourable conditions to developing countries through the whole dispute settlement
procedure. Thus developing countries can enjoy more equality with developed countries.
Article 4.10 of the DSU calls for members to pay special attention to the particular problems
and interests of developing countries in consultations. Article 12.10 allows for the extension
of the consultation time-period. Article 8.10 states that a developing country involved in a
dispute can request that the panel includes at least one panelist from a developing member
country if the other side is a developed state. And Article 12.11 provides that the panel report
must indicate the form in which the special and differential treatment rules of the DSU have
been taken into account, if a developing country member involved in a dispute raises such
rules. At the stage of implementation, according to Article 21.2 of the DSU, particular
attention should be paid to matters affecting developing countries interests.
As to surveillance, Article 21.8 states that if a case is brought by a developing country, the
DSB needs to take into consideration not only the trade coverage of the challenged measures,
but also their impact on the economy of the developing country concerned. Furthermore
Article 27.2 requires the WTO Secretariat to make available legal expertise assistance from
the WTO technical cooperation services to any developing member upon its request. And
Article 24.1 calls for due restraint in bringing disputes against a least-developed country
(LDC) and in asking for compensation or seeking authorization to suspend obligations
against a LDC that has lost a dispute.
15
to make concessions to stronger countries for the latters acceptance of a rule based system,
the result of which is the agreements advantageous to stronger actors.
C. INADEQUATE COMPENSATION
The WTO retaliation mechanism prescribes that complaints cannot unilaterally take
retaliatory actions unless the DSB makes decisions and permits them to, which means that
the defendant side is able to violate the WTO laws and hurt the other sides interests during
the long time-period, until the WTO recognizes and decides to take action to correct the
violations. With economic strength, developed countries can relatively easily affect
developing economies even just in a short time. Thus it is possible that before the DSB
authorize them to impose trade sanctions, the developing countries domestic markets and
internal economic capabilities have already been badly harmed. For those small developing
states, this situation may be even worse.
Even if a developing country as complaint wins in a dispute, the compensation methods
under the DSM are limited. Usually it comes out in the forms that the losing defendant
withdraws the measures found inconsistent with WTO law, or the winning complaint gets
authorization from the DSB to impose limited trade sanctions. Under the current
retaliation-as-compensation approach, there is no room for retroactive compensation or
punishment measures that can help developing countries make up for its previous economic
losses that have been already caused before the decision is made.
Even if the defendant side corrects its action after the dispute, the complaint still has to
assume the economic losses generated before the correction. For developing countries
particularly, while their economies are generally weak and vulnerable to outside impact,
such burden may be too heavy for them to bear.
D. LACK OF ENFORCEMENT CAPABILITY
It is also arguable whether developing countries possess adequate enforcement capability to
fully implement the WTO rulings or recommendations even if the results are favourable to
them. Under the DSM, the final dispute settlement decisions are supposed to be
implemented on a decentralized, bilateral basis. The DSM relies entirely on state power for
enforcement of its rulings. It may be hard for a developing country to raise tariff rates on
certain products imported from a developed country, even if it is authorized to, since this
action may hurt itself in turn at the end. With a relatively weak economy, a developing
country may depend on certain imports from developed countries for development; if the
products included in the retaliation are actually essential for its own growth, it can hardly be
expected that the developing country will really deter or limit the imports. But considering
the other side since most developing countries markets and economic power are relatively
small and weak, whether or not they take retaliatory actions to developed countries products
does not bring much difference to the developed economies, unless they retaliate in alliance,
which does not usually happen. Thus, while the retaliatory actions taken by developing
countries to developed states cannot bring much danger or worries to the latter but may incur
negative consequences to the users themselves, developing countries actually do not possess
17
IMPLICATIONS OF DISPUTE
SETTLEMENT UNDERSTANDING
CONCERNING INDIA
The impact of DSU can further be understood on the developing countries like India with
the help of cases being referred under the substantial issues like most-favoured nation
treatment, the national treatment, quantitative restrictions, agriculture, textiles and clothing,
patent protection, the environment, trade-related investment measures, etc.
A. MOST-FAVOURED-NATION TREATMENT
Generally, the MFN treatment implies that every time a Member lowers a trade barrier or
opens up its market, it has to do so for the like goods or services from all its trading
partners.
INDONESIA AUTO CASE: It was argued that even if a particular regulation did not
mention a country by name but its effect was to benefit a particular producer or a country, it
violated the MFN principle. India found no legal strength in this argument, since, according
to it, any automobile manufacturers based in any country could have availed of the specific
benefits and subsidization programme introduced by Indonesia, provided they fulfilled the
conditions specified in the Indonesian regulation. The fact that none had approached
Indonesia in that regard, according to India, could not be construed as an indication that the
regulation violated the MFN principle.20The Panel found that under the February 1996 car
programme the granting of customs duty benefits to parts and components was conditional
on their being used in the assembly in Indonesia of a National Car. The granting of tax
benefits was conditional and limited to the Pioneer Company producing National Cars. And
there was also a third condition for these benefits: the meeting of certain local content
targets. For these reasons, the Panel found Indonesias Car Programme inconsistent with
Article I.
CANADA AUTO CASE: India argued that the Panel would need to determine whether
the 1965 Auto Pact between Canada and the US was consistent with the MFN obligation.
The important issue in Indias view was whether the Auto Pact provided any advantage to
imports of automobiles originating in the US and Mexico in relation to imports of like
products originating from other Member countries. Thus, the question before the Panel was
whether the import duty exemption was consistent with GATT Article 1.1. Here also, the
Panel applied a three-fold test as in the abovementioned case. The Panel found that by
reserving the import duty exemption to certain importers, Canada accords an advantage to
products originating in certain countries which advantage is not accorded immediately and
unconditionally to like products originating in the territories of all other WTO Members.
18
Canada was therefore found in violation of the MFN treatment obligation. The Panel
clarified that Article XXIV could not justify a measure which granted a WTO-inconsistent
duty-free treatment to products originating in third countries not parties to a customs union
or free trade area.
B. NATIONAL TREATMENT
The national treatment implies that imported goods, once they have cleared customs and
border procedures, are to be accorded treatment no less favourable than that accorded to
like products of national origin in respect of all laws, affecting their internal sale. The aim
is to prevent domestic tax and regulatory policies from being used as protectionist measures
that would defeat the purpose of tariff bindings. The choice of the no-less-favourable
standard is to ensure an effective equality of treatment. This implies that contracting
parties have an obligation to accord formally different treatment to domestic and imported
products.
INDIA AUTO CASE: The EC and the US claimed that the indigenization obligation was
inconsistent with Article III: 4. In order to determine whether the Indian measure was
inconsistent with Article III:4, the Panel found it necessary to examine whether imported
products and domestic products were like products; whether the measure constituted a law,
regulation or requirement; whether it affected the internal sale, offering for sale, purchase,
transportation, distribution or use; and whether imported products were accorded a less
favourable treatment than the treatment accorded to like domestic products.
As regards the first test, the Panel noted that India did not dispute the likeness of the
relevant automotive parts and components of domestic or foreign origin for the purposes of
Article III:4. With respect to the second test, the Panel enquired and found the
indigenization condition constitutes a condition to the granting of an advantage, namely, in
this instance, the right to import the restricted kits and components. It therefore constitutes a
requirement within the meaning of Article III:4. The Panel next examined whether the
Indian measure affected the internal sale, offering for sale, purchase or use of the imported
products within the meaning of Article III:4. The Panel found: To meet the indigenization
requirement, car manufacturers must purchase Indian parts and components rather than
imported goods. This provides an incentive to purchase local products. Such a requirement
modifies the conditions of competition between the domestic and imported products and
therefore affects the internal sale, offering for sale, purchase and use of imported parts and
components in the Indian market within the meaning of Article III:4 of the GATT 1994.
And, finally, to determine whether imported products were treated less favourably than
domestic products, the Panel examined whether the Indian measure modified the conditions
of competition in the Indian market to the detriment of imported products. According to the
Panel, the very nature of the indigenization requirement generated an incentive to purchase
and use domestic products and hence created a disincentive to use like imported products.
Such a requirement clearly modified the conditions of competition of domestic and
imported parts and components in the Indian market in favour of domestic products. The
Panel therefore found that the indigenization condition, as contained in Public Notice No.
19
60 and in the MOUs, was a violation of Article III: 4. Applying the same criteria, the Panel
found that kits and certain listed components of domestic and foreign origins were like
products, that the requirements affected the competitive conditions of the imported product
on the Indian market, and that the trade balancing condition accorded a less favorable
treatment to the imported products than to like products of domestic origin, within the
meaning of Article III: 4.
C. QUANTITATIVE RESTRICTIONS (QRS) AND AGRICULTURE
QRs are those control measures which limit the quantities of goods that may be exported or
imported. QRs are to be administered nondiscrirninately. The purpose of the Agreement on
Agriculture (AoA) is to open up trade in agriculture. The commitments under the AoA can
be divided into market access, export competition, and domestic support. All Members were
required to make commitments in each of these areas, although the extent of their
commitments varies.
MARKET ACCESS - Here, developed and developing countries were to convert all Non
tariff barriers (NTBs) into tariffs and bound them. The AoA also enjoins Members from
maintaining or reverting to NTBs, which have been converted into customs duties. This
however excludes measures, such as QRs maintained under the BOP provisions. It is this
provision of the AoA, which underlay India QRs.
In this case, the US claimed that since processed food, fresh fruits and vegetables and other
agricultural products were consumption goods, which could directly satisfy human needs
without further processing, Indias QRs on imports of consumer goods also served as a
form of agricultural protectionism. Quoting the IMF, that there was no BOP necessity for
the QRs, the US concluded that India violated its obligations under Article 4.2 of the AoA.
India, on the other hand, argued that footnote 1 to Article 4.2 clarified that it did not extend
to measures maintained under the BOP provisions. According to India, the question of the
consistency of Indias import restrictions with Article 4:2 depended on their consistency
with GATT Article XVIII: B and the legal status of Indias import restrictions under the
AoA was consequently identical to that under GATT. India wanted the Panel to understand
that its claim that its import restrictions were consistent with Article XVIII: B included the
claim that they were consistent with the AoA.
Having found that Indias QRs violated GATT Article XI:1, not justified under Article
XVIII:B and also violated GATT Article XVIII:11, the Panel concluded that Indias
restrictions were not measures maintained under balance-of-payments provisions, within
the meaning of footnote 1 to Article 4.2 of the Agreement on Agriculture. The issue was
not raised in the appellate proceedings. It was mainly due to the peace clause, the issue of
agriculture has so far figured only obliquely in Indias experience with the DSS. But the
issue remains most contentious. The anticipated gains from the agricultural trade
liberalization have thus far escaped developing countries. A number of developed countries
have continued to provide high domestic support and export subsidies to their agricultural
sectors. Market Access in the developed countries is also hampered by their maintaining
high tariffs on products of interest to developing countries.
20
CONCLUSION
The DSM of the WTO is a multilateral rule-oriented mechanism. Although many problems
still exist, with its recently acknowledged special concern about developing countries
particular needs and interests, it has brought about many positive and favourable changes to
developing member countries status. From the perspective of equality, weaker states now
possess a relatively better environment and more power to defend their WTO interests
through this new dispute settlement system. However, developing countries still do not
enjoy a really neutral playing field where they can really trade equitably and efficiently 132
SPIL International Law Journal with developed states.
Though the DSU provisions are not biased literally, developing countries are not able to
fully take advantage of the DSM in practice, even if certain provisions are supposed to favor
them in principle. The analysis of the experiences of developing nations throughout the
evolution of the dispute settlement procedure demonstrates the particular challenges
developing nations have faced under the GATT procedure and then under the WTO DSM.
Since the large increase in their GATT membership in the 1960s, developing nations have
supported a strong dispute settlement procedure to ensure a better level of compliance by all
nations. Their participation in the dispute settlement process has gradually changed from
fairly insurmountable difficulties in bringing claims and enforcing rulings (through lack of
economic and political influence) to a situation where confidence in the renovated system is
apparent through increased use and reliance on a structure of legal and procedural
disciplines ensuring a degree of certainty.
21
BIBLIOGRAPHY
CHIBBER MOHITA, DISPUTE SETTLEMENT MECHANISM
UNDER WTO VIS--VIS INTERNATIONAL INVESTMENT
AGREEMENTS:
IMPLICATIONS
FOR
DEVELOPING
COUNTRIES, INSTITUTE OF FORENSIC SCIENCE, MUMBAI,
2014
WORLD TRADE ORGANIZATION A HANDBOOK ON THE WTO
DISPUTE SETTLEMENT SYSTEM, 1ST ED, PRESS SYNDICATE OF
THE UNIVERSITY OF CAMBRIDGE, UNITED KINGDOM, 2004
PETERSMANN EMST-ULRICH, THE GATT DISPUTE/ WTO
DISPUTE SETTLEMENT SYSTEM: INTERNATIONAL LAW, 1 ST
ED ,KLUWER LAW INTERNATIONAL, LONDON, 1997
22